In our FAQs and Finance jobs industry information, we answered the question what does a financial advisor do, and if it’s only about sales and prospecting.
In this article, we will introduce some more important considerations to be done regarding financial planning jobs.
- There is a big difference between the types of financial advisors. Keep in mind, an advisor’s title or designations, such as financial advisor, or financial planner does not indicate the type of financial advisor they are. These titles are completely independent of the type of fee structure. There are four main types of financial advisors:
- Commissioned – These financial advisors are often referred to as Brokers, agents of Broker Dealers, or Registered Representatives. The financial advisor receives a commission for selling an insurance or investment product, such as mutual funds, variable annuities, structured products, and insurance. In these commissioned transactions, the financial advisor is not required to act in a client’s best interest but just needs to make sure the investment is suitable. This can lead to conflicts of interest where the advisor is selling a financial product that is suitable, but not in the clients best interest or has higher fees and a higher commission than other options.
- Fee-only – Fee-only financial advisors only charge fees by a percentage of assets managed, a retainer, or by the hour, and do not make a commission for selling insurance or an investment product. An example of this would be if a client has $100,000 in their account, the advisor might typically receive a management fee of 1% per year, or $1,000. Fee-only advisors are required to act in a client’s best interest (a fiduciary standard is a technical term for it). Most fee-only financial advisors heavily advertise that they are fee-only, so you can easily learn if this is the case by visiting their website.
- Fee-based – Fee-based advisors sell both products for a commission and have the ability to charge management/hourly fees. It is a combination of the two above options. This creates some confusion, because at certain times they are required to act in a client’s best interest, and at other times they are not.
- Salaried – Another situation that is becoming more common is salaried employees that can receive bonuses based on the products they sell or assets they gather. This is a form of advisors that is appearing more at banks and credit union locations. They often receive bonuses paid in one of the three ways mentioned above as well so your hard work can be rewarded.
- You can go independent and have your own business. Even though you may start under a companies’ brand and with their training, after establishing your clients you may be able to start your own “independent” business. Some companies require you to sign agreements that don’t allow you to take your clients with you. If the firm you are currently at or potentially joining has signed on to the broker protocol, you may be allowed you to take your clients with you if you join another firm that has also signed it if you move your clients in a specific way.
- You can become set for the rest of your life and pass on your wealth to your family, or sell for a big payday. Gathering clients takes years, but once you have an established book of business, it becomes a real asset that produces income every year. Many advisors are able to take this asset and transition in another family member as an advisor to service these clients after they have retired. Also, you can sell your book of business to an unrelated advisor and transition the business to him or her for a substantial sum of money. If you can keep your clients year after year and have a consistent stream of income, this may become the biggest asset you have!
- Where is the best place to start is? To get a job at a small branch office or family office that does fee-based or fee-only advising often results in more guidance and help from experienced financial advisors and less pressure to sell products no matter what. They hire people to train as advisors and also paraplanners that help create the financial plans for clients. Research small financial advisory practices in your area or branch offices of large firms where it is a small team atmosphere and you are sure to be happier with your career.
