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From independent certified financial planners to chartered financial analysts at large investment firms, financial advisors offer guidance, analysis and asset management to clients. They use their expertise and knowledge of markets and trends to monitor their clients’ portfolios.
In addition to external market factors, financial advisors consider clients’ risk tolerance and personal objectives to develop a flexible plan that they can adjust as needed to achieve their clients’ financial goals.
Financial advisors who handle clients’ investments must adhere to the U.S. Securities and Exchange Commission’s standards for trading securities. Organizations such as the National Association of Insurance and Financial Advisors (NAIFA) and the Financial Industry Regulatory Authority (FINRA) can enhance an advisor’s professional skills and reputation by offering continuing education programs and publishing his or her qualifications in a public directory, such as FINRA’s BrokerCheck.
How Do Financial Advisors Make Money?
According to U.S. News & World Report, the average salary for a financial advisor in 2016 was $123,100.
Financial advisors may be paid an annual salary plus commission, or they may charge a fee equal to a percentage of the assets under management (AUM). In some cases, advisors charge a fee plus commission.
Fiduciaries are generally fee-only advisors because they are obligated to act in the best interest of the client at all times. Commissions would present a conflict of interest for a fiduciary because such incentives are based on selling specific products, as opposed to growing a clients’ portfolio.
What Are the Types of Financial Advisors?
The term “financial advisor” covers a broad range of professionals, which presents a challenge when it comes to categorizing the types of financial advisors.
We could categorize financial advisors in terms of what services they provide —like retirement planning, portfolio management or tax guidance, for example — or the products they sell, such as stocks or annuities.
When referring to financial professionals who sell securities, the type of advisor is a broker-dealer. Insurance agents can sell fixed annuities and other insurance products, but only an agent who has earned his or her Series 7 license can sell variable annuities.
Alternatively, we may classify financial advisors according to their compensation structure — that is, whether they earn a commission or a flat fee or some other payment arrangement, their fiduciary status or registered investment advisor (RIA) status.
And these are only types of human advisors. Clients also have access to robo-advisors and digital advisors that cater to investors with lower asset levels.
For this reason, if you’re considering a career as a financial advisor, ask yourself what area you would like to specialize in and what type of clientele you want to work with.
Would you prefer to work for a large firm, or are you more suited to working as an independent agent?
The answers to these questions will guide you to the appropriate educational and apprenticeship opportunities.
How to Become a Financial Advisor
You must hold a bachelor’s degree in any field to become a financial advisor. Certified financial planners must complete a CFP Board of Standards-accredited certification program in personal financial planning or an equivalent track.
In an interview with U.S. News & World Report, Rianka R. Dorsainvil, a certified financial planner in the District of Columbia, identified the “channels,” or employers in the financial services industry.
- A broker-dealer
- A bank with a financial advisor arm
- An independent firm
The licensing and certification required depends on your chosen career path and the services you offer.
Certifications & Designations
To sell investment products, advisors must pass the relevant FINRA-administered exams — such as the SIE or Series 6 exams — to obtain their certification.
Advisors who wish to sell annuities or other insurance products must have a state insurance license in the state in which they plan to sell them.
Certified Financial Planner
The certified financial planner (CFP) certification indicates that an advisor has met a professional and ethical standard set by the CFP Board. According to the CFP Board of Standards, “CFP professionals have completed extensive training and experience requirements and are held to rigorous ethical standards.”
Financial advisors pursuing the CFP designation must pass the CFP Certification Exam. The exam covers financial topics including financial planning, tax planning, retirement and estate planning, and investment management and insurance.
In addition, applicants must have at least three years’ experience with the financial planning process to qualify for the CFP designation.
Chartered Financial Analyst
Chartered financial analysts, or CFAs, have several career paths within various investment management sectors. CFA charterholders can provide clients with services such as wealth and asset management, commercial and investment banking and insurance.
- Portfolio management
- Risk analysis and risk management
- Investment strategy
Personal Financial Specialist
The personal financial specialist professional designation is offered and recognized by The American Institute of Certified Public Accountants (AICPA).
To qualify for the PFS designation, advisors must hold a valid CPA license and be a current member of the AICPA. You must have earned a minimum of 75 hours of continuing professional development and completed 3,000 hours of business or teaching experience within the five years prior to applying for the PFS designation.
