The following guest post comes on the heels of “Should Your Financial Advisor Be Richer Or Smarter Than You?” where I discuss the plight of the less experienced wanting to break into a notoriously difficult industry with a high failure rate. Ben from Wealth Gospel shares his experience going through training as a junior financial advisor. I can’t help but wonder by the end of the article whether the key to any successful career is to just survive through the initial hardship. Hope you enjoy the insights!
According to the Bureau of Labor Statistics, a career in financial planning is on the up and up. Their research shows that the number of financial advisors is expected to increase by 32% from 2010 to 2020, much faster than the 14% average growth across all career fields. But if you take a look at the current group of advisors, less than 5% of them are under 30. That means the insane growth is more likely to come from career changers than young college graduates. Why is that?
Well, having worked in the industry, I’ve seen first-hand why the younger generation doesn’t want to touch it. But at the same time, I also learned how to scale those barriers that are scaring people away from a potentially lucrative and meaningful career in financial planning.
The Inverted Triangle
We all learned in Geometry that the triangle is the most stable shape because of its wide base and narrow top. But what happens when you flip that triangle upside down? That’s what it’s like to start a career as a financial advisor. There is almost zero stability. And we’re not talking here about starting out on salary. We’re talking pure, commission-only financial planning goodness.
One of the veteran advisors I worked with put it this way: “For your first five years, you’re eating crap sandwiches every day. And if you want to be successful, you have to make the choice to eat that crap sandwich, and you have to love it.” Yum, right? But coming from someone who’s been in the business for almost 20 years and makes upwards of a few hundred grand a year, it was as inspiring as it could get. He had gone through the rough stuff and now has all the stability in the world. The only people who can fire him are his clients.
And that’s what young people don’t understand. They opt for the corporate triangle because it feels more secure: solid salary, benefits and hopefully reasonable hours. Their minds have been filled with thoughts of how bad the economy is and how horrible the future is, so they go with what’s safe. But the higher up you get in that triangle, your stability actually decreases.
Politics, nepotism, and shareholder expectations make it difficult to keep everyone satisfied all the time. My father-in-law lost his job a couple of years ago after working 12-16 hour days for a year to keep his boss happy. In the end, his boss fired him to hire one of his buddies. And the average tenure for a Fortune 500 CEO is just a little bit longer than a presidential term. No wonder so many people switch to it after working the corporate scene for ten or twenty years.
So the real question is when do you want to eat the crap sandwich?
The Crap Sandwich
During your first 5 years in the business, it’s all about the numbers. Decades of studies within the industry show that for every ten people you contact, you can get three of them in front of you for an initial meeting, and one of them will become a client at some point in the next 3 years. So if you’re following those numbers, there’s going to be a heck of a lot of phone calls to a heck of a lot of leads.
When you’re starting out, those are going to be to your family and friends, people you went to elementary school with (“Dude! I haven’t seen you since that time I flicked a booger in your eye!”) and your fellow college alumni (That is, if you were smart enough to keep the directory).
Of course, you don’t want people to think it’s a pyramid scheme, but your other options are to whip out the phone book or go from door to door. Mmmm…can you taste that sandwich? You’re going to get a lot of noes and not a whole lot of yeses. You’re going to lose every bit of confidence you ever had, and if you’re married, your spouse is probably going to start wondering why they married you. You’ll be desperate to meet with people, so if someone wants to do a phone appointment at 6:00 a.m. or doesn’t get off work until 9:00 p.m., their schedule becomes your schedule.
Eventually, you get to the point where you have to decide whether or not to keep chewing. Most people do. In fact, the success rate in the financial services industry hovers around 12%. It’s hard. And if you aren’t good at it, or you don’t have a good network of people to start off with, it only gets worse. It’s important, therefore, to make sure you have a good support system. Find a mentor. Have your mentor’s wife be your wife’s mentor, because she’ll need it too. Leverage your optimism and keep a large reserve of it. You’ll have some great days and great paychecks, but you’ll mostly have really crappy days and sometimes minuscule paychecks.
Average Won’t Cut It
During the last semester of my undergraduate degree, I met with the professor of the Financial Planning course I was taking to discuss my career aspirations. I told him that I was doing an internship with a financial services firm doing financial planning and planned on doing that full-time after graduation.
He looked me straight in the eye and said, “The problem with that job is that you only get paid in commissions.” It was a very condescending tone, but he was right. That is a problem for a lot of people. When looking at information for the company I was working as well as similar companies, the average first-year salary for college graduates was somewhere around $16,000. And that’s just not going to cut it.
Suddenly it made complete sense that the business school pushed investment banking and public accounting so much and did so little to partner with companies like ours to recruit for summer internships and after-graduation jobs. Not only does it kill their numbers to have their “average” college grads reporting $16,000 incomes their first year out of school, but what business school wants to convince their students to take a career with an 88% failure rate? If you want that, get into the entrepreneurship program where failure is actually exciting.
But those numbers don’t tell the whole story. The reality is that the average first-year “commission-
only” salary for the top quartile of advisors is a little over $100,000. We even had one such guy in our office who was just a rock star. At 10 years that average is around $325,000 and at 20 years it’s close to $650,000. Those numbers look pretty awesome, but that’s still the top quartile.
It’s Not for Everyone
The younger generation seems to shy away from that line of work because they’re just not disciplined enough for it. Time management is a huge struggle because, although most companies have minimums you have to meet, no one’s going to keep you on task. And the golf and client appreciation events are fun, but the day to day cold calls and sales pitches…not so much.
You have to be able to maintain focus, have a clear vision of what you want and what you’ll do to get it, and be ready to work your butt off. That being said; it’s not for everyone, and that’s okay. Some people just aren’t passionate about it. Some people don’t have the work ethic. Some people just freaking hate sales. But if you are passionate about it and are willing to eat those sandwiches every day, don’t let those cold hard facts scare you. Being a financial advisor can be a very rewarding experience, monetarily as well as with the relationships you build and the good you can do for people who cannot do it for themselves.
As for me, I’m no longer in that industry because of some private circumstances. My wife and I had an experience that made us decide to move closer to her family. Since we didn’t know anyone there, I’d be moving from a “warm” market where I knew a lot of people and where my clientele was, to a “cold” market where I would have to start from scratch all over again. After a lot of thought, it just didn’t feel right to keep going, so now I’m looking to help people in a different way through writing about personal finance. I’m also working on an online business to help people in the financial planning arena, but that’s still a few years away. Oh, the anticipation!
Readers, anybody else ever work as a financial advisor? Some of the wealthiest people I know are private wealth advisors who work at the big investment banks. They have a huge book of business where they earn an annual fee. Their income is like an annuity that passes on for generations!