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Saturday, January 4, 2014

Paths to Becoming an Excellent Financial Planner


It is no secret that the demand for financial advice is increasing as Baby Boomers continue to enter retirement. Nor is it a secret that the average age of financial advisors is 50 years (or older, depending upon the survey). Less than 5% of the existing 316,000 financial advisors in the country are under age 30, according to Cerulli Associates. The Bureau of Labor Statistics reports that job growth for financial advisors will far outpace the average job growth in the U.S. over the next several years.

Does this mean huge opportunities for graduates of undergraduate financial planning programs? Yes … but with some caveats.


Financial planning is a hugely enjoyable career. Financial planners report high levels of job satisfaction as their careers progress. Many experienced financial planners, with established practices, work just a few days a week. Others travel extensively, connecting with clients and their home offices with technology. There is certainly a tremendous opportunity for a great lifestyle – for the experienced financial planner.

I was an estate and tax planning attorney (which I enjoyed tremendously) for fifteen years. Yet, when I chose to become a financial advisor I found new heights of pleasure in counseling others. I possessed even stronger, deeper relationships with my clients. And I was able to guide them in all aspects of their financial lives. For me (and many others who chose to become financial advisors), there are immense personal rewards in seeing individuals achieve their goals in life.

In order to truly enjoy being a financial planner, you must truly enjoy helping other people. It's often said, by experienced financial planners, that they should have secured a minor in psychology. Certainly financial planning today is a lot of discerning a client's true feelings and emotional obstacles, and advising in such a manner that the client actually makes changes to their behavior.


The keys to becoming an excellent financial are … getting the knowledge, and then gaining the experience.

I like to tell my undergraduate students that I can turn anyone into a good investment counselor within a year (the time it takes to truly understand how to implement and manage an investment strategy based on Fama-French multi-factor models and passive investment strategies). (Note - to become a skilled active manager of investment portfolios will take much, much longer.)

But, providing comprehensive financial advice, takes many years to master. There is simply a great deal to know. Both the breadth and depth of the knowledge base are large. Federal tax laws. State tax laws. Planning for retirement. Planning during retirement. Insurance needs analysis and policy analysis of all shapes and sizes. Estate planning. Investment product due diligence. And so much more.

It's not just "book mastery." It is also the application of these concepts to many varied types of client situations. The answer for one client may be quite different than the answer for a similar client - simple because a few circumstances are changed. 

And, just as important, one needs the ability to “connect the dots” – i.e., to see how one financial decision might affect another financial decision (or goal, or strategy). While some of this can be obtained in college, much more of this is obtained through actual real-world experience.

In other words, becoming a good financial advisor is about gaining not only a great deal of knowledge, but also experience.


And let’s not forget certifications. While not required to practice as a financial planner, proper certifications indicate to prospective clients that you have invested in a foundational body of knowledge and that you are committed to the profession.

By far the most recognized, by consumers, is the Certified Financial Planner™ certification. But there are many others. The Chartered Financial Analyst (CFA) designation is perhaps the most respected, within the industry, especially if you desire to undertake active portfolio management. The CPA/PFS  (Personal Financial Specialist) designation is widely respected – and many Certified Public Accountants become financial advisors (especially later in their careers) and gain this designation.

It takes a strong effort (i.e., lots of time and study) to get these certifications and/or designations. But any one of these certifications is well worth it.

(Hundreds of other certifications exist, which I don’t mention herein; some are good, others are not.)

So, the reality is – anyone entering financial planning as a career needs to gain a great deal of experience. How? And - in what type of environment will such experience be obtained?


This leads us to discuss different business models.

As I’ve often written about, there are two basic forms of business relationships. One is the sales relationship – between a product salesperson and a customer. This form of relationship continues to dominate the financial services industry today.

The other form of business relationship is between a fiduciary and her or his client. This is a pure advisory relationship. Fee-only financial advisors, who receive no commission-based or other product sales compensation, and who get paid only by their clients, practice in this manner.

And then there are many hybrid forms of business models. In some models a comprehensive financial plan is prepared in a fiduciary (advisor-based) engagement, and then the relationship changes and the customer is sold financial products. In other models both advice and product sales occur at the same time.

Most of the disputes within our industry, regarding what duties a financial planner owes to her or his clients, involve these hybrid business models. In reality, there is no such thing as “pure sales” relationships in financial services anymore – nearly everyone offers advice as part of what they do. Nor are most “pure” fee-only financial planners free from all conflicts of interest – recommendations (such as relating to the use of funds to pay down debt, rather than invest) can affect the advisor’s future compensation. We could argue for years whether these developments should be permitted to continue, or not. However, the subject of the fiduciary standard, and its applicability, is far beyond the scope of this article.

