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How to become a Financial Advisor

What is a Financial Advisor and tips to become one

What is a financial advisor? Unfortunately, the “financial advisor” term has many meanings.  It has been thrown around so much and used in so many different ways that not only does our profession struggle to define it, consumers do as well. Heck, even the word ‘advisor’ is sometimes spelled adviser! This ultimately leads to confusion among us and the public at large and even creates a problem around how to find a financial advisor (a problem I’m solving over at Couplr).

As someone who’s been an advisor since 2006 and supported thousands of advisors over the years with my work at Conneqtor and more recently with the Rethink. Financial Advice podcast, I regularly get questions about what type of financial advisor someone should be. To hopefully shed some light on how to become a financial advisor, I think it’s important we look at all the different types of financial advisors and what they do.

For purposes of this guide, we’ll loosely define a “financial advisor” as a professional who helps people with their money. This could be considered a life insurance agent, registered representative, investment advisor representative (IAR), registered investment advisor (RIA), wealth management advisor, wealth advisor, intermediary, fiduciary, financial planner, or certified financial planner – and the list goes on!

This is not an exhaustive list of every type of advisor out there.  The goal is to hopefully point you in the right direction.  Try to figure out what’s best for you and how best to serve your clients while running the type of business you want to run. I would argue that the best type of financial advisor is the one who’s happy, fulfilled, making a lot of money, enjoying work-life balance, and doing right by their clients.  This means it can be done almost anywhere in any fashion (so much gray area here). 

The different types of Financial Advisors

Registered Investment Advisor (RIA)

An Investment Advisor, or Registered Investment Advisor (RIA), is someone who provides advice on securities and investments and manages clients’ investment portfolios. Employees of an RIA who work as advisors are called Investment Advisor Representatives (IARs). An RIA is licensed by their State’s securities regulator, or the Securities and Exchange Commission (SEC) if they manage $110 million or more in client assets, although an RIA can register with the SEC with assets under management (AUM) under $110 million. 

An RIA offers personalized advice tailored to a client’s financial goals, age, and risk tolerance, as well as market conditions. As an investment advisor, you could choose to handle the day-to-day transactions and investment decisions on behalf of clients.  Sometimes on a discretionary basis, i.e. you have the authority to buy and sell securities without needing prior approval.  Or, what a lot of RIAs do is use third-party money managers to handle the day-to-day trades.  They can then focus on the larger asset allocation, risk, and financial planning aspects and impacts of the investments they are using.

RIAs do not buy and sell for a commission.  The management of assets in an advisory relationship is ongoing.  This is why an RIA will typically charge an annual advisory fee that is a percentage based on the value of the assets under management.  As the client’s investments grow, so too does the advisor’s compensation given the larger AUM they’re charging on. A lot of RIAs will also have a scaled fee schedule where the more a client invests with them, the lower the fees will get. Some RIAs do offer flat fees and monthly retainers, though, or bill hourly rates.

The relationship between a client and an investment advisor is built on trust and confidence.  RIAs are held to the highest fiduciary standard of care. This means that RIAs are legally required to act in a client’s best interests without regard for their own financial interests. An RIA must recommend the best investment products and services for each individual client and also disclose any conflicts of interest.

Registered Representative

A Registered Representative (also known as a broker) typically works for a broker/dealer (BD) and is regulated by the Financial Industry Regulatory Authority (FINRA). Their main job is to act as an intermediary by recommending and selling a variety of securities products like mutual funds and variable annuities on behalf of clients. 

A registered representative doesn’t have discretionary authority.  The client is ultimately responsible for decisions.  The registered representative may only buy or sell what the client has authorized and approved (known as a non-discretionary account). And unlike investment advisors, brokers aren’t paid directly by clients.  They earn a transaction-based sales commission on each product that they buy or sell on a client’s behalf. 

These commission amounts are dictated by the company the registered representative sells for.  They can vary significantly from company to company and can even influence ancillary forms of compensation like bonuses.

