Chapter 3
IN THIS CHAPTER
Considering different entrance ramps into the field
Turning personal experience into a professional asset
Getting your own finances in order
Successful financial advisors don’t merely have the right stuff in terms of personality and drive (as Chapter 2 explains); they also have the right background in work and life experience and are on a solid financial footing. Having a lot of rich friends (a ready-made market) is certainly helpful, but relevant work and life experience is much more valuable for long-term sustainability and growth. The right experience (background) enables you to develop an intellectual and emotional connection with the field and with clients and prospects that makes you more of a natural — a person who’s suited to and likely to be successful at something without a great deal of training or effort.
Defining the ideal background for the perfect candidate for this field is difficult, and it’s more qualitative than quantitative, but there are certain hallmarks of successful advisors. For example, the most successful financial advisors have backgrounds in which they had a great deal of experience interacting with people, especially in the role of coach or teacher. Great financial advisors are also successful at managing their own finances — a skill developed mostly through life experience, because very few people receive formal training in this area when they’re growing up.
In this chapter, I introduce factors related to a person’s background that are likely to make them more qualified to become a financial advisor, and I break them down into three key areas:
Many paths lead to a career as a financial advisor. 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.
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 (see Chapter 4). 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.
As an apprentice, expect to earn a salary and perhaps a bonus based on revenue growth. 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.
If you’re working in the financial services industry 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.
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.
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:
The best financial advisors draw on their personal experience to provide exceptional service to their clients. Three types of personal experiences in particular are useful in helping you serve clients:
In this section, I explain how these three types of personal experience can benefit you and your clients.
How your family managed its finances when you were growing up has a tremendous impact on your own approach to managing finances. Perhaps your parents demonstrated the value of careful financial planning and discipline, or maybe they taught you, by example, how not to manage finances. After all, childhood memories aren’t all sunshine and moonbeams. Divorce, illness, job loss, the untimely death of a breadwinner, and even poverty can provide valuable lessons that help you serve your clients better.
As a financial advisor, you’re more than a numbers-cruncher; you’re also a heart-and-soul counselor. As such, you must be empathetic; that is, you must be able to understand and share the feelings of others, especially in terms of their financial goals and the poor choices and life challenges that can disrupt progress toward those goals.
If you’ve experienced financial hardship, made terrible choices, or suffered from the terrible choices of others, you’re more likely to be able to empathize with clients and prospects and be less prone to judging them. If you’ve had experience being taken advantage of by financial salespeople in the past, you’ll be even more sympathetic to the needs of clients.
Whether you’ve managed finances for clients professionally or for friends, family members, or colleagues, you have plenty of vicarious life experience from which to draw. You have stories of people you helped, those you tried to help but chose to go their own way, those who’ve made terrible financial decisions and suffered as a result, and those who were disciplined and followed a plan to build wealth.
Feel free to share the relevant success and horror stories you’ve gathered with your clients and prospects when you think these stories will help them make the right decisions. Just be sure to fictionalize the stories enough to protect the identities of those involved.
If you’re planning to launch your career as a financial advisor as a lone wolf or by starting your own firm, first crunch the numbers to figure out whether you can afford to do so. Starting without a substantial nest egg makes you more susceptible to conflicts of interest. You’ll have a difficult time serving your clients’ needs when you have to worry about your own needs.
In this section, I tell you how much money you should have to get started and explain the importance of having this money set aside. I also share some words of caution by explaining what typically happens when people start their financial advisor careers without a substantial nest egg.
Regardless of your background or experience, you won’t have a positive cash flow as soon as you decide to start your own financial advisory practice. Client acquisition takes time, and even after you acquire a few clients, sufficient cash may not start flowing into your bank account for weeks or months to cover what’s flowing out. Prior to quitting your day job, make sure you have at least 12 months cash in a savings or money market account to cover your monthly expenses.
If you don’t have at least 12 months of cash set aside, you’ll be putting yourself at a disadvantage, especially if you have a family to support. Worrying about how you’re going to make the monthly housing or car payment or keep the utilities on and food on the table makes it all the more difficult to be present and focused on the needs of clients and prospects.
After six months or so, the revenue stream from your financial advisory business should start to slow the cash burn and begin to replenish your nest egg, giving you more time to build your business. If you’re still burning through cash and have no reason to believe that the situation will improve, you may need to work as a broker/agent on the side temporarily to earn extra money, as discussed in the next section.
Without the proper preparation, embarking on building your own client base from the ground up takes you to the brink-and-back mentally, emotionally, and financially. Assuming you can manage the first two using meditation and exercise, the financial factor becomes all-important. After all, financial success alleviates a great deal of mental and emotional stress.
When you’re financially compromised or feel as though you’re losing ground, making decisions in other people’s best interests isn’t natural. When you’re desperate for income, you have a natural survival instinct to serve your own interests first. Nothing’s wrong with that; if you go belly up, others, including your clients, suffer too. If you reach this point, the best and most common option is to shift from being a financial advisor to acting as an investment/insurance broker/agent until you regain your financial footing.
In practice, many financial advisors have functioned as investment brokers or insurance agents at different points in their careers. Using broker-customer sales transactions to buy yourself more time and afford to serve in an advisor-client relationship has been common industry practice. Just beware that federal and state regulators are heavily debating this trend.