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Reader Mail: Career in Financial Services?





I received an email from a regular reader, Nick, who had a question about how one knows if they are cut out for a career in the financial services sector. Basically, Nick was wondering if his hobby as a personal finance enthusiast could translate well into a career in the field.

Here’s the question:

There are obviously some regular MDJ posters & readers who
make their living in Fin. Svcs but, there are many others (like me) who see
it as a hobby but,are obviously very interested and knowledgeable about
finance. I wonder how many have ever considered a career in Fin Svcs? How
do you know whether you’re cut out for this field (and what’s involved with
making such a change), as opposed to “probably best to keep it as a hobby”?
What’s a good way to find out? I think this would be an really interesting
topic for a future post.

There was a time not too long ago where I was considering a career change into financial services due to my interest in the topic of personal finance.  However, the more research I did into the field, the more I realized that it takes more than personal finance knowledge to make it in the financial services field.  As “financial services” is very broad, I’m going to make the assumption that Nick is talking about becoming a financial advisor.

Lets look at the bright side

  1. Lucrative – A career as a financial advisor can be very lucrative.  The more clients you have or the bigger your “book”, the higher your paycheck.
  2. Education – You get the chance to financially educate those who need/want it which can be very gratifying.
  3. The People – For some, having a job that involves working with people is an important aspect of day to day work.  With this position, you get to help people grow their worth and plan for retirement or other financial goals.
  4. Passion – Most importantly for the personal finance enthusiast, you’ll be exposed to the field in a professional capacity day in day out.

Now lets look at what I consider to be drawbacks

  1. Conflict of Interest – To begin, for advisors who work on commission there can sometimes be a conflict of interest.  Meaning, the mutual funds with the largest kickbacks are the ones with the DSC fees, front load and higher MERs.  All of which we avoid as DIY investors.
  2. It’s a Sales Job – Depending on your personality type, sales might not be your strength.  Even though the job may involve financially educating your client, at the end of the day, it’s in your best interest to sell yourself and the funds that you represent.
  3. Clients are Moody – The gifts and compliments are plentiful during a bull market, but close your blinds and take the phone off the hook during the bear (like now).  Advisors have a lot of explaining to do when clients get their account statements that are 10% less in value than their last statement.
  4. Big Responsibility – To me, being responsible for someones retirement is a big deal and big business.  I don’t get the feeling that being a financial advisor is a low stress role.
  5. Risk - For most advisor positions (like from the banks), most of your income comes from commissions which comes from the clients that you have.  As you can imagine, starting out as a FA can be fairly risky if you are coming from a high paying salary job.  With that said though, most banks will at least offer base pay for the first couple years.

So if you’re considering a career change into the financial services, I would recommend that you talk to people in the field to see what their days are like.  That’s the only way to get a feel for what it’s really like to be a financial advisor.

I realize that there are a lot of readers who work in the financial services industry who may not agree with everything that i’ve written.  I look forward to hearing your feedback!





15 Comments, Comment or Ping

  1. Interesting list – personally I wouldn’t worry about the conflict of interest. Every job has a conflict of interest of some sort.

    Advisors need to get paid somehow, even if they aren’t worth the money.

    Mike

  2. Hi FP, you are right, they need to put bread on the table. Perhaps one way to avoid the conflict of interest issue is to look into the fee only financial planners.

  3. I think that in order to be successful as a financial adviser you have to be able to sell to your clients as well as educate them on what to invest in. Listening to your clients and persuading them that they should have a plan and stick to it in good and bad times should be pretty stressful.

    In addition to that I bet that some people would leave you for other advisers who promise them abnormal returns rather than stick to their plan.

    If you are really interested in Personal finance, investing and stuff like that, why don’t you just open a blog and start posting regularly?

  4. 4. cannon_fodder

    I have a friend who, after many years of managing his portfolio and assisting other close friends/family, finally changed careers by working for one of the large brokerages in Canada.

    Although he really enjoyed being fully immersed in the financial world, he left after a year because of the pressures to continue to drive revenue from his clients. He firmly believed that, in the past 12 months or so, it was much better to gradually move clients to more of a cash position. The issue for the brokerage firm is that they don’t make sufficient income from cash positions as they would from trades and/or mutual fund commissions.

    His principles prevented him from continuing to work in an industry that was sometimes opposed to doing what was best for the clients. I think an individual, fee-based planner could be the ideal choice for someone who really wants what is best for their clients.

  5. 5. venter

    In a perfect world I would be able to make a living as a fee only financial planner, however, very few people, unless they have a lot of assets, want to pay up front for a financial plan. Most are happy to pay the commissions, even after I explain how I get paid from the sale of a mutual fund. Go figure.

