How to Become a Financial Advisor (or Planner)

Last updated on July 22nd, 2017

There are a lot of folks asking how to become a financial advisor (or financial planner).

How do I know? Because not long ago, I was the one asking that question.

Since then, I’ve entered my PhD program in Personal Financial Planning and I’ve done a good bit of research on the subject which led me to produce this article.

What is a Financial Advisor?

There is no simple definition for the financial advisor (often called financial planner). Loosely, it’s anyone who provides financial advice in exchange for money. There is no particular path that leads to the title “financial advisor.” Some advisors have advanced graduate degrees related to financial planning or economics, while others have no formal college education.

“Financial advisor” could refer to a licensed stockbroker, registered investment advisor (RIA), insurance agent, CPA tax professional, estate planner, banker, or some quack who watches Mad Money on CNBC all day long.

This is problematic for the public because they don’t know who to trust for financial advice. Seemingly anyone can call himself a financial advisor.

There is some regulation and generally speaking, the individuals who call themselves financial advisors fall into 2 categories. Registered investment advisors (RIAs) or licensed stockbrokers.

Stockbroker

  • (Also called a registered representative) To become a licensed stockbroker one must pass one or more FINRA exams while being associated with a brokerage firm. Some agents also sell insurance and are required to pass other exams.
  • A broker typically makes money on commissions from the sale of stocks, mutual funds, or other securities to investors.
  • I don’t think the commission based brokerage route is the best option for those looking to become an advisor. It can create a conflict of interest with clients based on the nature of commission based compensation.
  • If I’m giving investment advice as a broker, will I recommend the security that provides me the greatest commission over the one in your best interest?

Registered Investment Advisor (RIA)

  • To become a registered investment advisor (RIA), one must pass the series 65 exam. Some states now wave the series 65 for those who hold advanced designations. The reason being that these designations require more knowledge and a more comprehensive exam. Advisors who hold the following designations do not have to pass the series 65 exam in order to give paid investment advice.
  • Most RIAs charge an upfront fee in exchange for investment advice or ongoing asset management.
  • After passing the exam, and before charging for advice, RIAs must register with either the SEC or the home state in which they do business. Where they register will depend upon the scope of their business and the amount of assets they have under management.
  • If there is no commission to make, an investment recommendation should be in the best interest of the client. This is the model that typically makes the most sense for independent financial advisors.

How to Become a Financial Advisor

Passing the Series 65 exam will not make you qualified to manage millions of dollars or write comprehensive financial plans. It’s a fairly simple test that covers the basics.

As stated above, there are no formal educational requirements to become a Registered Investment Advisor or a stockbroker, but certain education can certainly help distinguish an individual.

A degree in personal financial planning is a good option. Colleges and universities all over the country now offer degree options that also satisfy the educational requirements of the Certified Financial Planning (CFP) board, allowing students to take the CFP exam and work towards the Certified Financial Planner (CFP) designation (Read my article on how to become a Certified Financial Planner). It seems that the CFP designation is becoming the norm inside the financial planning industry.

There are quite a few programs in higher education now dedicated to financial planning and even a few PhD programs like the one I’m currently enrolled in.

How Do You Make Money?

There are a couple of compensation models for financial advisors as I hinted at above.

Commission Based

Many brokers make money solely from commissions earned on the products they sell. Again, they must hold licenses beyond the series 65 or CFP if they sell securities.

As I stated above, because these advisors are paid exclusively from commissions, some may be inclined to sell a product when it’s not in the best interest of the client, or to upsell a product with a higher commission when it’s not necessarily the best option available.

Fee Based

This model allows an advisor to charge a fee for investment advice while also allowing commissions to be made on product sales. Some advisors charge an hourly rate, or a monthly rate, or a flat fee for a comprehensive plan. There is no one size fits all fee model.

Fee Only and Assets Under Management

As the name states, these advisors make no commissions. Some advisors actively manage money for clients and charge them a percentage of their assets under management each year (typically 0.5% to 1.5%). This compensation model can be beneficial to client and advisor. If the advisor doubles the client’s money, then the percentage made will be doubled as well. Advisors should still act in the best interest of their clients, not chase the highest returns.

Other advisors choose to charge an hourly fee, or a retainer fee.

If you go the fee only route, you won’t sell securities for a commission, but you’ll have to quickly learn how to sell yourself.

Available Jobs

Beyond education, experience is a big part of becoming a financial advisor. Once you’ve studied and passed your exam, you have a couple of options to earn a living.

