Success as a Financial Advisor For Dummies

Financial Careers Articles

Financial Advisor Career Path

Many paths lead to a career as a successful financial advisor or financial consultant. These paths can be broken down into three categories based on your starting point: right out of college, within the industry, and outside the industry.

Getting started in the financial advisory industry fresh out of college

If you just graduated from college with a degree in finance or economics, you may have determined already that becoming a financial advisor is the path for you. After all, studying related subjects at a college or university prepares you perfectly for this profession, right? Wrong. Having some education in the financial arena can be helpful to understand financial terminology and concepts and to pursue further professional designations. However, it doesn’t adequately prepare you for the day-to-day work involved in being a financial advisor. One of the most common ways graduates get their feet wet is to work for one of the big investment banking firms. Years ago, these firms offered months-long training programs that focused on developing the sales skills and product knowledge required to be a functional financial advisor. Today, training is much less robust, and newbies must fend for themselves to acquire clients.

To give yourself a leg up, join an existing team or apprentice with a solo practitioner. Broker/dealers have wide variety of practices within their networks. If you’re working with a recruiter for one of these firms or, better yet, proactively approaching one, tell her you’re looking to apprentice to an existing solo practitioner or advisor group within the branch. Don’t hesitate to make this request. After all, you’re fulfilling a need that most firms are struggling with — namely, replacing an aging workforce with younger tenured advisors. In addition, your targeted self-promotion and assertiveness gives you an edge over shyer candidates who don’t have what it takes to grow the business.

As an apprentice, expect to earn a salary and perhaps a bonus based on revenue growth. (Salaries of financial advisors depend on their individual success and abilities to acquire clients.) The biggest benefit, however, is that you get hands-on experience in the field, just as residents at medical centers and associates at law firms gain practical experience on their way to becoming fully fledged members of the profession. You’ll also avoid the rat race of having to find new clients right out of the gate, something that’s difficult for new college grads whose network consists mostly of fellow twenty-somethings who are also looking for jobs.

Avoid firms that hire new college grads merely to increase their product distribution instead of to develop highly qualified financial advisors. Unfortunately, this exploitation of new college grads is common in the industry. These work opportunities are fine if you’re looking to make a quick buck in commissioned product sales, but if you’re pursuing a lifetime career as a professional, don’t settle for less than a position that offers mentorship and continuing education.

Changing careers from another financial job within the financial industry

If you have a financial job and are beginning to crave a greater purpose — by adding valuable financial advice and guidance to the lives of people in your community — then becoming a financial advisor may be just the right move for you. You probably have all the skills and experience required to succeed. You simply need to redirect them.

Applying your accumulated knowledge and insight on how and why the financial world works the way it does is a great way to deliver value to clients. Not only do you have a specialized background that can be of great benefit, but you’re also in the perfect position to be a true client advocate, looking out for your clients’ interests in a way that only someone with financial services experience (for example, banking, securities trading, or product wholesaling, to name a few) can. It’s a great differentiator too, which can help you attract more clients in your early years.

The evolution of financial technology has driven many traditional Wall Street jobs to extinction. As one major example, a stock exchange floor specialist used to be the best job you could have on Wall Street. The role required a complicated combination of brute force and intellect, which had at its core the responsibility of managing the market around a particular set of stocks. This role is almost a relic of the past, as technology has reinvented how markets facilitate the meeting of buyers and sellers. Today, institutional bond market traders are slowly getting the message that their roles are disappearing, too, as many more transactions are being organized and executed through peer-to-peer networks and exchanges. Gone are the days where a client would need an well-connected bond broker with a great network of bond traders at various dealers across the country to find a good deal. With the advent of technology, profit margins have been squeezed even more, benefitting investors while slowly eroding the status quo. These backgrounds and others in the financial field can significantly ease the transition to becoming a financial advisor, providing the knowledge and insights to serve clients more effectively.

Changing careers from outside the financial industry

Few things in life are worse than feeling stuck in a job or on a career path you don’t like. After college, most people who major in general studies set out on a career path by happy (or unhappy) accident as they look for ways to apply their education to a worthy endeavor. Years may pass, and then one day, they wake up to realize that they’re unfulfilled and losing hope for ever being so. They know they need to change careers but aren’t sure which career path would lead to their dream job. Dissatisfied professionals with a wide variety of educational backgrounds can find the answer as a financial advisor, especially those who understand people and appreciate the role of money, and its limitations, in enabling people to pursue their own happiness and fulfillment. Several backgrounds in particular ease the transition into becoming a financial advisor:

• Psychology: Anyone who has an intimate knowledge of human psychology and factors that drive thoughts, emotions, and behaviors has a good start. If you like to spend time with people — talking with them, listening, connecting — then you’re already at an advantage.
• Fundraising/charity: People who work for charities, especially in donor development, already value the importance that strong financials can have on a cause or outcome. If this category includes you, you merely need to shift your focus from nonprofit fundraising to family wealth stewardship. If you’ve received formal education and training related to charitable gift planning strategies, you’re even better positioned to make the transition.
• Professional networker: If you’re in any industry that requires you to have a broad network of colleagues, communication skills (writing and speaking), and relationship management skills, you’re probably suited for a position as a financial advisor. Communication and relationship management skills are highly transferrable.