  6. I strongly believe that anyone who is considering making the switch to being an advisor should work as an associate first for a large, successful team. You learn more on the job than they ever teach you in the courses required. Not only that, if you’re smart about it, you can just take over a large book later on. It would be a good time to get into the business that way, because you won’t have much worry about putting food on the table (you’d be paid a base) and their will be a massive transfer of clients since the average age of advisors is around 50. Lots of books for sale in the next decade I imagine.

    There’s so much more to it though. I should probably write a series on being an advisor and considering it – I get asked the same questions quite often.

    As to whom the career is right for? Very few. But maybe 10% of jobs in the financial services are advisor jobs. There are many other jobs out there. Analysts, researchers, wholesalers, admin, product development, managers, etc. Tonnes of jobs without 100% commission structures.

    Keep in mind that about 70-80% of people fail at this job.

    Good breakdown of points FT.

  7. Preet, how does one “take over” a book from another advisor? Is it sold from one advisor to the other? If so, how is the book valued for the basis of sale?

  8. 8. starvx

    When an advisor wants to leave the business it is common form them to sell their book of business (client base) to another advisor. Typically the payment is about 1 years revenue. (avg. 1%) The payout can be spread over a number of years and also depend on client retention. Every agreement is different, just as every book is different.

  9. 9. Cash Canuck

    I used to be a financial advisor with one of Canada’s largest insurance companies. Note, “used to”. The job had very little to do with the things I love about personal finance, the analytical aspects. It was commission based compensation and VERY heavily weighted towards proprietary life insurance products.

    The absolute worst part of the job (for me) was prospecting. This is a daily grind of contacting potential clients (often cold-calling) with the hope that they would grow into a “lead”. I eventually got sick of the repetitive rejection.

    The compensation scheme also felt very restrictive. Quite often, what was best for the client would result in very little or no monetary benefit to me. This may sound selfish, but I do need to put food on the table. The reality is that a majority of financial advisors are compensated based on commissions. In my case, the commissions were approximately ten times (!) greater for a universal life policy than for a term life insurance policy with the same death benefit. Also, the company only bothered licensing their advisors for life insurance sales, leaving mutual funds licensing and CFP training as an afterthought.

    I did consider moving to an independent financial planning company, but my experience left such a foul taste in my mouth that I completely changed careers. Now I’m a happy tradesperson and I only bother with managing my own money.

    I don’t consider my experience in this job as a “failure”. I see it as a learning experience about myself, and about the financial planning industry. Remember, nobody cares about your finances more than you do.

  10. You hit the nail on the head with “It’s a sales job.” Nothing more nothing less. The objective is to sell a product and that is the underlying conflict of interest.

  11. Very interesting posting and comments.
    I would really emphasize the strong networking/social skills required for the job together with the expertise.
    A beginner should focus on finding the strongest team in the city and do whatever necessary to join it.

  12. 12. BizBlogged

    The financial services has a very good future.It’s like a ocean there are so many thing’s to read when it comes to finance.

  13. Unfortunately it’s true that the financial services industry is mainly a sales driven market.

  14. 14. RJ

    I believe there are several misconceptions about financial advisor’s (not without reason) the regulators are coming down very strong on advisors and firms. I would say most of it depends on your firm. I am very happy with my firm and our principles, objectives and client focus. Rated nr.1 in canada for 3 years in a row by JD Powers and Associate in Client Satisfaction. Our main goal is the CLIENT anything else comes after that. Yea it a sales job, but it’s something the clients would have to purchase ANYWAYS. I used to work for an insurance company before, and I agree that their main goal was to sale insurance products and no training of tools provided for investments and that is why i left that company.

    1. On commission, the first few years can be hard VERY VERY HARD! (my firm provides a salary for the first year after 6 months of training).
    The misconception here is that you always have to be in a Back load (DSC) mutual fund to get paid. Not always, you can opt for the front end fees and pay commissions that way, somebody has to get paid for the service/advice/research they provide you with.
    There are also the option of having managed accounts, where we charge a percentage of your assests under management regardless of the trades (only worth if the client large amount of investable assests)

    2. Education is a BIG emphasis. If you want to stay in the industry there is continuing education requirements set by the regulators which include ethics and regulations courses.

    3. MDJ mentioned that you do not want to talk to clients during hard times. At our firm we do the opposite! We call clients and meet with clients to educate them about the market situation and since our philosophy is buy-hold we emphasis quality investments. We have a analyst team who always keep us up to date with buy/hold/sell recommendations and reports we can provide to our clients. We do not believe in hiding from our clients during bear markets, because that is the time they need us the most.

