What Does a Financial Advisor Do?
A financial advisor can be different things to different people.
The person that helps someone with their taxes could be a financial advisor. Or, what about the person who is getting divorced and needs guidance and ideas on how to manage their money through this difficult process?
In short, a financial advisor will help organize a client’s finances in both the short- and long-term, helping them to chart a course with investment vehicles and savings that will assist in preparing for financial security well into retirement. This could include setting up a 401K or IRA, to designing an income strategy using variable, fixed, or indexed annuities.
Goals of a Financial Advisor
Part of the goal of a financial advisor is to listen to the needs and goals of a client and then work to develop a strategic plan that will provide the safest and most efficient path to meet those goals.
The level of education, training, experience and ongoing commitment to staying abreast of important investment news and changes will make a big difference in the quality of the financial advice that an advisor provides.
Some people choose to do financial planning on their own, but for those who decide to use a financial advisor, it’s critical to know what to look for in terms of someone who may just be a salesperson peddling certain investment vehicles, and a professional advisor who offers fiduciary financial planning and can back it up with a valid financial pedigree.
Regardless of their backgrounds or approaches, all financial advisors share the same goal of creating a toolbox and solutions to create a plan that will lead to security and investing success for their clients.
Because of this level of responsibility, financial advisors have a critical role in the ability to protect their clients and change their lives.
It takes an initial investment of both time and knowledge to become a skilled financial advisor, but for those who put in the work, the rewards can be considerable both in terms of job satisfaction and personal financial gains.
If you’re looking to become a financial advisor, you came to the right place. We’ll help you understand the life of a financial advisor, the pros and cons, and how to get started and placed with the right agency to launch your practice.
What is a typical day for a financial advisor?
This is the tricky part, because it can vary based on where you are in your career.
A typical day for a financial advisor will be a combination of client meetings, client prospecting, networking, self-education, client education and managing existing accounts and relationships.
Every day is different, and when done correctly, jam-packed. To better manage their time, many financial advisors have client-focused days and non-client focused days that allow them to remain more organized in their professional lives.
Financial advisors need to understand economics on a micro and a macro level, have outstanding people skills, analytical skills, integrity, a high degree of ethics and an outstanding work ethic.
Although the approaches may be different, a financial advisor must understand the issues involved with the following:
- Retirement and estate planning
- Housing and pension plans
- Long-term care insurance
- Indexed Universal Life insurance
- Whole Life
- Term Life
- How taxes impact investments
- Risk levels
- Mortgage protection
- and how to blend a variety of investment vehicles to produce the strongest possible portfolio.
Financial advisors will have varying fee structures. Clients will want to know about how fees are charged as part of their due diligence. Typically, fees are charged in the following ways:
- Financial Planning Fee
- An hourly rate
- A flat fee
- A plan update fee
- A fee charged as a percentage of assets that they manage for clients (a typical range is from .50% to 2.0% a year). The more assets a client has, the lower the fee usually is.
- Commissions paid to them from financial or insurance products clients buy through them
- A combination of fees and commissions
If a financial advisor works as a registered investment advisor, they must provide clients with a disclosure document called an ADV Part Two. This provides details on all fees and any potential conflicts of interest.
Types of Financial Advisors
There are many types of specialized financial advisors:
This is a professional with specific expertise in income taxes. They may be an accountant, certified public accountant (CPA) or even a tax attorney. While their involvement in your finances will center on taxes, they must have a general knowledge of finances as well since income taxes impact such a wide range of financial issues.
A retirement advisor will take a detailed look at your complete financial picture and then help put together a plan that will give various scenarios of how your retirement finances will play out based on investment decisions going forward. This will also include monthly income flows in retirement as well as tax considerations and rebalancing your portfolio as needed.
Certified Financial Planner (CFP)
The is a professional who has passed rigorous standards by the CFB Board which is considered the gold standard for financial planners. CFPs meet stringent education and experience requirements, complete a board-registered education program, and are required to take continuing education once certified. CFPs are always fiduciaries, meaning they are legally required to put their clients’ interests ahead of their own at all times. This type of advisor typically has one or two of the following licenses; Series, 6, 7, 63, 65. 66, Life Insurance License. This type of planner typically works on commission, fee based planning and/or a financial planning fee.
