After spending a decade in one career, I recently decided it was time to make a change. I wanted to take my love of personal finance and helping people with money and combine them into one job.
So I considered all kinds of ideas in the finance field. One of the options I strongly considered was becoming a financial advisor. My father-in-law, Wade Rowdon, has been a financial advisor for over 20 years and loves his work. He, like me, had spent a significant portion of his life in another career (professional baseball player) and switched careers midway through his working years.
Wade said that he loved what he did and even offered to let me work with him. However, before I took him up on his offer, I decided to do some research into working as a financial advisor. Needless to say, I learned a lot.
Ultimately, I recognized that I loved writing too much and went that route instead. But becoming a financial advisor could be a great decision for you. If working as a financial advisor interests you, read on to get an overview including job description, earning potential, and what education and training you need.
Asking about the requirements to become a financial advisor is similar to asking about the qualifications you need to be a professional athlete. Before anyone can answer that question, they first need to know which sport you want to play.
And just like the term “professional athlete” is a broad one, so is the term “financial advisor.” It’s a term that has become watered-down and is often used to refer to several different types of financial professionals.
Depending on the type of “financial advisor” you meet, they could do any of the following and have the accompanying qualifications:
Technically, you don’t need any education or certification to give people financial advice.
People who fall into this first category of financial advisors usually refer to themselves as financial coaches or financial counselors. Financial coaches typically focus on issues like budgeting, debt reduction, and saving money.
Let me be clear. I’m not knocking financial counselors by saying that they don’t have any specific education requirements. Learning to budget and paying off debt are hugeissues that people need to tackle first. Without addressing these, doing anything else with their money is quite difficult. And financial counselors play a huge role in helping them get there.
If you do want to become a financial counselor, you may want to consider becoming an AFCPE Accredited Financial Counselor. It could help land jobs at credit counseling companies or even higher-paying positions with university federal aid departments.
If you want to work as a financial advisor selling mutual funds, some types of insurance, and variable annuities, you will need to pass the Series 6. But the Series 6 does NOT allow you to sell stocks and bonds, corporate or municipal securities, or options.
If you want to be able to buy or sell any investment product, you’ll need one of the licenses mentioned in the next section.
If you want to sell stocks and bonds as an advisor, you will most likely need to get FINRA’s Series 7 license.
This is considered the General Securities Representative (GS) exam. It tests you on the basic knowledge you need to work in the securities industry and is a much longer exam than Series 6.
Once you have passed the Series 7, your state will most likely require you to complete the Series 63 as well. And if plan to become a broker-agent or registered investment adviser, you may also need to complete the Series 65 or Series 66.
It’s important to note that you don’t need a bachelor’s degree to be a financial advisor. However, some investment firms will only hire brokers who have completed a bachelor’s degree program.
What’s The Difference Between A Financial Advisor And A CFP?
If you’ve heard the term “Certified Financial Planner,” or CFP, you may wonder what that designation means.
While all CFPs are financial advisors, not all financial advisors are CFPs.
Financial advisors focus mostly on stock market buying and selling. But a CFP will advise customers on their entire financial picture, including insurance, taxes, and estate planning.
Related: What To Expect Working With A Financial Planner
CFPs are also required to be certified by the Certified Financial Planner Board of Standards, Inc. and have a fiduciary responsibility. This means they must only make recommendations that are in the best interest of their clients.
According to Kitces, some studies have shown that becoming a CPF could also result in a higher income.
How To Become A CFP
According to the CFP Board, you need to take these steps if you want to become a CFP:
1. Meet The Education Requirement
There are several ways to fulfill the CFP certification. The most common way is to complete a course of study at a CFP Board-Registered Program, but you can also submit previous coursework for a transcript review, or hold certain approved licenses, degrees, or designations. You’ll also need to complete a capstone course registered with the CFP Board. Finally, you’ll need a bachelor’s degree to become a CFP. But you’ll have up to five years after completing your CFP Certification exam to meet this requirement.
2. Pass The CFP Exam
The exam is offered each March, July, and November.
3. Meet The Experience Requirement
You’ll need three years of full-time relevant personal financial planning experience or two years of apprenticeship experience.
4. Satisfy The Fitness Standards
Must pass CFP Board’s Fitness Standards for Candidates and Professionals Eligible for Reinstatement, an Ethics Declaration, and are subject to a background check.
5. Receive Authorization To Use The CFP Marks
Must complete a certification application and pay certification fees, including a one-time, non-refundable initial certification application fee of $125, and a non-refundable annual certification fee of $355.
Learning On The Job
Danny, the FI-nancial Planner and one of the guests on ourCFP Roundtable episode, says that coursework and exams only partly prepare future CFPs for their job.
I think it is easy to focus on the technical …but the good financial planners are able to connect with clients. People skills are what really sets great planners apart. This part of the talent stack comes from experience and time in front of clients, there’s no free lunch for this part.
Interested in becoming a CFP? Here’s a video from the CFP Board explaining what it means to be a CFP and what it takes to become one.
How Do Financial Advisors Get Paid?
Most financial advisors will choose one of the following three payment structures: commission, fee-only, or fee-based.
- Commissioned financial advisors receive a commission every time you buy or sell a stock, mutual fund, or other financial product. They may also get paid higher commissions for selling products that their firm happens to be pushing at the time.
- Fee-only financial advisors charge a fee for their services, often a percentage of total assets under management (such as 1%), and are not allowed to receive any commission payments for the products that they sell.
