Pros and Cons of Being a Financial Advisor: The Dirty Details Nobody Tells You
NOTE: If you’re a new financial advisor, make sure you check out Your First Year As A Financial Advisor, where I reveal several things every new financial advisor ought to know.
Considering a career as a financial advisor?
It certainly has its perks and provides an amazing opportunity to build a flexible career that provides actual value to clients.
However, I must warn you - this career is not for everyone, and certainly not for the faint of heart. It’s by no means a get-rich-quick solution.
Still unsure if this is for you? Here are all the pros and cons of becoming a financial advisor.
Pros of Being a Financial Advisor
Let’s start by listing all the good sides of this profession.
1. Unlimited Income Potential
This is probably one of the most interesting pros on the list. As a financial advisor, your income potential is essentially unlimited - everything depends on what you put in.
According to the U.S. News and World report, the average financial advisor brings in a yearly income of $90,530. While that number is already a great starting point, those who know what they’re doing make much more than that.
A financial advisor’s income is largely dependent on the number of clients (aka the “book of business” he or she builds). If the financial advisor is managing assets for a set fee (say, 1% or so) then the financial advisor’s income goes up in proportion to the amount of money managed.
Other financial advisors charge an hourly fee. If this is the case, the advisor’s income will increase in proportion to demand for his or her services. For example, advisors may begin by charging $150 per hour but when they max out their time, increase their hourly rate to $200 per hour.
Because a financial advisor’s income is heavily dependent on getting more clients and building a book of business, perhaps the most important skill a financial advisor can develop is good marketing skill. After all, most financial advisors who fail do so because they weren’t able to get enough clients.
ALSO READ: 27 Marketing Tips for Financial Advisors
When you understand the industry, you can do good work for your clients. In this career, you earn what you’re worth - no more, no less.
Over time, with hard work, you’ll grow your reputation and brand awareness to smash through any revenue ceiling.
2. High Growth In This Industry
According to the BLS, there should be a 15% growth in job opportunities for financial advisors between 2016 and 2026, which is much faster than the average of 7% predicted for all occupations. This means an extra 40,400 job opportunities will be added by 2026.
This is mostly caused by aging baby boomers looking forward to planning for retirement, as well as individual retirement accounts replacing traditional pension plans. More and more people will need the help of financial advisors to make a comfortable retirement a reality.
This decade is a great time to get started.
3. Exciting Work Prospects
Financial advisors get the opportunity to work with a variety of interesting clients. As a solo practitioner, you’re not limited to a single type of client or practice area.
Whichever you choose, you’re guaranteed to never be bored. Most financial advisors love the freedom that comes with being able to do what they want and when they want. You can decide to work with a wide range of clients or work exclusively in a niche that you love.
Of course, I try to get financial advisors to choose a niche and specialize in that niche. It makes their lives much and easier and their marketing more effective because they’re speaking to a specific person. The good news is that most financial advisors wouldn’t choose their niches unless they loved them, so choosing a niche is usually an extension of the advisor’s passion.
ALSO READ: 5 Best Niches for Financial Advisors
4. Get Your Own Finances In Order
Since you’ll be spending so much time advising others on their financial situations, being in this line of work is a golden opportunity to get your own finances in order.
You’re essentially paid to learn more about the financial industry - not just for your clients, but for yourself as well. At this point, it’s almost impossible to be surrounded by all that knowledge and not use some of it for yourself.
The benefits are exponential. As you gain more experience, you’ll not only grow your revenue - you’ll understand how to manage it better and get your money to work for you.
This means you can gain an income from your clients as well as your own investments. It’s an “unseen benefit” not many people get from their jobs, and it’s one of the biggest perks of being a financial advisor.
5. Flexible Schedule
Unlike a traditional 9-to-5, becoming a financial advisor means establishing the schedule you want.
Although this is great news for your work-life balance, this also means you can finally cater your schedule to fit your most productive times.
If you get your best work done at 5 a.m in the morning, good for you! Same deal if you prefer sleeping in until noon and feel more productive in the afternoon.
Of course, you’ll still need to schedule time to communicate with your clients during regular hours.
You’ll also find that this is not as true at the beginning of your career. However, if you stick with the hard work, you’ll reap the benefits of a healthy work-life balance later in your career.
ALSO READ: Peak Productivity for Financial Advisors
6. Make Meaningful Changes In People's Lives
Being a financial advisor is rewarding work.
I won’t lie - I love the flexibility and the revenue potential of the job as much as the next guy. But there’s nothing quite like seeing a client succeed thanks to your financial advice.
Often, a financial advisor can provide the difference between resounding success and utter failure. Your financial advice can help clients grow their business beyond what they expected or plan for the retirement of their dreams. It feels nice to have a huge positive impact on people’s lives.