Let’s just conclude with the observation that, regardless of what type of firm you go to work for, you will be providing financial advice in some fashion.


Regardless of business model, you will also need licenses to practice. There are three main licenses, associated with the three main types of financial salespeople / advisors today.

Registered representative of a broker-dealer firm. This requires Series 6 (mutual funds) or Series 7 (general securities) licensing. To pass these tests often takes 2-4 weeks of hard studying, then a 3-hour exam at a testing center. A brokerage firm must sponsor you for the test. A Series 63 test (state securities laws) is also required to be passed.

Life/annuity sales license. This is a state (not federal) examination. Most study for a week or more, then take the test. Most states require taking some form of class. Many states require a life insurance company to sponsor you, in order to take the test.

Investment adviser representative of a registered investment adviser firm. This requires passing the Series 65 exam (or Series 66, if you already possess the Series 63). Most investment advisory firms will sponsor their new employees for this exam, which takes about 3-5 weeks of hard studying followed by a 3-hour exam at a testing center. Unlike the other licenses, a person can file a Form U-10 (which can now be done online) and take this test, prior to being hired by a financial services firm.

While “fee-only” financial advisors typically only possess the latter (Series 65) licensure, many financial advisors who work in hybrid sales/advice environments possess all three licenses. Often employers will seek to have their employees gain one license, then another license several months later, and the other license some time thereafter.


So – how does a new entrant into the financial planning field obtain both knowledge and experience?

First, realize that there are now well over 100 undergraduate financial planning programs in the United States that have been certified by the Certified Financial Planner Board of Standards, Inc. All of these programs offer courses designed for graduates to gain a background in the subject areas covered by the CFP® examination. And many programs offer many additional courses, as well. Students going through these programs will be exposed to a variety of hypothetical case studies that are designed to assist students as they enter the real world. And many programs offer exposure and training to various software programs commonly utilized in financial planning firms.

If a prospective or current undergraduate student has an interest in helping others – i.e., counseling others – and an interest (or aptitude) in investments, taxes, business, etc. – they should check out these programs. (Here’s my plug for Alfred State’s program – a four-year residential college environment in upstate New York, within a long days’ drive of the majority of the U.S. population. And excellent professors in its Business Department and Financial Planning Program, all with substantial real-world experience. We also require students to take a full-semester, full-time internship in their last year - thereby enabling substantial real-world experience to be gained.)

But – before you rush in to the financial planning field – I suggest that you take some personality tests. I’ve had students in other majors tell me they want to transfer into Alfred State's Financial Planning Program; I always require them to take some career path (personality) tests first. Why? While most end up transferring into financial planning, others will find that their true aptitude (and love) involves a completely different field – from engineering to computer science to becoming a chef. Hence, always invest a little time in uncovering your aptitude and talents, before you change majors! Realize that most people excel doing what they love (and don’t excel in areas in which they lack aptitude).

Second, if you already possess a four-year college degree, there are many good Master’s Programs out there which offer a 1-year graduate-level course of study, enabling you to then sit for the Certified Financial Planner™ exam. And there are many, many certificate programs which offer the seven courses leading to a certificate, which also enables you (with a 4-year college degree in any other field) to sit for the CFP® exam. Many of these certificate programs offer online courses; others are based at colleges and universities around the country.


The prior discussion focused on gaining the requisite baseline level of knowledge to enter the profession. But how about gaining experience? Here’s where it can get tough.

"True" Financial Planning Firms.

For most of the graduates in the top half of my graduating classes (G.P.A. of 3.0 or better, usually, although other personal attributes are important), jobs are available in what I call “true financial planning” firms. In other words, these students will usually land a position in which they do much more comprehensive financial planning (or the support for same), rather than selling investments or insurance products. Even in the limited job market of western New York State, such jobs are available. And, nationwide, many, many jobs are available for qualified applicants, and their is employer competition for the top talent coming out of undergraduate financial planning programs.

Jobs with true financial planning firms involve hard work, but rarely more than 45-50 hours a week. Of course, such firms expect their new employees to be studying to obtain their CFP® certification and/or various licenses or other designations. And, many of such firms desire their new employees to join and actively participate in various community organizations – i.e., start networking. So, the 45-50 hour work-week, at least during the first few years, is really a misnomer. Expect to lead an active life, as you continue to invest in yourself.

The career path in such true financial planning firms is often well-planned. As experience is gained new employees move, over time, from purely supporting roles to that of a “junior advisor” (often mentored by a senior advisor), then on to a senior advisor. In larger practices various specialist positions may exist. Often the opportunity exists to become an equity owner of the firm. In this regard, the career path is often 5-10 years in duration. And, as experienced financial planners will tell you – it takes that long (with lots of exposure to a lot of different financial planning issues and clients) to become a truly excellent and experienced financial planner.