Registered representatives have a regulatory obligation to consider a client’s investment profile, risk tolerance, and financial situation with a “reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer” as per FINRA Rule 2111.  This has more recently become commonly known as “Best Interest or RegBI.”

types of financial advisors

Certified Financial Planner (CFP)

Certified Financial Planners (CFPs) provide, in theory at least, much broader financial advice that spans every aspect of a client’s finances.  Things like preparing for retirement to risk management, estate planning, insurance, debt repayment, tax planning, emergency savings, college funds, investment management, cash flow, and so on. 

A financial planner works with clients to plan for the future.  They create a financial plan to meet their short- and long-term goals. Financial planners (without formal CFP credentials) are not regulated or licensed. A CFP however undergoes extensive training to earn this professional certification. The CFP designation is awarded by the CFP board after meeting a variety of criteria and must be renewed every two years by completing 30 hours of continuing education credits.

A CFP will charge based on whether they’re a fee-only or a fee-based advisor. A fee-only CFP is paid directly by clients for their services.  Whether it’s a flat fee, an hourly rate, a retainer, or a percentage of AUM. They don’t earn any commission or kickbacks to profit off of the recommendations they make. 

A fee-based CFP may receive compensation from clients as well as other sources.  Commissions or “referral fees” from the financial products that clients purchase are commonly found. Some believe that this potential for financial gain based on product recommendations presents a conflict of interest. A CFP does have a fiduciary duty to put a client’s financial best interests ahead of their own and recommend products that best meet the client’s needs.

Part of the confusion I mentioned earlier is that a CFP can also be a Registered Representative.  Literally be switching from one hat to the next in a blink of an eye when working with clients.

Wealth Manager

The term wealth manager is very vague and has been used by a variety of so-called advisors.  They tend to be a financial advisor that caters specifically to high-net-worth and ultra-high-net-worth clients.  Generally with $5 million or more in investable assets, although account minimums will vary. Wealth managers provide similar services to CFPs.  They may specialize in areas of particular interest to those with significant wealth, such as estate planning, philanthropic giving, tax management, and investments. 

A wealth manager will be quite hands-on, working closely with clients to oversee their finances. Wealth managers typically charge higher fees than other financial advisors, which can be annual, hourly, or project-based. Anyone can call themselves a wealth manager, but not all wealth managers are fiduciaries, i.e. acting in a client’s best interest and putting a client’s interests ahead of their own.

Life Insurance Agent

A Life Insurance Agent is not a financial advisor.  But they tend to advise clients on a variety of topics, all tied back to some type of insurance solution. They can recommend and sell insurance and insurance-related investment products that best fit a client’s needs based on lifestyle, finances, age, and health factors. A life insurance agent specializes in risk mitigation.  Some are even well-versed enough to help combine investment and insurance strategies to build a better financial future for clients.

Life insurance agents are typically either independent (representing several insurance firms) or captive (representing only one insurance firm), but a lot of them operate somewhere between the two like I did when working for an insurance BD for many years while also being an IAR and a CFP. See why this can be so confusing?! Life insurance agents are regulated by the State in which they do business but sales are regulated by FINRA. A life insurance agent’s compensation is generally commission-based, with a percentage of the policy premiums paid in the first year and renewal commissions each year thereafter.

Chartered Financial Analyst (CFA)

A chartered financial analyst (CFA) is a professional designation awarded by the CFA Institute to advisors who demonstrate competence and expertise in financial reporting, risk management, investment analysis, and high-level money management. A CFA charter holder will most likely work for a large investment firm or financial institution, such as a bank, hedge fund, pension, or mutual fund company, managing multimillion-dollar portfolios. 

A CFA is seen as the gold standard in investment management – there are rigorous requirements to become a CFA. And whereas a CFP works with individual clients to achieve their personal financial goals, a CFA typically works with large-scale, corporate clients.

financial advisor

Financial Advisor Designations & Degrees

Although we covered the major types of financial advisors, we are only scratching the surface.  The types of advisors previously mentioned are not a complete list by any means. There are so many designations and degrees, everything from ChFC to RICP, and even new ones being created regularly.  It really shows how many options are available to define “financial advisor”. Have a look at The American College list of financial advisor designations and degrees for an idea of just how diverse the options are.

As you are navigating how to become a financial advisor and the types of advisor you could be, this is a great resource to start with as you narrow down what you truly want to do.