Financial Careers Articles

10 Business-Building Activities for the Financial Advisor

Every financial advisor knows that the best way to drum up new business is through marketing and networking, but they often don’t know how to market and network effectively. Many are too pushy and drive away prospects instead of attracting them. Here are ten suggestions for meeting new prospects and transforming them into clients.

Be natural. Instead of thinking of client acquisition in terms of marketing and sales, think of it in terms of meeting and talking with people and serving their needs. Just be passionate about what you do and eager to bring value into your clients’ lives. Then, get out in the world and mingle so people get to know you and what you do.

Schedule financial advisor client review meetings

Early in your career (and throughout your career for your best clients), meet with your clients at least once every quarter to see if anything has changed in their lives that you can help with. This level of frequency has multiple benefits. Chief among them is that these meetings remind your clients who are your natural ambassadors of the great personalized service you offer. Conduct two or three of these high frequency, best client reviews over lunch or dinner meetings without paperwork or formal presentations. Just engage in conversation about what’s going on in the client’s life to find out whether anything’s changed that would call for modifying the client’s portfolio. Conduct a more formal review meeting at your office with charts and documentation once or twice a year.

Keep a log of friends and family that your financial advisor clients mention

As you talk with clients, they’re likely to mention names of people who are important to them — a boss, colleagues, neighbors, friends, family members, and so on. For example, if the topic of vacations comes up, you may find out that your clients have plans to vacation with another couple. When your clients mention names, jot them down along with any details about the people mentioned. After the meeting, add the names to your client relationship management (CRM) system to follow up later. At the next meeting, you can then ask your clients about their trip with so-and-so. They’ll be impressed that you actually listened to them and remembered (or are that organized). Then, you can ask whether they think so-and-so would be a good client for you. If the answer is yes or maybe, ask for an introduction so you can meet with the prospects and judge for yourself whether you’d be able to help them. If the answer is no, you may want to ask follow-up questions to find out why. You still may want to meet with the prospects to judge for yourself.

Care for the people your clients care about. Too often I’ve heard from clients about a friend of theirs with financial problems I could have resolved (or helped the friend avoid) had I been the friend’s financial advisor at the time. Invariably, the client tells me he wished he had introduced me to his friend. I do, too.

Sponsor one charitable event each year

Find a cause you’re passionate about and want your personal brand associated with, and then sponsor one charitable event annually to generate revenue for the cause.

This is a charitable event, not a sales event. Don’t actively pursue clients at the event or expect anything in return for the sponsorship. Approach this activity as a way to create a more intimate relationship with the organization’s development team. The development team may become a long-term source of great referrals.

Don’t be a one-and-done sponsor. Show up every year consistently. Along the way, share with the charity’s development team your charitable-giving solutions, such as charitable remainder trusts (CRTs), donor-advised funds (DAFs), and private family foundations (PFFs) that could benefit their efforts. If you don’t have any charitable-giving solutions, bring in a joint work partner who does.

Break bread with your best financial advisor clients

A long lunch, a festive dinner with significant others, and even a weekend trip all make for great ways to get to know your best clients better. Away from a business agenda, your clients will feel more comfortable sharing details that reveal what’s going on in their lives and in their minds. I’ve actually gained more by learning from my best clients how to manage my business than I gained from referrals. Don’t be surprised; your best clients are most likely to be business owners or senior executives.

Be responsive: practice the same-day rule for responding to clients

When clients text or email you or leave a voicemail message, get back with them within a few hours, not a few days. You don’t necessarily need to answer a question or resolve an issue immediately, but you should get back with the client quickly to let him know that you received his message and to provide a time frame for when he can expect a more thorough response. The foundation of excellent client service involves establishing consistent expectations.

If you (or your firm) don’t get back with clients quickly, then you’re providing fertile ground for a small, benign issue to balloon into a critical, malignant one.

Attend every party you’re invited to

Even if you’re not a natural finder, nothing is easier than accepting an invitation to a party, any party — birthday, graduation, bar mitzvah, wedding, anniversary, retirement, whatever. The community in which you practice probably has dozens of celebrations every week, and if you’ve met enough people, then you’re going to be invited to at least a few of them. When you’re invited, go. If the party is with friends or family, you’ll have a great opportunity to get to know them in a relaxed environment.

