Expert Advice: Becoming a Financial Advisor

Advisors and brokers are compensated in one of three ways: commissions (1-8% of the amount invested in a specific product), fees (~ 1% per year of assets under management or an hourly fee), or a combination of fees and commissions. Commissions are either “hidden” (e.g., annuities, insurance, and certain mutual fund share classes) or upfront (e.g., most mutual fund sales, REITs, collectibles, and buying and selling individual securities). Fees are upfront in the sense the client sees them via an invoice showing an hourly charge or, more likely, on a client’s quarterly statement (showing assets managed) as a debit. 

 

The vast majority of brokers and advisors who charge a fee base this fee on an AUM platform (assets under management). Generally, the more established the advisor, the more likely he is going to use his brokerage firm’s AUM program. For example, a broker who oversees $25 million in assets will gross roughly $250,000 in annual fees from his clients. The broker receives this type of compensation whether or not there is activity (or trades) in a client’s account.

 

Getting licensed is not difficult. If you want formal training and a salary for at least the first couple of years, you will want to work for a traditional brokerage firm such as Merrill Lynch, A.G. Edwards, or Charles Schwab. These firms will also pay for your study materials to help you pass the Series 7 Securities Exam. Other firms, generally referred to as “independents,” are not nearly as likely to offer a training program; their niche is seasoned brokers who want to operate their own business and are willing to pay for all overhead costs.

 

Fee-based advisors may not need a securities license (Series 7 or the much easier Series 6), depending upon the type of advice given and form of compensation. A fee-only planner can become a Registered Investment Advisor (RIA) or an affiliated RIA (meaning associated with a brokerage firm with an RIA platform).

 

As mentioned earlier, marketing is key to becoming a successful financial advisor. For your first few years in practice, people will not be coming to you because you are smart or friendly—you must work hard to get your first 50-100 clients; referrals may come once you are established. There are two key areas you should focus on: [1] develop a marketing plan you feel comfortable with (e.g., not everyone likes to cold call); and [2] differentiate yourself from your peers and competitors (e.g., have a reason why someone should invest with you).

 

Getting clients is the most difficult part of becoming a successful advisor. Ways of obtaining clients include: [1] cold calling by phone or canvassing an area in person, [2] mailings, [3] staging events such as workshops and seminars, [4] contacting centers of influence (i.e., accountants, estate planning lawyers, etc.), and [5] teaching investment classes at a local college.&nnbsp;

 

Any of these methods will work if you are persistent and spend enough money (i.e., mailing to 1,000 people costs at least $1,000 once you factor in postage, printing, graphic design, and obtaining a list of qualified prospects). The first mailing, seminar, or whatever is used, may not work; be prepared to repeat the process multiple times. 

 

Whatever your marketing campaign, it must be compelling: why should someone use you instead of someone else or their existing advisor? There are two ways to differentiate yourself as a new advisor: [1] fresh ideas and [2] credentials.

 

Everyone agrees that no one has a monopoly on good ideas. If you can present an individual or audience with a few unique solutions for topics such as investment guarantees, asset protection, current income, conservative growth, or estate planning, you have a good chance of setting up a one-on-one meeting.  You can get these ideas by contacting product wholesalers (individuals who promote a specific product to brokers), exchanging ideas with other advisors, support from the market department of the brokerage firm you use, and reading articles in The Wall Street Journal or financial service trade publications (i.e., Registered Representative, Senior Advisor, Financial Planning, etc.).

 

Credentials will give you instant credibility. Distance education providers offer a wide range of self-study certification programs that lead to a designation. Some programs are broad in their approach (i.e., Certified Financial Planner or Chartered Financial Consultant); others are specific (i.e., Certified Fund Specialist or Certified Annuity Specialist). The cost for certification generally ranges from $1,000 to $3,000. 

 

Despite what any of these educational providers say, over 95% of the public does not know the difference between a CFP™, CLU™, CFS™, or CAS™. However, everyone is impressed by seeing letters after someone’s name on a business card, flyer, brochure, or advertisement. Certification marks show prospects and clients that you are committed to your profession and different from your peers.