    4. Conflict of interest? yes there maybe some SLIGHT conflicts, clients always have several choices to pay for services which reduces any potential conflicts (DSC or front for Mutual funds or Managed accounts). I mean they have to pay SOMEHOW for the services they receive.

    Not everyone has time or passion to follow the markets, and as most of you know it takes a lot of education, time and effort to keep up so many people do not have the time hence they use our services.

    Rewards:
    Rewards can be tremendous in the industry. Besides VERY VERY good financial rewards there are many others.
    Our firm is a strong believer in Communities, so we develop very strong relationships with the community we work in. With schools and charity organizations, with sport teams, we build very strong and long lasting relationships with our clients.

    If you have a passion for helping people, desire to succeed and do not mind a few rough years this career can be very rewarding.

  15. 15. Ed Rempel

    HI FT,

    Interesting article. Most of your comments are bang-on and objective, as always. I have a different perspective in several areas based on experience, though.

    First, it is only a frustrating career if you lose your integrity and do something other than what you believe. I find my career as a financial advisor to be immensely fascinating and allows me to focus on my finance enthusiasm every day, as well as rewarding in being able to make a difference in people’s lives. It took a long time and experience before it became really rewarding, though.

    I found the key is to always recommend what I believe. I started by focusing on financial planning (since I believe most people need it more than investment advice), professional money management (not my stock picks) and integrity (always recommending what I would do in a client’s situation). I never recommend a strategy or buy any investments other than what I recommend for our clients. It took about 10 years to figure out how to make a good living this way, though.

    Second, it is possible not to have it be a sales job. Unfortunately, most of the financial industry is just sales jobs, but it is only sales job if you make it one and if you do something other than what you believe.

    I was an accountant before and have always been really bad at sales. So, I decided to always maintain the position of being a professional and always stop whenever I felt I was switching to a sales role or may be perceived as being in a sales role. It was a bit strange to stop mid-sentence talking with someone I just met!

    However, I would always ask myself how an accountant, lawyer or doctor would handle the situation, and go back to that. None of these professionals need sales training, sales illustrations, or closing techniques, so I never took any training in any of these. They only ask questions to find out what the client really needs and then recommend it. If a client really needs a financial strategy to have the life they want, then closing techniques are irrelevant.

    Third, the conflict of interest of financial advisors with DSC is usually exaggerated. There are over 8,000 mutual, seg or hedge funds in Canada and as an independent advisor, about 5,000 are available to us. The compensation is almost identical from fund to fund (5% DSC or 0-5% front end, .5% trailer on DSC and 1% on front end).

    The only funds not available to us are a couple of the banks and insurance companies, and a few no load companies. We have found that we have access to all the top fund managers, though, and essentially never come across a money manager we would want to use that is not available to us.

    DIYers usually don’t like DSC because they want flexibility to market time, but that is exactly why DSC works (and market timing does not). There is really still flexibility anyway when you work with an advisor, since it is always possible to change any fund even in DSC by either switching within the fund family or rebating the DSC fee if switching to a different fund company. We go with the assumption that the client should never pay the DSC fee if they are following their long term plan.

    We find that the conflicts of interest are mostly in in-house products or insurance. People should never buy the mutual funds or wrap programs from their advisor’s or broker’s dealer, since how will they ever know if they are getting real objective advice.

    As Cash Canuck mentioned, in the insurance area, compensation if far higher for universal life or whole life, when the vast majority of clients only need term to protect their incomes. Investments are almost always better handled outside of insurance policies where there are for more options. For this reason and because I would not buy them personally, we don’t recommend UL, whole life or return of principal options. Insurance is not very profitable with just term (plus some disability and critical illness). Unfortunately, we have not yet figured out how to make much money with insurance without sacrificing what we believe.

    Fourth, a fee-only planner may not be the answer, since it is ends up being just a short term advisor. We decided to be commission-based, because we only want long term clients. We found people do not usually want to keep writing a cheque every year, so fee-only solutions tend not to last.

    We also found that most Canadians don’t want to pay when there are other options. We are used to getting advice free, such as from doctors. Doctors also theoretically have a conflict of interest, since they often get very generous trips, entertainment, gifts, etc. from drug companies for recommending their drugs, but few Canadians would prefer a doctor that they have to pay with their own cheque.

    Fifth, if you are thinking of a career, make sure that you never need a sale to put food on the table. I started part time until I was in a position to survive without commissions for years. It helped that my wife made a good income.

    Find a mentor and focus on learning, not on making money. The learning curve is huge! I was an accountant before and took my CFP immediately, but when I look back now, it was year 7 before I really started giving really good advice.

    We’ve been hiring junior advisors on a salary + bonus basis and putting them through years of training, for exactly these reasons – so they can focus on learning and integrity, and don’t have to worry about commissions for the first few years.

    Ed

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