Have an elevator pitch for your financial advisory business

Whenever somebody asks what you do, you should be able to answer the question in less than ten seconds. This terse description of what you do is known as an elevator pitch. The idea is that you can tell someone what you do during a short ride together in an elevator. See Chapter 18 for guidance on how to write an elevator pitch.

When you’re composing your elevator pitch, focus on what you do and the value you bring to your clients’ lives — your value proposition.

Welcome all financial advisor prospects, large or small

Even though someone may be too small for your practice (especially if you’ve been in practice for some time), make him feel welcome and appreciated. If he has questions or concerns that you can address with little effort, do so, and then ask if you can pass his name along to a financial advisor who may be better suited to meet his needs. If your prospects give you permission, call the other financial advisor and give the advisor the prospect’s name and contact information. I recommend calling the advisor instead of simply giving the advisor’s name and contact information to the prospects because prospects often fail to follow up. In addition, contacting the other advisor to provide a referral is a powerful networking tactic, making the other advisor a more likely source of future referrals.

Some of your best big clients are likely to come from smaller client referrals.

Stop selling and start telling stories

If you’re pitching products and solutions to prospects, you’re not going to be very successful as a financial advisor. Switch from selling to and start telling stories. Share anecdotes about specific challenges your clients faced and how you helped them overcome those challenges.

When sharing stories, protect the privacy and confidentiality of your clients and their families. Obviously, don’t mention any names (you can use pseudonyms, if necessary), but also beware of providing any details that would enable the listener to figure out the identity of the person in your story.

Whether you worked with an estate attorney on replacing a troublesome individual trustee with a corporate trustee or just completed a retirement income plan for a newly retired client, highlight the details that made the case most interesting to you. The most interesting cases are usually those that surprised you or that taught you a valuable lesson.

Be active on social media to prospect for financial advisor clients

Social media platforms are great ways to stay in touch with clients while increasing your exposure to prospects. I use LinkedIn to share information and insights with my colleagues in the industry. I’m not so keen on Facebook because lately my news feed has been overrun with ferocious opinions from extremists. Instagram is great, though. I use my account mostly to show the food I eat; people seem to enjoy looking at food. In fact, Instagram has been the best platform for interacting with prospects and joint-work advisors. Now that Instagram feeds into Facebook, the platform has an even greater reach.

If you have a team, post about them. Share pictures of team members celebrating birthdays, traveling on vacation, or engaging in community service. Convey the idea that your team is about much more than just providing outstanding financial advice. Show team members smiling and laughing. Share your insights or inspirational quotes.

Don’t use social media to pitch product or fake articles that promote product sales.

Always check with your broker/dealer’s compliance department before posting anything on social media. Every firm has its own rules and guidelines.

Financial Careers Articles

How to Guide Financial Advisor Clients on Household Budgeting

To construct a proper financial plan for your clients, as a successful financial advisor, you must have a thorough understanding of their household’s income and expenses. If your clients have a budget, ask for a copy, so you can review it prior to your next meeting. If they don’t have a budget, one of your first tasks is to guide them through the budgeting process.

Introducing your clients to budgeting and making it easier for them is a great way to deliver big value to them.

If clients are reluctant to budget, for whatever reason, point out that they’ll have more money to spend on what they enjoy and value most if they curb spending on items they have nothing to show for. Budgeting provides the visibility needed to make great spending decisions.

How to estimate household income for budgeting

The first step in creating a budget is to get a relatively accurate estimate of the household’s net income (after taxes). If a household member is a paid employee and receives a W-2 at the end of the year, your job is easy —you can calculate the person’s monthly income based on the two or four paychecks per month. Estimating net income for a household member who owns a business or is self-employed is more complicated. This person probably receives payments from numerous clients, receives a nontraditional W-2 or a 1099 from each of them, and pays estimated quarterly income taxes. In addition, you need to subtract business expenses, such as mileage, meals, travel, phone, and other expenses, which may be tightly woven into the household expenses, making them difficult to discern.

When you’re dealing with households that have business or self-employment income, you may be better off not trying to estimate the household income and instead focus on expenses, as explained next. If the household members are racking up a lot of debt, you can tell that they’re living beyond their means and need to rein in their expenses or create other sources of income (or both).

How to identify and estimate expenses for budgeting

Clients often earn considerable income and wonder where all that money goes. When they take the time to list their monthly, annual, and semiannual expenses, they quickly see exactly where that money goes and can begin to identify expenses they can and can’t trim back.

A reluctance to budget can often be traced to how complicated the process is and the number of expense categories that must be tracked. Here, the expense categories are whittled down to eight, so you can simplify budget management for your clients.