Mega Brokerages

For those without any designations or an advanced degree, often the only place willing to hire are insurance companies or big brokerage firms. These firms typically ask you to meet unreasonable sales quotas each month. It’s all about cold calling and convincing family members to buy a security that makes you a small commission and the firm a bigger commission.

Most folks are miserable and quit these jobs within 3 months.

Banks

I’ve read mixed reviews about banks. At one point, they often took care of advisors and paired them with willing clients who were treated right. That could be a rewarding route, assuming the investment advice isn’t based on earning a commission.

Small Financial Planning Firms

This is a good route for advisors, but usually requires a degree in financial planning and/or one of the advanced designations (commonly the CFP). Sometimes smaller financial planning firms are called “boutique firms.” They are commonly fee based or fee only. Some of these firms will treat you well and allow you to work under a mentor who can teach you the ropes of the business.

Start Your Own Firm

You can also immediately start your own firm. It can be tough without any formal experience, but many have gone that route. It allows flexibility and high earning potential. Building a client base can be very difficult from scratch and requires a lot of networking.

Teaching

With a masters degree or higher, there are teaching opportunities at local colleges and universities. Teaching experience also satisfies the work experience required by the CFP board to carry the CFP designation.

Wrap Up

The route to becoming a financial adviser can be difficult but rewarding. Building a client base is never easy and requires a lot of hard work. You will certainly be rejected by some clients and might struggle to earn a decent wage if you start a firm from scratch.

On the other hand, established advisors are usually rewarded with a very well-paying career. In addition to the earning potential, advisors can help clients achieve their financial goals and dreams. It’s hard to beat the ability to earn a good living while helping others.

There are several personality traits that most successful advisors share. These include sales and people skills (yes, you have to sell yourself even if you don’t sell securities), basic math skills, business acumen, and loads of self motivation.

I hope I’ve answered your question on how to become a financial advisor. Did I miss anything?

Comments
  1. Pingback: Index Funds vs Actively Managed Funds - Who outperforms?

  2. Pingback: How to Become a Certified Financial Planner (CFP) | Cash Cow Couple

  3. Reply

    There are so many things that a person can do as a financial planner. I was only considering the investment banking route. If I were better with numbers, I think I’d enjoy teaching about financial planning.

      • kyle
      • May 13, 2016
      Reply

      If you are interested in the field in the slightest bit, you should look into it. you never know what you are missing out on, until you actually see. I am in the financial advising field and didn’t think i could do it until i started. With the right people and schooling it is possible.

    • Bill
    • June 18, 2015
    Reply

    Even today it isn’t necessary to go to school to be a broker. Although you are correct in saying that with all of the competition, it’s really helpful. But you still need to be able to sell. Having some experience in sales will also help you a lot if you’re looking to being a stock broker.

    • Vishal
    • May 9, 2015
    Reply

    Glad to see this type of articles, which gives a lot of motivation to upcoming Financial Planner

    To become a Financial Planner it is necessary to have a professional certification like Certified Financial Planner. This give an advantage to Financial Planner, as client do make a blind faith. Certification is not the only thing a Planner should consider but he/she also should have knowledge about the Financial product, current market situation, Current Taxation policy, ect

    • Jay
    • December 1, 2013
    Reply

    I ended up on your blog researching this very same topic because I have managed my own money for some two decades and have had spectacular returns by investing like Buffett. I also manage our family budget and spend our money in a way that maximizes happiness. In other words, no unnecessary high tech gadgets for us because what we value our traveling to exotic places. I already have a business but am exploring the financial adviser route to develop a small group of clients to provide an additional revenue stream. I already have an MBA so that should help and I am not afraid to take the CFP after some experience. Your article provides a great overview of what the paths are. Thank you.

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  5. Jacob! How did I not know this was what you wanted to do??? 🙂 Ah….financial advisors we are certainly an interesting cast of characters as you so noted. Sadly, many people don’t realize how easy it is to “technically” call yourself a financial advisor. I am proud to be a CFP and glad that you will be joining the club. I love what I do and it feels so good watching my clients set and achieve goals and live with purpose. You’ll be amazing. 🙂

      • Jacob
      • May 15, 2013
      Reply

      I’ve been a bit quiet about my studies until the last few weeks, that’s how! Congrats on the CFP, I’m sure you are a fantastic planner!

  6. Pingback: How to Become a Certified Financial Planner • Cash Cow Couple

    • Mr. Bonner
    • May 15, 2013
    Reply

    It’s crossed my mind a number of times lately about where I want my career to go. I’m and engineer/scientist in Pharma and have been since grad school, but I really enjoy finance and have thought about making the leap into something else, but with a family and stable, solid income it’s daunting. I like my job, but after 8 years you get to that comfort zone that’s tough to get out of and I have a hard time seeing myself in any role involving sales. Easily my favorite article I’ve read lately. Really looking forward to the CFP post. Nice job!