"Sales" Firms - Where Financial Planning is Only Incidental.

Some top graduates, and most students who graduate in the lower half of each class (as ranked by GPA), will migrate to sales-type jobs. Often these new employees receive a base salary during an initial training period (and may, in some cases, thereafter). But the major part of their compensation comes from sales of financial products and/or insurance.

This tends to be a higher-pressure environment. Some firms literally suggest to new employees that they work 70- to 80-hour workweeks. (Other firms don’t require such long hours.) Those who are successful at sales often become – at least initially – the most highly compensated financial planners in the 2-5 year time frame after they graduate. And, along the way, the financial advisors in their firms learn valuable insights into dealing with clients, and they acquire experience in many aspects of financial planning.

Some firms offer exceptional mentoring and a clear path to becoming a good financial planner. But other firms hire with the view that they will keep only those select few who turn out to be great salespeople. (While the number of such firms is decreasing, they still exist.)

The number of jobs in sales-oriented firms continues to be greater than the number of jobs in what I call true "financial planning"-focused firms. Over time this is changing, as the industry evolves to  more advisory-focused business models; but the transition will continue to occur over many years to come.


Like law and accounting, once experience is gained it is easy to hang up your own shingle. And, as any business professor will tell you, if you really want to make serious money, own your own firm.

Not everyone should seek to own their own firm. Why? First, your current firm may provide excellent opportunities for advancement and/or equity ownership - why leave a good thing? Second, entrepreneurship skills are not possessed by everyone. (However, even then, partners might be found who do possess the traits needed to move a firm forward, structure and conduct its operations, etc.)

So, some financial planners – especially after gaining a few years’ (or more) of experience – will likely go “out on their own” and start their own firms. They will relish the independence and reap the long-term rewards which usually result from such a career path.


What about starting your own practice, right upon entry into the financial planning profession?

Of course, nearly every one of my students would shrink away from such a career path. They will point out that one cannot gain experience, without making a ton of mistakes along the way, unless one works under an experienced financial advisor?

Yet, it is possible. How? By reaching out to other professionals within various organizations, such as NAPFA ( - which has a variety of resources for new fee-only financial advisors and a great and active online discussion board. Other worthwhile organizations to check out include the Alliance of Cambridge Advisors (, the Garrett Planning Network (, and the Financial Planning Association (; each organization offers various forms of support for its members, especially new financial planners.

Another path exists, as well. Some firms will hire you and provide you with complete back-office support, including reviews of any financial plans you create by experienced advisors, training, marketing support, etc. One of these firms is Garrett Investment Advisors (, which financial planners from around the country utilize for a broad variety of back-office support and guidance. It’s an interesting business model this firm offers to new entrants into fee-only financial planning, and one that will surely appeal to more and more new entrants into the profession as the years progress.


Like any profession, it takes time to "earn your stripes" and truly be able to practice with a high degree of excellent.

And, like any profession, there exist two major “barriers to entry” to becoming an excellent financial planner – knowledge and experience. Knowledge can be acquired with the appropriate personal investment in course work (undergraduate or graduate work, certificate programs) and also through the course work required to obtain certain recognized certifications.

Experience, on the other hand, is obtained in diverse ways. Some firms offer a professional atmosphere, with reasonable work hours (but, nevertheless, an expectation of new financial planners that evenings will be spent mastering the substantial knowledge base of financial planning and/or networking). At the other end of the spectrum are sales-oriented, pure-commission-based firms, with an “eat what you kill” mindset and a quick exit for those who don't sell enough. In between there are a large number of business models, many with a sales emphasis. Some new entrants will thrive in this sales environment, while others will not.

What I tell my students is this. Whatever type of position you take as an intern, and upon graduation, learn as much as you can. Seek out a great mentor, both within your firm and outside of it (the Financial Planning Association, in particular, does a good job of matching new financial planners with mentors). Attend meetings of your local Financial Planning Association Chapter or NAPFA Study Group or other professional association meetings, to gain exposure to others in the profession and other types of business models. Attend (in-person) industry conferences, such as those put on by the Financial Planning Association, NAPFA, AICPA (PFS section), or others, to gain further insights into all of the diverse business models and practice techniques utilized today. Read, read, read – financial planning magazines, news postings, and blogs.

Regard the first two or three years as a period where you continue to invest heavily in yourself. Then, as opportunities present themselves to you, you will be able to make an informed decision about your future. And, in the process, you’ll gain the all-important financial planning experience needed to become an excellent financial planner.

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