As a potential career, the financial advisory business looks alluring.
The broker ranks are projected to increase by 30 percent through 2018, a much faster than average rate according, to the Bureau of Labor Statistics. Financial advisors earn median annual compensation of about $90,000, also well above average for college graduates, says Payscale.com.
And there is currently less competition to become a broker than other occupations. Careerbuilder.com counts 1.03 job seekers for every open FA position compared to 9.22 applicants for every retail opening and 10.03 for every position as a firefighter.
“In the wake of the recession, people are looking for guidance on how to build financial security after depleting short-term savings, tapping into retirement funds and losing home equity,’’ says Jennifer Grasz of Careerbuilder.com. “We see more demand for financial advisors.”
The numbers may add up for a career dispensing investment advice, but what looks good on paper can turn out to a much bigger challenge. Consider that about two-thirds to three-quarters of candidates entering FA training programs are out of the business within five years.
“It’s a tough business" to get into, says Kevin Alm, a partner responsible for branch training at Edward Jones, which develops financial advisors from the ground up rather than poaching top producing brokers from other firms.
Before you sign up for an FA training program, consider whether you have what it takes to survive in sales. Here are the qualities industry veterans say are essential to making it as a financial advisor.
You’ll need strong investment knowledge to pass the Series 7 examand gain your license to sell securities, but what you know is not nearly as important as who you know and how you communicate with them.
A Sales Mentality
Al Pacino’s character in Glengarry Glen Rosswasn’t lying: It’s all about the leads. The first three to five years of a brokerage career is a numbers game. Every training program stresses making contacts, turning them into leads or prospects and then closing them as clients.
This means making 300 cold calls per day and hoping one in 20 results in someone even picking up the phone. You can also choose to knock on doors, which Edward Jones stresses, in residential areas or small business districts with the goal of making 25 to 30 new contacts per day.
Participating in local associations like the Chamber of Commerce and holding free seminars are other ways to meet potential clients.
“New advisors can't be stifled by sales shame,” says Bill Nicklin, CEO of financial advisor consultant Horsesmouth.com. “If you can't confidently discuss why someone can benefit from your services, you're in trouble.”
An Established Network
A great salesperson can build a book of business from scratch but it sure helps to have a network of family, friends and professional contacts to open doors for you.
Barry Krouk, head of talent management at Morgan Stanley Smith Barney, likes to recruit seasoned, successful professionals with a full rolodex to tap for referrals. Using your network to prospect can make it easier to establish trust or familiarity with prospects, what they call in the business turning cold calls into warm leads.
“You have to have built some support system or foundation and rely on these folks to broaden who you meet and work with and lead you in the right direction,’’ Krouk says.
Beyond a personal network, establishing relationships with centers of influence is also critical. These include accountants, estate and trust lawyers and other professional service providers who can refer their clients to you for investments. Some financial planners will develop a game plan for clients then send them to a broker to handle trading.
Comfort with Variable Compensation
While the industry is moving toward fee-based pay determined by the amount of assets under management, newer brokers can’t survive without commissions. Having experience with in a performance-based position can help, says Edward Jones’ Alm.
The larger national firms including MSSB and Merrill Lynch pay a partial salary for up to three years from your start date. From then on, however, compensation is based on a percentage of monthly sales.
To replace a $5,000 monthly salary, a newer broker would have to generate monthly commissions of roughly $13,000 to $17,000.
That’s based on brokers getting an average payout of 30 percent to 40 percent on all commissions. To get to such a commission level selling mutual funds with a 5.75 percent sales charge or load would require total monthly sales of more than $230,000. For stock trading, the total would need to be even higher.
Tenacity and Thick Skin
Few professions expose participants to as much rejection as the financial-advice business. To make it past “No” over and over again requires persistence and resilience. Seasoned advisors say it can take a half dozen or more contacts to turn a prospect into a client.
And trying to push your way into as personal a matter as investments and net worth can be met with some harsh responses, especially if you inadvertently reach a prospect on a do-not- call list.
“As much as we teach in training, until you get out there and get beat over the head for a month you don’t know what it feels like,’’ says Alm, who cites fear and not making enough contacts as the two factors that derail most new brokers.
Edward Jones advocates a systematic approach to winning new business that relies on hard work, discipline and effective planning and organization. Trainees who can differentiate themselves by turning contacts into relationships are the ones who survive. Most will know within three to five years if they can make a career as a financial advisor.
“This is a very rewarding, lucrative career for the right person,’’ says MSSB’s Krouk.
Are you that person?