How hard is it to be a financial advisor?

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How hard is it to be a financial advisor? A lot of people pursue this career because once you get established it is a very nice business. However in getting established it is brutal, bloody murder. Some people get to it fast and other people have been in the business for decades and they’re still going through it.

Why is it so difficult? For the five reasons below.

But before we get into it, for those of you who are new to my blog/podcast, my name is Sara. I am a CFA® charterholder and I used to be a financial advisor. I have a weekly newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” So please subscribe!

Let’s get on with the blog!

#1 It’s a high liability job

People are emotional about their money. Everyone has some illogical belief about money, even logical people, and there ain’t no telling ‘em any different!

Finance tends to draw in people with an inclination towards the analytical. And when they get into the role of a financial advisor, they find it is anything but and that most of the time you are managing people’s emotions, not their money. Even if you do everything right technically, the client can sue you because they feel they weren’t treated fairly – which is true in any profession – but in this one, the legal repercussions are very serious.

Assessing risk tolerance is a huge source of liability. The financial rewards for getting your clients to invest in equities as opposed to bonds or cash are higher. You are intrinsically motivated to get your clients to take on more risk. This bias makes it hard to determine your client’s true risk tolerance; it goes way further than just the risk tolerance questionnaire, and most FA’s don’t put enough energy into that because their emotions are acting on them too, moving them towards doing what they love – seeing the money in the account ready to be plugged into their model.

Action steps

  • Listen and understanding in the first meeting. Every train wreck of a personal and professional relationship I have ever gone through, it was clear to me in the beginning but I missed the signs. Luckily I learned a thing or two.
  • Be careful about who you won’t do business with in the beginning. Learn to say “no” to ward off those damaging clients.

#2 It’s unfairly competitive due to low barriers to entry

 First of all, let’s establish that financial advice is an industry not a profession. The insurance, wirehouse, and broker dealer training programs will take anyone they can teach to sell as long as they don’t have a major criminal record. These training programs are straight out of the 1980’s and are run by management who know how to play the game.

It’s abhorrently sales-focused. Basically the trainees are taught that they are to sell their product to anyone who trusts them enough to buy it within three months, and if they don’t sell enough they’re fired and the company keeps the clients. It is a major source of business for these firms. There are firm who don’t operate this way, but there is still a huge amount of this going on, and it makes for a very savage competitive environment focused on selling.

In many cases you are penalized for virtue. You have immoral individuals who are willing to lie, they are trained to lie, and going head to head it is hard to beat them because the client can’t see the difference.

The industry and even the regulators all support this, even if they say they don’t, they still do. In fact, why do you think they are always saying they don’t? Why are they always virtue signaling? It’s because they feel there is something to compensate for.

Why is there a fiduciary standard and a suitability standard?

Have you ever heard of a doctor who had to follow the Hippocratic Oath sometimes?

Don’t be confused, this is not a profession where the more qualified people win. It’s an industry where the better salespeople win.

Action steps

  • Get a good mentor with high morals who has learned to compete in this environment.
  • Get good sales training and learn how to market yourself.

#3 It’s not really set up to encourage long term investing

The industry has its roots in Wall Street and there is still the perception that your job as a financial advisor is to be a superior investor. Many advisors are complicit and include this as part of their marketing pitch.

How hard is it to be a financial advisor managing portfolios for clients? Consider these two factors.

#1 Short-termism runs rampant

You don’t really know who is good at management money until you observe their performance over at least one market cycle. Yet there’s no real transparency about track records, so whoever is best at presenting themselves as the next Warren Buffett is going to win.

Investor perceptions are skewed to the short term, and it’s a constant battle to realign them. You won’t win in all cases.

It’s hard to be a patient, long term focused investor because there’s always somebody else better out there who will do a portfolio review for free under the guise of “passing a second set of eyes,”, and convince your client that if they had invested with them for the last three years it would have been better. The client may or may not believe them. Then you have the DIY internet influencers saying they can do it on their own after they simple take an online course, the news and media talking about how you should buy XYZ stock on the dip, the annuity people saying all volatility is bad, etc.

#2 Good portfolio managers are seen as boring

If you do it right, you’re tremendously boring to the client. Being a long term investment manager is boring because you don’t time the markets and this means you don’t really have much to say other than to stay the course when the market dips or to adjust the asset allocation when your client has a life event. You’d better be good at managing people’s emotions during a crash because if you don’t, there are plenty of advisors who will rightly or wrongly be circling around like sharks smelling blood in the water.

Action steps

  • Focus on other aspects of relationship such as clients service, technology, and planning.
  • Improve communications with current client base and their networks using social media, newsletters, etc.

#4  It’s not really a financial job

A lot of people get into this because they love the stock market.

Wrong.

If you are spending your time on Bloomberg all day your practice will suffer. That’s not who succeeds in this business, it’s more likely the people who are willing to be their clients’ personal butler. The personal bond between an FA and their clients is basically the whole relationship. It’s very emotional and you spend a ton of time on things that have very little to do with their actual money.

How hard is it to be a financial advisor?

Very hard, if you got into the business actually wanting to advise people about their finances!

Action steps

  • If you are that unhappy dealing with people’s emotions and would rather be focused only on managing portfolios, then hire someone to do so while you sit in front of Bloomberg.
  • If you want to go manage money, don’t take this job in the first place

#5 Very little difference from one financial advisor to another

Financial advisors who have an easier time attracting new clients are the ones who do set themselves apart, but change brings risk. The more established you get, the rewards for taking risk decrease. It winds up being that across the industry there’s no real difference in service offering due to risk aversion, fear, and complacency.

The more creative you are, the easier it is to get new clients, but most FA’s who are established are unwilling to shake anything up at all for fear of shunning their current clients by introducing change, or losing focus on their practice. Once you get successful and you’re making $300k-500k a year, it becomes even harder to rock the boat.

If you are offering the same thing as everyone else, and this applies to 99% of the industry, it is going to be backbreakingly hard and the odds of making it are not in your favor. New advisors may listen to this message and set up something that is actually different – because they feel they have to, setting up a highly differentiated service offering designed exclusively for a target niche. However most won’t go through the bother of doing so, and the whole cycle continues.

What is the consequence of risk aversion, non-differentiation, and becoming highly set in your ways?

When an innovation happens you’re inherently at a disadvantage because you are doing well enough financially to not accept it, you think. Until a few clients leave or you start to feel the pinch, or you aren’t getting as many referrals as you used to, or you can’t charge the same fees you used to. Innovation can kinda sneak up on you and catch you flat-footed.

Action steps
I’m not a financial advisor anymore, but if were to do it all over again, I would create a highly differentiated service offering laser-focused on a very small niche, and then market directly to that niche on social media and by writing SEO-optimized blogs targeting my niche. I would establish capacity at 70 deep relationships with clients that I provide value to on several different levels and have a constant eye towards how innovation can improve their experience.

How hard is it to be a financial advisor?

To summarize, the five reasons that is it hard to be a financial advisor are:

  • high liability
  • low barriers to entry/immoral competition
  • hard to maintain long term investment focus
  • not really a financial job
  • no differentiation

Did I miss anything?

What is it for you?

Sara’s upshot

What’d ya think? Was this helpful?

If yes…

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Thanks for reading. I hope you’ll at least join my weekly newsletter about financial advisor lead generation.

See you in the next one!

-Sara G

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