Types of financial advisors outside of the USA

Canada

In Canada, the terms “financial advisor” and “financial planner” are unregulated.  Anyone can call themselves a financial advisor or planner and offer financial services. By law though, advisors must be registered with a provincial or territorial securities regulator to buy and sell mutual funds, stocks, and bonds, or advise clients on trading securities. Financial advisors should have at least one professional designation though, such as Chartered Life Underwriter (CLU) or Chartered Financial Analyst (CFA).

In Quebec, only trained individuals are allowed to use the title “financial planner” – “planificateur financier” in French. Otherwise, there are three professional designations for Canadian financial planners.  Certified Financial Planner (CFP), Personal Financial Planner (PFP), and Registered Financial Planner (RFP).  CFP is the most widely recognized financial planning designation in Canada. 

South Africa

In South Africa, all financial advisors (and the firms they work for) are required by law to be licensed by the Financial Services Board (FSB) as a financial services provider (FSP). The FSB is an independent institution that oversees all financial industry activity in the country and governs all FSPs. All financial advisors need an FSP number.  They also have to meet the strict standards of the Financial Advisory and Intermediary Services Act (FAIS) in terms of honesty, competence, financial soundness, operational ability, and continued professional development.

The Financial Planning Institute (FPI) is the accreditation standards body for financial services professionals in South Africa.  It issues three registered designations.  Registered Financial Practitioner (RFP), Financial Services Advisor (FSA), and the Certified Financial Planner (CFP) accreditation. The CFP qualification is widely regarded as one of the top industry qualifications in South Africa.

UK

There are two types of financial advisors in the UK.  Independent financial advisors (IFAs) who provide impartial advice about a wide range of financial products, services, and providers.  And restricted advisors who focus on a limited selection of products or providers. All financial advisors in the UK, independent or restricted, are regulated by the Financial Conduct Authority (FCA) and must have a Statement of Professional Standing (SPS) which is renewed annually. 

There are minimum qualifications that regulated financial advisors need to have achieved.  In some may have specific areas of specialization such as mortgages or pensions. Advisors may also qualify as a Certified Financial Planner through The Chartered Institute for Securities and Investment (CISI) or as a Chartered Financial Planner.

What is a Financial Advisor?

This question is the challenge and opportunity for the financial advice profession. We inherently know what a “doctor”, “CPA”, and “professor” is and does. But when it comes to figuring out what a financial advisor is, we struggle. The incomplete list above clearly shows how unclear we are about what we call ourselves and what we do. Heck, Indeed even published their own list of 20 different types of “advisor”! How are we supposed to get clients to trust us when there is so much ambiguity with our job title? Eye of the beholder stuff really.

My advice to anyone looking to become an “Advisor”?

Pick one thing you want to do and then own it 100%. If you want to sell life insurance, then do that. Be the best darn life insurance agent out there. Don’t call yourself a financial advisor, planner, wealth manager, etc. Embrace the “life insurance agent” title.  Be extremely clear to people you want to help and collaborate with about what you do. The same holds true for being a CFP, IAR, and so on.

The times I, and many other advisors, struggled, was when we tried to wear multiple hats. Try being a life insurance agent who’s also a registered representative, investment advisor representative, CFP, CLU, and ChFC all at the same time – talk about mentally exhausting! Even more confusing to the general public. Yes, there are those that can clearly articulate their different roles and be very successful.  I was one of them for years, but I would argue this is the exception rather than the rule.

So, what is a financial advisor? Well, for the time being, it would appear that it can mean a lot of different things.  As I said earlier, I would argue that it is someone who helps someone else with their money. Unfortunately, that’s about as clear as we can get given the diverse way we can help people with their money. Getting crystal clear on what type of advisor you are will go a long way.

How to become a Financial Advisor

There is no one way to become a financial advisor.  Why?  Because there’s no one type of financial advisor.  However, there is a typical path that most aspiring financial advisors can take. Most people become an advisor by starting their career at a life insurance BD, wirehouse, bank, or large RIA. They come in with the most basic of requirements like getting their Life & Health Insurance license.  And/or getting their Series 6 or 7 securities license.

