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A Reality Check for Prospective Financial Advisers

Thinking of hanging up your own shingle as a financial adviser, or joining a financial advisory firm? Be ready to live off your assets for at least 18 months, vet your business partners carefully and know what you'll do if you're among the 80 percent who wash out of the field in their first year.

If you've been laid off from your analyst, trading or investment banking job, it's tempting to think you could sell your expertise directly to consumers. But there's more to financial advising than simply sharing your investment strategy.

If you work for a wirehouse, broker-dealer, insurance or trust company, you'll have to hit minimum sales goals, potentially pay your own expenses, and may be limited in what you can sell. To open your own shop, you'll need licenses, products, and a custodian, plus you'll face technology, compliance and legal issues.

Either way, you'll have to come up with your own customers. No one's going to build a book of business for you.

In fact, the only time you'll get marketing support is when you go to a place you don't want to be, like a bank lobby, warns Shane Graham, a recruiter with Kaye/Bassman International's Plano, Texas, Insurance Specialty Practice. "Those guys sell CDs, a couple of annuities, and when a high-net-worth guy drops into the lobby, he'll be sent to the private wealth department and you won't get the commission," he says.

On the other hand, if you hate marketing and can live with a cap on your income, a bank lobby may be just the place for you. "People who do investment planning in banks don't have the patience for marketing," says financial planner Brian King of Forest Hills, N.Y. It's also an option for those who lack the capital to start their own firm.

Barriers to Entry

If you want to work at a brokerage, where your income is likely to be uncapped, good luck finding a training program. Many of Wall Street's biggest names are out of business or have drastically downsized their training. Right now, no one wants to invest in new talent.

Even in good markets, financial adviser employers see a mismatch in their needs and the skills of those leaving Wall Street's deal-making side. "I've never had a minute's luck getting either (financial analysts or traders) placed in financial planning," Graham says. Financial advisers need the energy to hunt new business and the patience to cultivate long-term clients. The most successful join associations, belong to country clubs, and create referral networks among attorneys and estate planners.

If you don't want to work alone, you can sign on with a financial planning firm, a broker-dealer, or an insurance company (if you're willing to sell insurance, too). Most offer a small salary for less than a year, and a commission that's high at first and then declines.

The first-year draw in financial planning is typically $35,000 to $60,000 at best. An inexperienced person can take four years to build a significant book of business, says Frank Woodruff, CEO of Sapient Financial Group in San Antonio. The Bureau of Labor Statistics calculated that in 2006, the average financial adviser earned $66,120, with only the top 10 percent in the field earning more than $145,600.

Under Pressure

The pressure to acquire clients quickly can be intense at broker dealers, notes Deena Katz, chairman of Evensky & Katz of Coral Gables, Fla. "They tend to get them out faster if they're not producing," she says.

Some financial advisory firms seem willing to hire anyone who can dial a phone. They know newcomers will convince relatives and friends to open accounts. When they tire of making 100 cold calls a day and give up, their accounts go into a company veteran's book of business.

All those challenges didn't deter Citibank retiree Dan Olson, CFA, who recently opened his own firm in Forest Hills. "In a sense, I'm unique because I didn't come out of the brokerage house with a book of business intact," he says.

His business offers tax, financial planning and investment management to people with $500,000 in assets or less. Since he didn't have the $5 to $10 million customer base required by the big broker-dealers, he's working with Shareholders Service Group, a small custodian that targets new advisers.

AUTHORDona DeZube Insider Comment
  • An
    12 February 2009

    I do this now and I guess am in the top 10% of producers for the last 2 years. I am done with it though. I just can't deal with the clients anymore. It is annoying to deal with people who take no interest in their money and learning more about managing it. To be blamed for a loss in their account that is less then the applicable benchmarks is insulting and just reinforces the idea that clients are stupid people.
    I am heading to business school to open my options. I will say it is going to be very difficult to leave $160k/yr (all generated by sales, I am 100% commission) with very little managerial oversight for a more conventional 9-5 (more like 8-8) . If I was looking to break into this business I would look to the AIG Retirement, AXA, MetLife Resources, TIAA-Cref positions to eat. These will give you a base and a book of business. Get some experience and spin-out of that.

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