Certified Divorce Financial Planner (CDFP)
With a divorce rate approaching 50%, there is a real need for financial planners who deal specifically with finances as they relate to divorce issues. They can be especially valuable in high net worth situations and can craft plans that will ensure the long-term financial stability of a divorced person as they start a new chapter in their lives.
As the name implies, personal bankers work at banks and trust companies. They’re trained to sell investments such as GICs and savings bonds and they may be registered to also sell mutual funds. They are generally salaried employees so there is no direct cost to an investor, other than service fees associated with making an investment. This person works on Salary from the bank plus bonus, sometimes commission.
These advisors are registered to buy and sell mutual funds and they typically work for a Broker Dealer or a company registered as mutual fund dealers. Registered Representatives are usually paid by the companies whose products they sell. These representatives typically hold a Series 6 and Series 63 Licensing plus their life insurance license. This type of representative typically works on commission
Stock Broker/Investment Representative
They are registered to buy and sell a variety of investments including stocks, bonds, mutual funds, ETFs and other similar vehicles. They work for brokerage firms who are registered as investment dealers.
This professional works with clients to create financial plans to reach investment goals. They may advise clients on planning, risk management, investment planning, tax planning, retirement planning and estate planning. This type of advisor will typically hold a Series 6, 7, 63,65, or 66 plus their life insurance license. This advisor can work on commission, fee-based planning and/or a financial planning fee.
They are trained and licensed to give advice about and sell insurance. Some specialize only in certain products such as life insurance while others may sell a wide range of insurance type products. Insurance advisors are paid by the companies whose products they sell and make money every time they sell a policy. This type of advisor has a Life & Health Insurance License. This type of advisor works on commission.
Common types of insurance financial advisors sell:
As with most licenses, insurance licensing requires continuing education to maintain your resident producer license.
Finance Degrees and Courses
There are many different finance degrees and courses that interested parties can pursue. These can range from a two-year Associates degree to a Doctoral degree than can take many years to complete. Many students also choose to pursue a finance degree after completing a program in another field, such as economics, computer science, or mathematics.
Courses are offered both on campus and online for busy professionals already working full-time jobs.
This introduces students to the basic concepts of finance and financial planning. It can establish a foundation that can be used to secure an entry-level job or as a springboard for further education. Students are also expected to complete courses in general education in areas such as English composition, math, humanities, and social and behavioral sciences. Course names may vary from school to school, but typical courses will include:
- Principles of Finance
- Money, Banking and Financial Management
- Key Financial Concepts
This is a more in-depth look at finances and financial planning. Students will learn how to manage money and make investment decisions, as well as gaining a well-rounded finance education. Graduates are prepared to take the Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP) exams. Students learn how to use computerized financial programs, and work on projects that hone their investment skills. Typical coursework may include:
- Survey of Finance
- Principles of Investment
- Financial Institutions Management
- Computer Modeling of Financial Applications
Students are exposed to more theory and decision-making course work that helps to prepare them for management positions in the financial services industry. This is often a minimum requirement for students who want to manage larger portfolios or oversee teams of other finance employees. Students learn to critically evaluate information using financial models and methodologies. Classwork may include:
- Derivatives and Risk Management
- Financial Math Programming
- Qualitative Finance
- Corporate Finance
Students receive highly advanced education for teaching, research, and executive roles. They learn high level communication, research, and leadership skills, as well as continuing to build on their financial knowledge base.
A doctoral degree may be offered as a PhD in Finance or as a PhD in Business Administration with a concentration in Finance.
Depending on the program, students may be required to participate in numerous seminars to gain exposure to developing research. Students will also be required to conduct their own independent research in the form of a dissertation.
Students pursuing coursework online or on a campus must be sure that the finance program is accredited. This means the program has been approved by an overseeing organization that has verified the integrity of the program.
Programs should be accredited by such organizations as the Association to Advance Collegiate Schools of Business (AACSB) or the Distance Education Accrediting Commission (DEAC).
