Getting started 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 (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.

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. 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 within the industry

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.

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 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.

Taking advantage of your childhood memories

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.

Use your childhood memories to connect emotionally with clients and prospects. Regardless of whether your parents taught you how to manage or how not to manage money, sharing your story can be a powerful way to instill the importance of financial planning and discipline in your clients.

Be careful not to get preachy or to present your personal experience in a way that draws sympathy, even if that’s not your intent. Either scenario turns off clients. For example, a story about how mom or dad lost a job and struggled to keep food on the table for you and your siblings can come across as a sob story, even though the intent was to use it to teach a valuable lesson.

Dealing with your own financial challenges

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.

Sharing your financial setbacks is like walking a tight wire. You want to empathize by demonstrating that you’re human, but you also need to show that you’ve gained valuable insight and developed knowledge and skills that enable you to help clients avoid and recover from these setbacks. A little self-deprecation can be very effective, but to build trust you have to follow up by demonstrating your expertise in financial planning and management.

Helping others manage their finances

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.

Using emotion to connect clients with the importance of financial planning, management, and discipline is manipulative, but it’s manipulative in a good way. As long as you use the emotional connection to inspire relevancy for the client, so she can then move forward in developing a financial plan, playing her emotions may be the only way to get her attention and drive home a valuable lesson. However, use this technique carefully and conscientiously.

If you don’t have experiences, direct or vicarious, don’t make them up. (You may need to fictionalize stories just enough to make them more engaging and to protect the identities of those involved.) Made-up stories aren’t only fraudulent, but often ineffective because they just don’t ring true. If you don’t have good stories to tell, you can develop new clients in many other ways (see Chapters 18 and 19). The point of this section is that if you have personal experience, don’t overlook the opportunities to leverage it to the benefit of clients and prospects.

Gauging your financial stability

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.

As a financial advisor, I know full well that risks always accompany rewards. No guts, no glory, as Frederick C. Blesse, a Major General in the U.S. Air Force once wrote. Pursuing a career as a financial advisor, where you must build your own client base from scratch, is a risky venture that has the promise of great rewards. But, unlike other ventures, the start-up capital required is nominal; it’s not like opening a restaurant or building houses. Also, small wins in the early years give you staying power.

Recognizing the risks of financial instability

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.

Nothing’s wrong with being a broker/agent and earning up-front commissions. It’s just not the role of a financial advisor. In your role as broker/agent, be up front with your customers and let them know how you’re being compensated. In addition, be careful to separate your clientele into clients and customers. You can serve as a financial advisor to clients while selling products to your customers, but don’t “sell” products to your clients.

Don’t market yourself as a financial advisor if what you’re really doing is selling products to earn up-front commissions. As a financial advisor, you’ll more than likely be required to adhere to a certain set of SEC rules (see Chapter 5) that define the advisor-client relationship. If you’re an investment broker or insurance agent, make this clear to your customers.

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.