You must also pass the PFS Exam unless you have passed the CFP or Chartered Financial Consultant (ChFC) exam — in which case, AICPA considers you to have met the exam requirement.
Resources for Financial Advisors
Whether you’re looking for information on industry regulations, the latest financial news or career development and training opportunities, resources for financial advisors abound.
Government entities, advocacy groups and self-regulating organizations (SROs) offer subscriptions, memberships and publications to suit the needs of financial professionals at every level.
Among the many authoritative sources of information for financial advisors are:Association for Financial Counseling & Planning Education
AFCPE’s mission is to certify and support financial professionals across the globe to promote integrity and competence within the financial industry.
CFA Institute touts itself as the “premier global association for investment management professionals” and pursues its mission through education and advocacy.
CFP provides financial advisors and planners with training and certification to ensure that CFP professionals are able to develop holistic financial plans for their clients at all stages of their lives.
FINRA is an SEC-supervised nonprofit that supports investors, firms and policymakers to “create a regulatory environment that promotes collaboration, innovation, and fairness.”
NAFPA is an association of fee-only financial advisors that requires members to sign a fiduciary oath, which is renewed annually, and subscribe to its code of ethics.
Sign up for newsletters and alerts from your favorite organizations to ensure you’re always up-to-date on the current financial landscape and can advise your clients accordingly.
Tips for Talking to Clients
Engaging clients starts with active listening. Taking the time to listen to your clients and respond with an earnest value proposition is the key to building trust and loyalty. The very nature of the financial advisor’s work requires a high level of confidence and comfort.
- Provide greater access to information.
- Check in with clients more often.
- Ask thoughtful questions instead of “outlining or prescribing preformed strategies.”
- Get to know clients deeply.
- Consider each client’s concerns and goals.
Your clients’ success — and ultimately your success — depends on your willingness and ability to listen without allowing your own agenda to influence what you hear and to respond with a solution that fits the client’s needs. If your clients feel misheard, misunderstood or neglected, they won’t trust you.
Likewise, if they are confused or overwhelmed by language and jargon they don’t understand, they won’t trust you.
New, less experienced advisors sometimes get too caught up in the features of a product that they forget to listen to their clients. Trying to sell a client on a product with features she doesn’t need will quickly erode trust and may cost you the relationship.
13 Cited Research Articles
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- AICPA. (n.d.). CPA/PFS Exam. Retrieved from https://www.aicpa.org/membership/join/pfs-exam.html
- AICPA. (n.d.). Credentials. Retrieved from https://www.aicpa.org/membership/join/credentials.html?tab-1=3
- Association for Financial Counseling & Planning Education. (n.d.). About Us. Retrieved from https://www.afcpe.org/about/
- Certified Financial Planner Board of Standards. (n.d.). CFP® Certification: The Highest Standard. Retrieved from https://www.letsmakeaplan.org/how-to-choose-a-planner/why-choose-a-cfp-professional
- CFA Institute. (n.d.) Mission & Vision. Retrieved from https://www.cfainstitute.org/en/about/vision
- CFA Institute. (n.d.). What Does a CFA® Charterholder Do? Retrieved from https://www.cfainstitute.org/en/programs/cfa/charterholder-careers
- FINRA. (n.d.). About BrokerCheck. Retrieved from https://www.finra.org/investors/learn-to-invest/choosing-investment-professional/about-brokercheck
- FINRA. (n.d.). About FINRA. Retrieved from https://www.finra.org/about
- Forbes Finance Council. (2020, February 24). 16 Strategies To Help Financial Advisors Improve Their Customer Service. Retrieved from https://www.forbes.com/sites/forbesfinancecouncil/2020/02/24/16-strategies-to-help-financial-advisors-improve-their-customer-service/#22a486bc9ed1
- Hicks, C. (2020, January 30). How to Become a Financial Advisor. Retrieved from https://money.usnews.com/investing/investing-101/articles/how-to-become-a-financial-advisor
- NAIFA. (n.d.). Who We Are. Retrieved from https://security.naifa.org/who-we-are
- NAPFA. (n.d.).The National Association of Personal Financial Advisors | NAPFA. Retrieved from https://www.napfa.org/
- Snel, R. (2020, March 25). Vanguard Moves Ahead With Digital-Only Robo-Advisor. Retrieved from https://www.barrons.com/articles/vanguard-moves-ahead-with-digital-only-robo-advisor-51585154322