It’s also important to make sure that credit hours can transfer to other institutions to ensure education can be continued seamlessly elsewhere.
As part of a student’s due diligence, they should also research the quality of the faculty teaching the coursework. Students should look for faculty who have experience as financial analysts, financial managers, bank executives, and insurance underwriters. They should also have experience in corporate finance, mergers and acquisitions, insider trading, and other related fields. Publication in respected journals such as the Journal of Portfolio Management, Journal of Risk and Assessment, Journal of Financial Management, and Journal of Banking and Finances are indicators of notable experience and success.
The finance program should also have an active and relevant component for students to gain real world experience through internships, entry level jobs and networking.
Financial Advisor Career Pros and Cons
Like most other professions, working as a financial advisor has its share of pros and cons:
- You have virtually unlimited earning potential with ability to grow a client base through recurring revenue you create each year.
- You will enjoy a flexible work schedule. This will allow you to plan and schedule meetings in such a way that you have much more control over your personal calendar. And once established, you may work a lot less than 40 hours a week.
- You have control over your practice. If you want to work longer hours, you have the chance for a bigger payoff.
- The growth rate for financial advisors is much higher than the outlook for the average job through 2024. The financial advisor field has a projected growth rate of 15% from 2016-2024.
- You can be creative, flexible and targeted in your work efforts. Financial advisors can zero in on certain segments or specialized earners when building their client base. Some may focus on serving the Baby Boomer generation, others cater exclusively to Millennials and so forth. Advisors can also decide to specialize in a particular type of type of client, such as doctors, lawyers, or entrepreneurs.
- A less common but equally rewarding aspect is that financial advisors can help overwhelmed clients make sense of their futures by educating and guiding them appropriate financial and insurance vehicles.
- You work in a high stress environment more often than not.
- It can take a long time to build a solid client base.
- There is a continuous need to meet regulatory requirements. Those requirements can be difficult and lengthy. You will also need to complete a certain amount of continuing education courses each year to keep licenses in good standing.
- You will need to carry errors and omissions insurance which will be an added cost of doing business.
- You always run the risk that you will be accused of malpractice and have to defend yourself against those types of allegations, whether they are true or not.
- You can work odd hours, including a lot of evenings and weekends.
- If you plan to go into business for yourself, income is either fee-based or commission-based, or a combination of both. There are no salaries which can mean ups and downs just starting out.
- Building a business will take continuous, relentless prospecting.
- Many firms will have quotas that will need to be met each month, and that means if you are just starting out, you will be particularly needy when it comes to finding new prospects.
How much does a financial advisor make?
Here are several statistics to consider:
According to 2016 data from the Bureau of Labor Statistics, U.S. financial advisors earned a mean annual wage of $123,000+. That was up from $108,090 in 2014.
The top 10% of financial advisors earn more than $187,000 annually.
Financial advisors earn the highest wages in the following states:
- New York
When you are first starting out, some firms may pay you a base salary for 12 to 18 months until you get established. This may be somewhere in the neighborhood of $50,000. But you will have the opportunity to earn six figures based on bonuses and commissions.
Other advisors work on a fee-only basis, meaning they earn a single fee for all services provided. This is more common among independent advisors.
How long does it take to become a financial advisor?
Like most other things in life, the length of time it takes to become a financial advisor will depend on how hard you work and various decisions you make about how you invest and pursue your career.
At a minimum, it will take you at least five years to become a financial advisor, however it could take seven years or longer depending on how you approach things.
The quickest path to becoming an advisor is to just obtain your Series licenses with the Financial Industry Regulatory Authority (FINRA). It is the independent regulator for securities firms doing business in the United States.
FINRA acts as the licensor for companies looking to enter the securities markets, and as the legislator of the functions of those admitted bodies. It also has the authority granted by the U.S. Securities and Exchange Commission (SEC) to discipline non-compliant members.
After completing a bachelor’s degree, an aspiring financial advisor can study and pass FINRA exams in several months. While this is a good start, it does not fully equip you to work as a financial advisor. The additional information you’ll need to be successful can only be learned through time spent on the job.
