How to be a Financial Advisor

Author

Frugal Banker
August 14, 2023

This will not be a newsletter about how to create the perfect Roth conversion ladder or analysis of individual securities, or any investments at all.

No, this newsletter is about the practice of financial advisory: the firms, the practitioners, and the steady and increasingly quick shift in focus from the client to the bottom line.

This is a sort of canary in the coal mine for the financial advisory industry and those that love and/or loathe them.

I am going to write all manner of criticisms about our industry. Of course my criticism isn’t about you or your firm, unless you happen to read something that makes you a little uncomfortable, then it’s definitely about you.

Defining Terms

This isn’t a legal document, but it’s best if we all get on the same page about a few terms:

  1. Financial Advisor: Anyone who offers financial advice to clients. (Portfolio managers, CFPs, insurance agents, relationship managers, salespeople, trust officers, bankers, etc.)

  2. Financial Advisory Industry: Includes banks, warehouses, RIAs, insurance companies, financial advisors, etc.

  3. Clients/Prospective Clients: The end user of our advice and counsel.

  4. Firms: Employers of financial advisors.

How to be a Financial Advisor

  1. Give advice to a client or prospective client about financial matters in return for compensation or potential compensation.

  2. See #1.

That is the only requirement to be a financial advisor. When I got into this business I thought there was a long list of requirements needed to become a financial advisor. I was wrong.

If you can fog a mirror (and hold licenses and/or certificates if required by your firm); congratulations you can begin providing financial advice in return for compensation or potential compensation.

This is a glaring problem. Simply knowing what a security is and being able to identify one 70/100 times on a test does not make you qualified to advise anyone on their finances.

Why did you get into this business?

Everyone in the financial advisory industry has been asked this question at least once by someone not in our industry and many more times by other people in our industry.

We all know how to answer with our own version of

“I got into financial advisory because I wanted to help clients.”

- Every Financial Advisor in the History of the World

That may very well be true, but if anyone looked at the way the firms train us and the way we all behave they wouldn’t believe it for a second.

There are three main buckets of training everyone at every firm goes through:

  1. Regulatory/Compliance/HR Training

  2. Sales Training

  3. Client Focused Training

In my experience 50% of the training is Regulatory/Compliance/HR, 40% is Sales Training, and 10% is client focused training.

(Yeah, these aren’t scientific numbers…but you were nodding your head weren’t you.)

Truth Mirror Time

I bet I’m not the only advisor who’s first thought after losing a prospective client is:

“Damn. That would have been a nice bonus/commission.”

- Definitely Me. (And you, too, you greedy little bastard.)

Why? Why on earth isn’t our first thought:

“I don’t think they are going to get the same quality advice from John Q. Public. I really could have helped them navigate [major financial issue].”

- Future Us (I hope.)

The reason is that while we tell people we are in the financial advisory industry…we are actually in the financial SALES industry. The focus is on growing our AUM, GDC, and/or Revenue not on how well we serve our clients.

Hot enough for you?

Welcome to the Smoke Stack.

Our industry is headed for catastrophe if we don’t realign how we do our business with what our clients need. I don’t care if you are a broker, insurance agent, IAR, RIA, PM, CPA, CFP, or LMNOP and neither do clients.

According to a May 2023 Bankrate survey: More than half of Americans say money negatively impacts their mental health MORE THAN HALF!

Americans don’t need sales people, they need advisors. Real advisors who help them reduce this stress, navigate major life events, and explain (in plain English) how to make smart financial decisions.

I hope in some small way, this newsletter will start an industry wide shift of focus from ourselves and our wallets to our clients and their wallets.

See you next time I fire up the pit.

The Frugal Banker

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