Housing

To estimate your client’s housing costs, make sure you include all housing related expenses:

• Rent or mortgage payment
• Homeowner’s or rental insurance
• Homeowner association (HOA) fees
• Property taxes (if not included in the mortgage payment)
• Average monthly household maintenance and repair costs

If a major life change makes your client’s current housing unaffordable, don’t hesitate to discuss the situation. For example, clients often retire in the home they lived in during their working years only to discover that the home is far beyond their needs. You’ll be surprised at how many clients nearing retirement age are already thinking of downsizing into a smaller home, condo, or an assisted living community (if they’re more advanced in age).

Transportation

To estimate transportation costs, consider the following:

• Monthly car payment or lease payment
• Auto insurance (average monthly over 12 months)
• License and registration fees
• Vehicle maintenance and repair (average monthly over 12 months)
• Fuel cost
• Public transportation fees, tolls, and monthly parking

Depending on where your clients live and their travel needs, a car (or a second car) may be a necessity or a luxury, and it’s often a major expense. In Los Angeles, where I live, the cost of transportation is often a big expense for many households, especially if the commute is long and gas prices are high.

Utilities

Utilities include gas, electricity, water/sewer, trash/recycling, phone, TV, Internet access, and security systems. Ask your client to gather the monthly utility bills, total them for the year, and divide by 12 to determine the monthly average. Beware: Using bills for this exercise during peak cost seasons, like winter for natural gas, will make for a high annualized estimate.

Healthcare and childcare

Healthcare and childcare can be another big-ticket category when you start to consider all the bills:

• Insurance premiums for medical, vision, dental, disability, and (perhaps) long-term healthcare
• Copays
• Costs of prescription and over-the-counter medications and supplements
• Eyeglasses and contacts
• Other medical/health aids
• Gym memberships and exercise equipment
• Childcare (babysitting, education, child support)

Consumer debt

Consumer debt includes credit card balances, student loans, and other installment payment programs other than secured loans, such as mortgages and car loans. Most clients have some consumer debt.

Carrying month-to-month consumer debt means the household is consuming more than the income is able to support. Something’s got to give. Work with your clients to address any deficit spending proactively. Otherwise, you and your clients may be dealing with the issue reactively later when fewer options are available.

Food and groceries

This category includes groceries and food-delivery services for dining in. It excludes dining out, which is in the entertainment category.

Personal care and clothing

Personal care and clothing is a broad category that includes the costs of the following items:

• Salons (hair and nails) and haircare products
• Personal hygiene products
• Clothing, laundry supplies, dry cleaning, shoes, and shoe repair
• Seasonal and random gifts

I’m always surprised by the costs associated with this category. I mean, who knew personal care and clothing could cost so much? Personally, I spend very little on haircare, because I’m bald, but others in my household treasure their locks and don’t hesitate to spend money to maintain their hair’s luster. Some of my clients are very good at slashing expenses in this category by focusing on clothing — never spending full retail; they wait for sales or shop at outlets.

Travel, entertainment, and dining out

This is another broad category that includes many of the most enjoyable expenses, such as:

• Movies, theater, and music, including live entertainment, movie rentals, and streaming
• Books and magazines
• Outings to sporting events and cultural events, visits to museums, amusement parks, zoos, and so on
• Travel and lodging for business or leisure (including vacations)
• Dinners out (fast food or fine dining)
• Hobbies and pastimes, such as golf
• Pet care, including food, supplies, and veterinary care

Most people struggle with this category. After all, people want to enjoy life. To chide some clients for overspending on luxuries would be akin to asking them to become homeless. Would-be clients who engage in conspicuous consumption are the most challenging to manage toward a favorable financial outcome.

Help financial advisor clients create savings

As your clients get their spending under control, they should be able to free up some cash to place in savings as a buffer to protect against unexpected financial setbacks and to start building wealth. Give your clients this age-old advice: Pay yourself first! Right off the top, they should stick about 10 percent of their income into savings, which should quickly fund an emergency fund, and then allow further progress toward funding a retirement account, college savings account, and/or other savings vehicles.

Advise clients to build and maintain an emergency fund to cover any events that disrupt income, such as job loss or temporary disability. They should set aside the equivalent of 3 to 12 months of basic household expenses (excluding discretionary spending). If your client is an established senior manager with significant benefits at a stable company, three months may be more than adequate. On the other hand, clients who participate in the gig economy should place enough money in a savings account to cover 12 months.

Don’t start your clients with an investment plan until they have 3 to 12 months of bank savings. Otherwise, your clients may find themselves having to sell investments when the market is down. Nobody knows what the market value of an asset will be if and when a client needs to sell it.

Establish spending and savings guidelines for a budget

In the previous two sections, you simplified budgeting for your client by identifying nine categories (eight expense categories plus savings). Now, you can provide targets for each category:

These targets are starting points. Every household’s expenses and spending priorities differ. Work with your clients to tweak the percentages to align them more closely with their preferences, but be sure the total doesn’t exceed 100 percent of net income.