How to Become a Financial Advisor (US)
A financial advisor provides advice to individuals regarding money management.
They advise people in many different areas, such as:
- Investment management
- Tax planning
- Estate planning
- Buying a home
A financial advisor will assess an individual's or couple's financial position and goals then provide recommendations on how to achieve them.
Some financial advisors offer various services, while others pick one speciality.
Many choose to work in large companies that focus on finance, investments or insurance.
Others prefer small firms or to be self-employed.
There is no single route to success, and it's a career that anyone can achieve from any background.
The fact that financial advisors provide guidance and advice distinguishes them from execution stockbrokers and accountants, who act on a client's behalf.
A good financial advisor:
- Is well-educated
- Has the appropriate credentials
- Is honest
- Prioritizes their clients’ needs over their own
Stockbrokers usually work on commission, so they may not always have the client's best interests at heart.
The fiduciary standard decrees that a registered investment advisor must unconditionally put their clients’ interests first, regardless of the circumstances. A reputable financial advisor will follow these standards.
However, only registered investment advisors (RIAs) governed by the Investment Advisers Act of 1940 are legally held to this standard.
Some agents and brokers claim to operate to these standards to attract clients. However, their commission arrangements mean they are bound by employer contracts, which often causes a conflict of interest.
As such, the Investment Advisers Act of 1940 has allowed two types of relationships between advisors and clients:
- Reasonableness standard – The advisor self-governs themselves on the suitability or reasonability of a recommendation
- Fiduciary standard – This is formed on federal laws and must be adhered to. Its primary philosophy is that the advisor must make recommendations that the client would make if they had the same knowledge and resources.
Financial advisors can have many different titles. The eight most common are:
This is the official name used by the Securities and Exchange Commission (SEC) for a licensed financial professional. An investment advisor can be a company or individual, and their credentials can be found via BrokerCheck by FINRA.
Their job is to offer investment advice. In some companies, they also directly manage a client's assets.
Brokers are registered with the SEC and should be members of FINRA.
Their job is to buy and sell securities, such as stocks and commodities, for themselves and clients.
The securities that they sell depend on their license. A broker with a Series 6 license is limited to selling mutual funds and variable contracts. A Series 7 license allows the broker to sell many more securities.
CFPs have undergone extensive training, passed certification exams and have lots of experience.
Certified financial planners follow the fiduciary standard and can also provide unregulated services such as creating budgets and paying off debt.
Financial advisors can call themselves 'financial planners' without certification, but their credentials will not be listed with the CFP Board.
'Financial consultant' is a general term that anyone can use.
However, those with the appropriate education, training and experience are chartered financial consultants (ChFC).
They follow the fiduciary standard and The American College's code of ethics.
Financial coaches usually focus on the basics of money management, such as creating a budget or saving money.
Their clients are typically young adults looking to understand money and build wealth. Financial coaches do not require any special licensing or accreditation.
Regardless of which term they use, these managers should be registered as investment advisors.
As well as managing client portfolios, they typically also offer financial advice and planning, which is why accreditation is important.
These types of financial advisors usually work with the very wealthy.
They offer a complete service that deals with every aspect of a client's life involving money, including estate planning and charitable donations.
Robo-advisors are relatively new to the industry. They use computer algorithms to create and manage their clients’ portfolios.
A typical day for a financial advisor involves, among other things:
- Meeting with new and existing clients
- Implementing solutions with new clients
- Reviewing and updating plans with existing clients
No two days are the same as every client's needs are different.
Financial advisors spend around six to eight hours a day in client meetings. Depending on company expectations, they meet with approximately five or six clients each day.
These meetings could be:
- Face-to-face, where you might need to travel
- Over the phone
- Over video-conferencing, such as Skype, Zoom or Microsoft Teams
Outside of working hours, financial advisors are expected to attend networking events and prepare for meetings/presentations if there isn't enough time in the day.
Financial advisors also need to continue with their education to maintain their licenses and stay ahead of industry trends and economic news.
Being a financial advisor is hard work, and it can take up a lot of your time, especially in the beginning.
Depending on the type of company and clients, you may have to negotiate many demands and expectations.
Financial advisors also need to adhere to ever-changing regulations and laws.
The first few years as a financial advisor can be very stressful. However, successful financial advisors can expect:
- Unlimited income potential – Financial advisors are commission-based, fee-based or both. This means that your income is dependent on how much money and many clients you can generate.
- A rewarding career – Offering sound advice and helping people improve their wealth can be rewarding, especially when they are thankful for your services.
- Work-life balance – While this advantage takes time to happen, more senior financial advisors can plan their meetings around personal events such as lunches with friends, gym sessions and taking their children to school.
- The opportunity to be creative – Finance used to be a rigid industry. However, financial advisors can get more creative as new generations come into money and technologies develop. They can also cater to specific generations or professions, rather like millennial doctors.
The Bureau of Labor Statistics predicts this role will grow by 5% over the next ten years. The median salary for 2020 was 139,350 or more.
A typical pay package will look like this:
- A base annual salary
- Bonuses or commission
- Employee benefits
For many financial advisors, the base salary is minor compared to the commission they earn, which often allows them to earn a six-figure income.
