4 tips for new advisors

By Mark Noble | January 1, 2010 | Last updated on January 1, 2010
10 min read
climbing on an artificial training wall
© kubais / 123RF Stock Photo

Recruiters always paint a rosy picture about being an advisor: One firm was famous for telling people they could make $600,000 a year by working a four-day week.

Let’s get realistic. The money and career satisfaction that comes from being an advisor can be great, but roughly two of three rookies won’t survive in this business.

There is no magic equation to create a successful advisor, which is why many firms still committed to recruiting new advisors take an approach where they train people on the basics, throw everyone into the lake, and keep those who figure out how to swim a lap.

It’s no black eye against recruiting firms that things are done this way. It’s just too costly to invest countless hours of training into a talent pool where the majority of candidates will fail.

Peter Merrick is a Toronto-based CFP and editor of the recently launched The T.A.S.K.: Trusted Advisors Survival Kit – a go-to encyclopedia for almost every area of financial planning, with most chapters being authored by subject experts.

Advisor’s Edge talked with Merrick, along with two of his contributors, Bob Keats and Greg Pashke, and Yong Kim, who heads recruitment for Edward Jones Canada, about what it takes to survive in the business.

You need to be able to sell

A lot of current discussion looks at how the advisor’s role is evolving from salesperson to technician. And while it’s true this has happened, it’s imperative rookie advisors understand the majority of them start in the same spot, with nothing but a regulatory licensing and a warm-list of prospects.

There are four main ways to generate revenue as a rookie advisor:

  • Commissions on either insurance or investment products;
  • Earning a direct management fee on a client’s assets;
  • Earning a trading commission on securities bought and sold on the open market; or
  • Charging a fee-for-service to build financial plans.

These revenue models all have one thing in common: without building a client base, you’re not going to make any money.

It’s the sales and prospecting skills which are actually most in demand for this business, says Yong Kim. His firm is willing to teach advisors the technical skills, but they have difficulty finding people with the entrepreneurial spirit necessary to build successful practices.

Kim’s firm did some internal research, examining its top performers and trying to pull out their common characteristics. He says it’s the willingness to put in the effort to prospect and do whatever it takes to build a business that differentiates top performers from also-rans.

“The number-one characteristic of our successful advisors is that they are somebody who is independent and requires minimal supervision,” Kim says. “Every one of our branches has one advisor and one assistant. To effectively run these, we need self-starters who are independent and know what their roles and responsibilities are.”

Kim says he’ll generally avoid recruiting people who show a complacent mindset, regardless of how much education and technical expertise they have. With younger advisors in particular, he says he looks for the “B student” who had a full social calendar in school, rather than “A students” who focused purely on academics.

Being an advisor is not a nine-to-five job, and he wants recruits who will always be looking for different and unique ways of building a practice and to do whatever it takes to reach goals they’ve set for themselves.

“We have a set of goals for every two-to-three years that advisors should meet. All of our advisors know what milestones they need to reach,” he says. “We find advisors who are successful set their own goals to exceed our expectations.”

Kim says new advisors get mixed messages when they encounter more experienced colleagues who no longer work a 40-hour week because they have lucrative clientele and good future prospects. He points out it’s hard for younger advisors to conceptualize how much leg work it took for people to get to such levels.

“As an entrepreneur, if meeting your goals requires working 12-to-14 hour days and weekends, our top advisors did that to get where they are,” he says. “You need to do be willing try everything that remains ethical and legal to build this business.”

Serve the clients first, and they’ll serve you

New advisors shouldn’t sacrifice their right to earn a living, but they also shouldn’t sacrifice the financial needs of clients for their own gain.

It sounds like a simple rule, but in a business with competitive grids and sales expectations, it can be tempting to put a client in a product that earns a higher commission rather than finding the best solution.

Greg Pashke, who runs a lucrative consulting practice out of both Pennsylvania and Florida, says there’s a strong compulsion to specialize, particular in the advising profession. He argues it’s necessary to build a up a strong generalist knowledge base, which means sometimes recognizing somebody else with specialized expertise can better address a client’s needs, even it means loss of revenue.

This tension will always exist for advisors. If you’re only licensed to sell mutual fund products or insurance products, it’s not always best to isolate a search for solutions within that range simply because it’s what you know, or can sell.

For example, putting a young, wealthy client with a high risk tolerance and no need for creditor protection into segregated funds because that’s all you can sell is probably not in the client’s best interests. And, if the client finds out down the road, say from another advisor, that this was in fact an inferior solution, there’s a good chance those assets will move elsewhere.