- Fee-based financial advisors also charge a fee for their services. However, unlike fee-only financial advisors, fee-based advisors can also receive a commission for products that they sell.
Due to the possible conflict of interest that is comes with commission-based financial advising, many clients (especially younger clients) are looking specifically for fee-only financial planners.
It’s important to keep this in mind if you are considering becoming a financial advisor.
Different Types Of Fee-Only Financial Advisors
It’s important to understand that fee-only financial advisors can deal with a different type of conflict of interest: lower account totals mean less income for the advisor.
While this may not seem like a conflict of interest, it can be when the best financial decision for a client would involve withdrawing funds from the brokerage account.
Will a fee-only financial planner suggest that a client purchase some investment properties if it means $250,000 or $500,000 less in the brokerage account?
If it’s the right decision for the client, this is exactly the advice that a financial advisor should give. But this could also result in a significant loss of income for a fee-only advisor.
So how do you know what kind of fee-only financial advisor you should choose? Let’s look at some common payment structures to help you make an informed decision.
Flat Retainer Fee
Situations like these could cause financial advisors to feel torn. What’s best for the client may not be what’s best for their business.
Because of this, some fee-only financial planners reject the “percentage of assets” model and instead charge one flat retainer fee.
These types of advisors, though, do often have account minimums, such as $25,000.
Hourly Fee
Some fee-only financial planners only charge by the hour for their financial advice.
These types of advisors don’t do any active wealth management themselves. Instead, clients decide for themselves whether or not they want to implement the advice they receive.
Danny says that these types of advisors could help meet a real need for consumers. But he also notes that this model requires more work.
Yes, I do think there is a market for this and I hope to pursue it myself one day (likely after reaching FI). The problem with this is that you constantly need to be bringing on new clients to make a living doing it this way.
If you choose to work as an hourly fee-only financial planner, it may help to join a fee-only financial planner network. These networks typically charge a monthly fee, and that fee gets your business promoted on their platform and sends leads your way.
A few popular fee-only financial planner networks include the National Association of Personal Financial Advisors, Garrett Planning Network, XY Planning Network, and the Alliance of Comprehensive Planners.
How To Decide Which Payment Model To Choose
It’s important to point out that there are ethical and moral people who work in each of the ways we discussed. If you really care about your clients, you will do what’s best for them no matter how you get paid.
Danny happens to work at a fee-only firm that uses the percentage of assets managed model. But he sees value in other models as well.
Speaking just of my firm, we charge per plan (fee based on complexity) and assets under management. However, I know of many in the industry that work on an hourly or retainer basis. My firm has not implemented those models although I think they are the future for younger clients.
If you have a choice in the matter, go with whichever model you feel most comfortable with.
How Much Do Financial Advisors Make?
According to the Bureau of Labor and Statistics (BLS), the median salary for financial advisors is $88,890 per year.
It’s a good time to become a financial advisor, too. The job outlook over the next several years is positive, with employment expected to grow 15 percent from 2016 to 2026.
That’s a lot of good news. But Danny still warns that if you’re switching from a high-paying job, you should expect a short-term income hit.
If you’re going to work at a firm instead of for yourself, you will likely take a drop in income since you are inexperienced. It will be tough to move sideways with respect to income as you’re essentially on the same skill and knowledge level as a new college graduate.
And Danny highly encourages career switchers to start by working for an experienced planner.
With that said, you’re more likely to get back to your old salary faster by going this route than creating your own firm. I would really encourage career switchers to work inside a firm rather than go it alone and try to build a business while learning about financial planning along the way. This seems like a disservice to clients to me.
How Do Financial Advisors Find New Clients?
I asked my father-in-law, Wade Rowdon, how he finds new clients as a financial advisor. He said that it depends largely on where you are hired.
[Many firms] will let a new financial advisor work with a more established advisor so you’re not having to do it all on your own. But if you are expected to do it all on your own, you’re going to have to list everybody you know and start making phone calls to build your own book of business.
You may think that working for a fee-only financial planning firm means you that won’t have to do any sales. That may not be true. Yes, you won’t be expected to sell “products,” but Danny pointed out that you may be expected to find new clients.
It’s important to note that product sales and business development (BD) are different. To thrive in this business, you will need to bring on new clients, what I call BD. Many young advisors are nervous about this. But if you approach it from providing help to people that need it, it is more palatable.
Wade echoed Danny’s sentiments and explained why he finds his job so satisfying.
I can be an asset to help make people’s lives better. People can make serious mistakes out there, but we can help them from making those and that’s my greatest satisfaction.
Wade also noted that nearly all of his new clients now come via referral. So stick it out through your first few years as an advisor. You may find that cold calling becomes less and less of a necessity for building your business.
How To Decide If Becoming A Financial Advisor Is Right For You
If you are interested in becoming a financial advisor, why not try it out as a side hustle first? Danny says this is totally possible.
There are tons of opportunities to do this if you can get connected to the right people. There are lots of jobs where they need a paraplanner (a back office planning associate) to just prepare financial plans. I have a friend that does this on the side while he is building his own planning business.
Even if you don’t hold any licenses, you may be able to find a job with a financial firm. Wade explained to me how many financial companies work.
A lot of the big firms will hire you and allow you to study for the Series 7 while you’re working.
This would give you a chance to get your feet in the industry to see if you really enjoy it. Plus some of these firms will even pay for the training and exam costs of getting your CFP certification.
That’s a totally FI approach to become a financial advisor!
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