The states with the highest financial advisor salaries are:
- New York
The states with the highest predicted growth are:
- New York
- North Carolina
However, income is not dependent on location alone. Other factors that contribute to a financial advisor's salary are:
- Experience – It is natural for those who have been in a role longer to have a higher salary.
- Job success – Those in commission- or fee-based roles have unlimited earning power. KPIs usually focus on how many clients you bring in and how well your investments do. Those who are good at their job will make more money than those who do the minimum.
- Clientele – Financial coaches will make less than asset managers purely because of the wealth of their clients.
- The employer – Larger companies typically have better employee packages than small companies. However, it depends on the percent of fee/commission you earn per client or investment.
Depending on the route you take and the type of financial advisor you want to be, it can take five to seven years.
There are five recommended steps to becoming a financial advisor.
You need a bachelor's degree if you want to be a financial advisor.
Recommended majors are:
Choosing a finance-related degree will help you with your daily role and help you pass the licensing exams, but it is not essential. You can complete a non-finance degree if you prefer.
If your career goal is to become a certified financial planner, you must complete a CFP Board of Standards accredited college-level program in personal financial planning or similar.
Many universities and online schools now offer approved programs. Before applying for a school, confirm its accreditation on the CFP Board website.
In the past, internships have caused some controversy, as the companies expect students to work full-time hours for free.
However, if you make the most of your internship, it can have many benefits:
- You'll know if it is the role for you – Working for three to six months shadowing a financial advisor and completing some of their tasks will allow you to determine if it is your dream role
- You can test your knowledge – Internships allow you to put all your classroom theory into action. Not only can you demonstrate what you know, but it gives you an indication of the areas you need to develop.
- It is an excellent networking opportunity – Connecting with the other employees is a great way to build your network and open yourself up to opportunities
There are several licenses and certifications for financial advisors. Most of these require three years of work experience, specialized training or coursework, an exam and continuous learning.
The National Association of Personal Financial Advisors (NAPFA) recommends at least one of the following:
- Certified Financial Planner (CFP)
- Personal Finance Specialist (PFS)
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
You should also consider if you need a license for your speciality or state. Financial advisors who plan to sell insurance must be licensed as accredited advisors in insurance in the state they work.
Financial advisors who deal with investments need to register with the SEC as registered investment advisors. You may also need to pass one of the following FINRA exams:
- Securities Industry Essentials
- Series 6: Investment Company and Variable Contracts Products Representative Qualification
- Series 7: General Securities Representative Qualification
- Series 63: Uniform Securities State Law
- Series 65: Uniform Investment Adviser Law
- Series 66: Uniform Combined State Law
Depending on your preferred role, there are several places to look for entry-level jobs.
Your school's career office or a career fair is a great place to start, as is the company you interned with.
For financial planning, look for small and mid-sized companies that offer a full range of services. Large broker-dealers are also a good place to look, as they will teach you how to build your client and business book, as well as train you in sales and cold-calling.
On-the-job training is important for this role, so look for job descriptions that mention the training that will be provided.
Most licensing and certification require you to commit to a learning and development program that will allow you to keep up with current trends and changes in laws and regulations.
Some companies require a master's or MBA for you to progress to the next level. If you are serious about a career as a financial advisor, you should consider one of these programs.
A mentor will also help you navigate and develop your career. An easy way to find a mentor is through the CFP Board mentorship program. Otherwise, networking at events or through social media will help you find the right mentor for you.
A financial advisor needs a wide skill set to succeed. The essential skills to master are:
- Interpersonal communication – This includes verbal, non-verbal, empathy and the ability to simplify complex topics
- Industry and technical knowledge – The most successful financial advisors know their industry inside out, keep up to date with the latest trends and find ways to incorporate new technologies and ideas into their strategies
- Attention to detail – When dealing with versatile markets and people's money, you need to be aware of any market changes. You should also be mindful of your client's body language. You may suggest something they are uncomfortable with but are too scared to tell you. Attention to detail will allow you to pick up on their emotions.
- Critical thinking – Your primary purpose is to analyze and create a winning strategy for your clients
- Sales – A financial advisor's job is often referred to as a sales role. You are continuously trying to convince new and existing clients to take your advice. Having a sales mindset will help you succeed in this role – and earn you extra commission.
- Relationship building – People will not take your advice or part with their money if they do not like or trust you. Building and maintaining relationships is vital to your role.
- Mathematics – As your role involves working with markets and money, you need to be comfortable analyzing data and working with numbers
Developing your skill set is much easier than you think. You can do this with everyday tasks. Below are five ways to improve your essential skills:
- Make it a daily habit to read about your industry, including the stock market, global economic news and new trends in society.
- Practice and develop math and critical-thinking skills with apps or puzzles.
- Join a club or society, or volunteer. This will help build your communication skills and allow you to develop new relationships.
- Take free online courses in related subjects to help broaden your knowledge.
- Start a side hustle or freelancing gig that relates to your career. You could start a financial-planning blog or offer to manage the finances for a charity you support.
Being a financial advisor can be a rewarding, lucrative career. However, it takes a lot of patience and determination to become a success.
To make your career progression easier, thoroughly research every step before committing, ensure your courses are accredited and network while in university.
The first few years may be stressful and competitive. Once you have established yourself, you can enjoy a creative and profitable career with a great work-life balance.