As such, to become a Certified Financial Planner (CFP) you need a minimum of three years of work experience. Combined with a securing a four-year degree, there’s your minimum seven years.
What FINRA licenses will you need?
If you are going to sell investment products which is common at broker-dealers and banks, you will need to pass some or all of the following FINRA exams:
- Securities Industry Essentials (SIE) exam
- Series 6: Investment Company and Variable Contracts Products Representative Qualification Examination (IR)
- Series 7: General Securities Representative Qualification Examination (GS)
- Series 63: Uniform Securities State Law Examination
- Series 65: Uniform Investment Adviser Law Examination
- Series 66: Uniform Combined State Law Examination
A complete list of FINRA exams with links for more information, duration (in minutes), number of question, and costs are as follows:
Securities Industry Essentials (SIE) Exam
Series 3 - National Commodities Futures Exam
Series 4 - Registered Options Principal Exam
Series 6 - Investment Company and Variable Contracts Products Representative Exam
Series 7 - General Securities Representative Exam
Series 9 and 10 - General Securities Sales Supervisor Exam
|S9: $80 |
Series 14 - Compliance Officer Exam
Series 16 - Supervisory Analysts Exam
|Part 1: 90|
Part 2: 120
|Part 1: 50|
Part 2: 50
Series 22 - Direct Participation Programs Representative Exam
Series 23 - General Securities Principal Exam - Sales Supervisor
Series 24 - General Securities Principal Exam
Series 26 - Investment Company and Variable Contracts Products Principal Exam
Series 27 - Financial and Operations Principal Exam
Series 28 - Introducing Broker-Dealer Financial and Operations Principal Exam
Series 30 - NFA Branch Manager Exam (formerly, Branch Managers Exam – Futures)
Series 31 - Futures Managed Funds Exam
Series 32 - Limited Futures Exam - Regulations
Series 34 - Retail Off-Exchange Forex Exam
Series 39 - Direct Participation Programs Principal Exam
Series 50 - Municipal Advisor Representative Exam
Series 51 - Municipal Fund Securities Limited Principal Exam
Series 52 - Municipal Securities Representative Exam
Series 53 - Municipal Securities Principal Exam
Series 54 - Municipal Advisor Principal Exam
Series 57 - Securities Trader Representative Exam
Series 63 - Uniform Securities Agent State Law Exam
Series 65 - Uniform Investment Adviser Law Exam
Series 66 - Uniform Combined State Law Exam
Series 79 - Investment Banking Representative Exam
Series 82 - Private Securities Offerings Representative Exam
Series 86 and 87 - Research Analyst Exam
|S86: $185 |
Your career path: getting started as a financial advisor
Here are the steps you would typically follow starting out to pursue a career as a financial advisor:
Earn a bachelor’s degree
You will need to major in finance, economics, business, statistics or a similar field. You can decide to be a generalist or you can specialize in one of a number of areas including retirement, taxes, estate planning, insurance or risk management.
Depending on the firm where you go to work, you may be required to complete post graduate work toward an MBA.
A graduate degree in finance, typically offered as a master’s in finance (MSF) or an MBA with a concentration in finance, can also provide a competitive edge, even if they are not required.
Work as an intern
Learning in the classroom is only part of what you’ll need to be a financial advisor. You will also need real world experience and starting out that means you will probably need and want to become an intern. The college or university you attend should have good solid relationships with financial firms and banks who can assist you with an internship.
This should be one of the questions you ask when deciding on what school to attend. This will give you the best possible chance of learning from mentors who are actively working and successful in the field.
Start in an entry level job
Work with your school’s career planning and placement office to help you identify opportunities for places that will bring on entry level financial advisors. Attend networking events with other students and those put on by the industry in your area. Talk with instructors and guest speakers to track down potential leads. Also consider working social media such as Linked In to post your resume and search for open positions.
If you think you want to go the financial planning route, then a small- to mid-sized firm that focuses on full-service is a great place to start.
Also, no matter where you hunt for your first job as a financial advisor, look for an employer that provides in-depth training, both in the classroom and on the job.
Get your certifications and licenses
We have already covered licenses above, put you will also need to consider getting certification in one or more areas as well. This usually requires at least three years of work experience. Actual certification typically requires specialized training or coursework, an exam, and continuing education.