      • Jacob
      • May 15, 2013
      Reply

      Thanks Mr. Bonner, I’m glad you enjoyed it! I can imagine that after 8 years of perfecting your trade, it’s tough to leave it all behind. I suppose if you really wanted to hustle you could work towards a designation on the side and see if a job opportunity arises at a decent firm…

      Jacob

    • Jake Erickson
    • May 14, 2013
    Reply

    Awesome article. I’ve thought quite a bit about getting my CFP designation and possibly trying to be a financial planner further down the road. It sounds like it would fit my personality perfect, but it’s hard to make that leap from corporate finance. Will you end up with the CFP designation after you’re done with your PhD course? Why did you decide to do a formal program vs. the alternatives?

      • Jacob
      • May 14, 2013
      Reply

      Hey Jake, I’m glad you enjoyed the article!

      I will take the CFP exam after my second year in the program. I’m not entirely positive but I think I’ll be close to fulfilling the experience requirements by the time I complete my PhD.

      I chose the PhD route for a bunch of reasons. It’s tough to break into the profession at a young age without experience and credentials, so obviously the PhD helps there immensely. In addition, they made me a great offer to join the program that allows me to make money while getting experience. I’ll miss out on some earning potential now, but I think the PhD will improve my human capital a great deal.

      There is a wealth of experience within the faculty. Several of the professors founded a prestigious and well known fee-only planning firm. Others continue to win awards and money for their research articles in the financial planning field. Last of all, I really do love learning. I read all the time so this is a great fit. Hope that helps!

  7. Interesting post, I never realized there were so many steps to becoming a CFP. This has opened up my eyes because I know not all the financial planners out there have certifications. Good luck on your path towards the PhD.

      • Jacob
      • May 14, 2013
      Reply

      I’ll have a post that details the actual path to the CFP in a day or so. This was more of a look at the general path to financial advisor (although I think advisors should have the CFP). Thank you Tina, appreciate that!

  8. Reply

    Good info. I actually looked into this as a third career at one point, but backed off when I saw how many years it would take. I think this is a great path for someone with your aptitude!

      • Jacob
      • May 14, 2013
      Reply

      Thanks Nick. I think you’d be a great advisor. Smart, witty, conservatively frugal! 🙂

  9. Do you currently work or have you worked in the Finance field? I considered getting the CFP certification at one point in time…Boston University offered an online class and I thought since it was backed by a well known university, it would look decent on a resume. But, I didn’t work in that field and decided to take another route. I’d still like to take those classes just to increase my knowledge though. I know someone taking the CFA level 3, those exams are tough.

  10. Nice information Jacob. I did not know it was that in depth along with not knowing you were going for the PhD. Good for you and I hope it works out for the best, though I am sure it will.

      • Jacob
      • May 14, 2013
      Reply

      Thanks Grayson, really appreciate the kind words!

    • cj
    • May 14, 2013
    Reply

    Though I am not the least bit interested in becoming a financial advisor, but I see this article as being exceedingly useful for those who are. It is thorough, informative, engaging and full of links that lead to other critical information. I also see the connections, in building a client base, between running a guitar studio and working for ones self as a financial advisor. Getting and keeping clients takes a heel of a lot of hustle and creativity. And ya better have a good measure of charm and charisma (like you, Jacob) to enhance your hard work. Otherwise, the cubicle may be the best place to do your work.

      • Jacob
      • May 14, 2013
      Reply

      Thanks CJ. I hope it will become a valuable resource. Definitely similarities there between all self employed people. You’ve got to sell yourself when you are the business!

  11. Reply

    Geeat post Jacob! Perhaps the best post I’ve seen on financial advisors. Do you think most people should ever visit someone who’s not fees only or asset under management style?

      • Jacob
      • May 14, 2013
      Reply

      Thanks Reb, that means a lot! I personally don’t think so based on the conflicts of interest that could arise from commissions. What possible benefit could there be in comparison with a fee only advisor..?

  12. Did not know you were pursuing this as a career! I majored in finance and currently work in corporate finance, but I have always been interested in becoming a CFP. Thanks for sharing all the good info on this topic.

      • Jacob
      • May 14, 2013
      Reply

      We’ll see where the path leads me. My PhD will be in finance and financial planning. I love teaching others, so professorship will probably happen at some point as well. You’re welcome DC!

 

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