These companies actually have pretty solid training programs.  But they tend to train more on sales-related activities like prospecting, fact-finding, and so on to bring in revenue. Once these new recruits cut their teeth for a couple of years, assuming they make it given around nine out of ten new advisors fail in the first three years, they are then able to take a little breather and start working on their professional designations.

Yes, being a financial advisor can be very rewarding financially and if done right can be an amazing part-time job.  But don’t mistake your rose-colored glasses for the harsh reality that becoming a financial advisor is really hard. It will take time, crazy hours, inconsistent paychecks, and rejection.

Here are some tips on how to become a financial advisor that might help you get there a little faster with a little less struggle:

  • Having a bachelor’s degree from an accredited educational institution.  Business, law, mathematics, accounting, or finance can be very helpful but are certainly not a requirement. Heck, my BA was in Archaeology and Anthropology! 
  • Courses in investments, insurance, estate planning, income tax, and/or risk management are very helpful.  Some universities even have a CFP program where you can graduate with everything needed to have your CFP.  
  • On-the-job training or back-end office work after being hired by a firm, or independent or online training, such as through a CFP-registered program.
  • Spend time gaining the necessary experience to meet certification requirements by working as an intern.
  • Pass the necessary exams to get certified (e.g. as a CFA, CFP, or ChFC).
  • Obtain the appropriate licenses as required by the State.
  • Once licensed or certified, you can begin building your book of business.
  • If you want to become an independent financial advisor, you’ll need to register your firm with the SEC and/or at the state level as a registered investment advisor, or RIA.
  • Start working on your personal brand (social media, etc.) before you even become an advisor. Digital marketing is where a lot of your client acquisition will take place.  It’s important to build up your reputation (and followers) – the sooner the better.

How to become a financial advisor with Conneqtor

As an advisor that has worn many types of advisor hats and who is still actively operating my own RIA, let me give you one last bit of advice: don’t try to reinvent the wheel.

Becoming a financial advisor is a personal journey.  There are a lot of things you’ll need to do regardless of the type of financial advisor you wish to be. Things like defining your ideal client, setting up your office and digital infrastructure, getting clear on your sales process, becoming a digital marketing ninja, building your team, working remotely, and so on are all important and transcend all types of advisors.

If you’re looking to become a financial advisor you should know I built Conneqtor for you. The Conneqtor Financial Advisor Online Coaching Course and training program was designed to empower all types of advisors with the master blueprint to start, build, and grow a modern practice, especially uniquely suited for the digital world. 

The on-demand training transcends borders and is suitable for any type of advisor.  In fact, it’s already being used by many different types of advisors in the USA, Canada, South Africa, Ireland, and even Guam! Conneqtor is also a CFP Board CE sponsor. If you’ve got questions about becoming a financial advisor make sure to check out the website.

Best Regards,
Derek Notman

    J Andrew Gowdy
    January 1, 2023

    Hello and Happy New Year Derek!

    Regarding the Series 65 exam, is there one particular study program that you would recommend to prepare? Thank you!

    Sincerely,
    J. Andrew Gowdy

      Derek
      January 2, 2023

      Great question, Andrew and Happy New Year to you as well! I never had to take the 65 so I am not the right person to ask, perhaps check out if Kitces has anything on it....

      Brian Carlson
      January 13, 2023

      Happy New Year to you! I read your question and had a little bit of insight being that I recently earned my SIE, Series 7, Series 66, Life and Health Insurance licenses. For all of the licenses I used Kaplan to prepare. They have various packages online that you can purchase - videos, flashcards, test questions, etc.

      For the SIE/7 exam I also used STC (Securities Training Corporation) and Series 7 For Dummies. I would much rather learn in a live classroom type environment, but because of the virus and everything shut down, that was not an option. In my opinion, Kaplan is a broad approach on the content, combined with their Q Bank of questions that prepare you well for the exam. STC took me into the weeds for a very much more deeper understanding of the content.

      It really comes down to personal preference and learning style. Please note I am not connected to any of these vendors. Not sure this helps, but I do wish you the best of luck!!!

      Kind regards,

      Brian

    akilahfreytag01
    January 4, 2023

    Its like you read my mind! You seem to know a lot about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a bit, but other than that, this is fantastic blog. A fantastic read. I'll definitely be back.

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