At least one of the following certifications is recommended by the National Association of Personal Financial Advisors (NAPFA):
- Certified Financial Planner (CFP)
- Personal Financial Specialist (PFS)
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
Also be aware that some specialty areas require licensing. For example, financial advisors who want to sell insurance must be licensed in their state as an accredited adviser in insurance. Advisors who focus on investments must register with their state or with the Securities and Exchange Commission (SEC) as a Registered Investment Advisor.
If you choose to become a CFP, you’ll need to complete a CFP Board of Standards-approved, college-level program in personal financial planning or an accepted equivalent. Many universities, including online ones, now offer qualifying programs. You can find a full list of accepted programs on the CFP Board website.
The CFP exam is a six-hour, one-day test where you’re grilled on the components of financial planning. Like the FINRA exams, it is computer-based and multiple choice.
With an average pass rate around 58 percent, it requires a high level of preparation if you hope to be successful when you take it.
In addition to the exam, you need 6,000 hours of professional experience or 4,000 hours of apprenticeship experience in financial planning to become a CFP. This amounts to between two and three years of full-time work experience.
Is This the Right Career Path for Me?
Successful financial advisors share several traits. Even though you may be a whiz with numbers and analysis, there are several other qualities you should possess.
Keep in mind that financial advisors are also in sales. You always need to keep your pipeline filled with new clients, and as such you need to have an extroverted component to your personality. You need to like talking to people.
Because building a successful practice takes time, you also need to have patience, both before you secure a client and after when you are actually dealing with them.
You must possess a strong interpersonal component as well as a strong analytical component because you will often need to shift gears throughout the course of a day. This goes hand in hand with having a strong attention to detail and being able to clearly communicate and simplify complex ideas and products.
From a practical point of view, you’ll need to master several tools and types of technology to be successful as well. There are a number of specialized software programs made exclusively for financial advisors. In addition to having a thorough understanding of Microsoft Excel and spreadsheets, a financial advisor will also need to become familiar with:
- Finance Logix Retirement Planner, financial analysis
- Financeware Finance File Manager, a document management program
- Web Information Solutions Pocket Informant, customer relationship management
The Effects of Robo-Advisors
Robo-advisors have become a disruptive and popular option for investors who prefer to have their accounts managed but without the same level of fees that go with a human advisor.
Robo-advisors are digital account management services that use trading algorithms to buy and sell securities. This takes the guesswork out of normally difficult or complex investing decisions and bases them on changing market conditions instead.
Robo-software also provides comprehensive account maintenance and reporting services, including things such as re-balancing portfolios or reinvesting dividends.
Many human financial advisors actually like robo-advisors as a way to augment the investing community, bringing in new investors who might otherwise be too intimidated to get started.
As their net worth increases and their life becomes more complex, investors can transition to a more traditional advisor relationship.
Experts also believe that robo-advisors are challenging financial advisors and planners to show their value outside of investments. Investment management can be commoditized, but comprehensive financial planning cannot.
Some of the key benefits that robo-advisors provide include:
- They are less expensive than human advisors.
- They can help minimize tax losses, proactively engaging in tax-loss harvesting that involves selling losing stocks and replacing them with similar stocks in a portfolio. This strategy allows investors to benefit from writing off investing losses while remaining fully invested in the same long-term strategy.
- They have limited flexibility and will follow the parameters an investor sets up faithfully, eliminating a certain amount of feeling overwhelmed by choices.
- As opposed to human financial advisors who often require a minimum of $100,000 to begin work, investors can typically qualify for robo-advising services with $5,000 or less.
- Algorithms are based on Nobel Prize-winning theories. Although each has unique trading algorithms that deliver varying results, most algorithms are derived from generally accepted investment theories focused on minimizing risk and maximizing return.
- Robo-investing is expected to grow by 47.5 percent annually and exceed $1 trillion by 2021. There are currently more than 200 different robo-advisors in the U.S. and that number is steadily growing.
Related Careers in Finance
There and a number of related career choices if you do not want to become a financial advisor.
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