I think of financial advisors as superheroes. In every superhero saga, there’s an evil villain that must be battled. The evil villain in this scenario is financial illiteracy. Consider these statistics:
While some advisors have account minimums (meaning they can’t work with everyone), they still serve a valuable function by striving to improve everyone’s financial situation, one person at a time.
7. Startup Costs Are Low
As an independent financial advisor, you won’t require to shell out a huge amount of money to get started.
There will, of course, be fees for licensing as well as a few other regulatory costs, but this is nothing compared to what it would take to fund many other types of businesses.
For example, you won’t need to pay for office space if you have a proper setup at home. Additionally, thanks to the wonders of modern communication technology, you can gain clients anywhere in the U.S. and avoid expensive travel fees.
Just make sure to invest in high-speed internet, a high-quality camera/microphone for conference calls, and a business wardrobe - it’s generally a bad idea to join a call in your pajamas.
Cons of Being a Financial Advisor
The above list of pros makes this career quite tempting, but don’t jump the gun until you understand the cons as well.
1. Steep Learning Curve
Financial advising is far from an easy job.
You’ll need to master the basics to get any clients and understand what you’re doing. However, it goes beyond that - this industry is constantly evolving, so you’ll need to stay up to date in your education.
If you want to have any chance of earning a good income, you’ll need to learn how to get results for your clients.
Take the General Securities Representative Exam (Series 7) for example. Only 65% of test-takers will pass on their first time. Assuming you’re new to the industry, the recommended prep time for the test is 80-100 hours.
If you’re going to get your CFA, the study time is even more. Each level of the CFA requires a minimum of 300 hours of study. However, if you love learning and improving your skills, this isn’t necessarily a “con” for you.
2. High Stress Industry
Because of the potential volatility of the financial market, being a financial advisor will inevitably generate high-stress.
As a financial advisor, you’ll be asked to wear multiple hats when dealing with clients, as well as deal with second-hand stress from these same clients.
You’ll also be faced with high competition from your peers.
This means you’ll need to learn how to manage this stress. It won’t simply go away with time - high stress is a natural part of the job.
Poorly managed stress can lead to many problems in the long run:
This isn’t just detrimental to your career - it will harm your own well-being. You’ll need to develop ways to manage your stress levels to avoid burning out before you can develop a fruitful career.
According to Financial Planning magazine, financial advisors face significantly more stress than the average profession, with male advisors reporting 26.2% high levels of stress than the national norm.
3. Requires Continuous Prospecting
Getting clients is the hardest part of succeeding as a financial advisor.
To get clients, you’ll need to have a solid marketing plan in place and constantly prospect for work.
Once you have a solid client base and an impressive portfolio, this will get easier, but you’ll first need to establish a sustainable lead generation tactic in your marketing strategy if you want to get there.
One of the biggest problems I see financial advisors face is the “feast-or-famine” approach to building a business. This is when the advisor will market and prospect for a short period of time, get enough client work to keep him/her busy, and then stop prospecting. When the advisor stops prospecting, business stops coming in. Prospecting is like bathing - I recommend you do it daily.
ALSO READ: 15 Financial Advisor Prospecting Ideas
4. Tedious Regulations
Here’s the kicker - you can’t just decide to become a financial advisor and start getting clients the next day.
There are several regulations in place to establish a legal practice. This means you’ll need to get licensed - and make sure to keep these licenses in good standing every year.
The specific regulations depend on your jurisdiction. Sometimes you’ll be required to have a specific college degree. In some cases, licenses can only be obtained if you are sponsored by a recognized brokerage firm.
This means you may have to work for a company before you can branch out on your own.
5. Requires Tons of Upfront Work
I mentioned unlimited earning potential and a flexible schedule as perks of choosing this career.
But that only comes after years of working long hours to establish your career.
It’s not uncommon for financial advisors to put in 60+ hours a week - every week - when starting out. This can last for years without any real certainty that it will get better. I don’t want to tell you that being a financial advisor is nothing but sunshine and rainbows because it does require a lot of hard work. However, the rewards heavily outweigh the price.
There’s a lot of uncertainty at the beginning of this career, which means financial advisors must be willing to endure the grind to see any success in the long run. One example involves referrals - since it’s difficult to get referrals from someone who isn’t a client, advisors must typically build a solid book of business before they see referrals coming in on a regular basis.
ALSO READ: 51 Referral Marketing Tips for Financial Advisors
6. You Need Discipline and Willpower to Succeed
No one is going to tell you to consistently hustle to get your clients results and keep prospecting for work.
No one except yourself.
People who don’t have the discipline and willpower to drive themselves to put in the hard work simply cannot succeed as financial advisors. However, those who can rise up to the challenge can join the elite profession of financial advising and hold their heads high.
The Bottom Line
Choosing a career as a financial advisor is not an easy path by any means.
However, those who stick with it and put in sweat and tears have access to unlimited potential in a truly rewarding line of work.