Advice business is based on trust, and that means it’s critical to serve the client’s interests first, Pashke says.

“I developed different specialties in the 1970s and 1980s. Back then I was the biggest banner waver about learning specialties and learning them well [but] unless you want to get really niche focused and only do tax accounting for shoe stores East of the Mississippi, you need a broader perspective to be able to manage these things,” he says.

“Being a good advisor is a lot like being a general physician. If you go to a podiatrist and you’ve got an arrow sticking through your head, but he’s only looking at your feet to solve the issue, you’ve got a problem,” he says. “You should always appreciate specialties, but you need to be wary of specialists because they always seem to view the world in the same way.”

Merrick says the need for advisors of all stripes to have a greater understanding of the total wealth management was a driving factor behind his book. He’s found survival in the business requires knowing at least a little about everything, so you can always find the right solution for the client.

Often that means passing over the client to a specialist. It can be anything from a good lawyer, accountant or portfolio manager – anyone who has specific technical proficiencies you may lack. If you have the courage to do this, ultimately your client is served well.

“You can only become a generalist after you have a certain level of expertise in a certain area, where you at least understand other areas of planning and how they relate to what you’re doing and how you can achieve the ultimate goals of the client.” Merrick says. “I put the book together with the framework of the generalist in mind. You don’t need to know everything about this business; you just need to know what the outcomes are and where to find the solutions.”

Build a network

Recent research conducted on behalf of Mackenzie Private Wealth Group, found an interesting trend with high net worth clients: a desire to consolidate their financial affairs with one professional.

Traditionally, the financial affairs of the wealthy were monitored in different silos. Accountants took care of tax, the advisor probably oversaw investments and insurance, while a lawyer dealt with estate issues.

Today, these same clients want one person to manage all these relationships, and the natural fit is an advisor with a broad understanding of financial planning.

There may be a few people who can truly conceptualize every facet and solution of a client’s financial plan, but for most advisors, it’s impossible. Success is increasingly going to depend on knowing the right specialists to deal with certain aspects of a client’s plan.

Some advisors have the luxury of being at firms that offer services from a number in-house professionals (accountants, lawyers, insurance specialists, tax and estate planners, and portfolio managers). An advisor who isn’t proficient in these skills is going to have to build a local network of people to serve clients.

A common team-up for insurance advisors, for example, is to have referral arrangements with local realtors. Home purchases are amongst the most important financial decisions a client makes, so an advisor should ensure clients work with somebody competent. Failure in this area will, in the end, mean fewer assets for the advisor.

Likewise, the real estate agent is a turn-key person for mortgage relationships. New home owners are often in the market for insurance coverage, which the banks will gladly tack on to the mortgage arrangement. So a recommendation from a realtor to a local insurance planner for that part of the financial equation can mean a nice stream of income.

The payback is that most of these professional also need to prospect and generate referrals, so you work together mutually in establishing your respective practices. For these higher-end clients, finding the best people to execute their specific financial needs is essential.

Bob Keats refers to the network he’s built as a core to his success. Keats, who runs his practice out of Phoenix, Arizona, is one of the pioneers in cross-border planning. Most of his clients are Canadians looking for specific advice on transferring their wealth and financial affairs to the U.S.

Clients come to Keats for his technical expertise on specific planning issues, but he also knows important people involved in the immigration process that will help expedite his client’s transitions. The combination of what he knows and who he knows has helped him develop a reputation as a leader in his field.

“I know moving across the border is lot bigger job than people anticipate. There are a lot of resources they need to have access too,” Keats says. “You need a broad perspective to serve a client and recognize potential problems. Then, if need be you can get them to a specialist. I monitor the [areas I focus on] with other the problems of the client’s financial life. If the need is there, I have a vast network of accountants and immigration people that are necessary to financial planning across Canada and the U.S.”

Find the mentor you want to be

It’s an old military saying that the best way to earn your stripes is to ride your sergeant’s tail across the battlefield. The advisory business is no different. Finding a mentor who will offer advice and practice-building knowledge can save a new advisor from making fatal mistakes.

Merrick says 75% of the lucrative business owner and CEO clientele in North America will be retiring over the next two decades, representing an estimated $12 trillion in wealth. This is a huge opportunity for competent financial planners. Problem is, these advisors are also ready to transition into retirement.

Keats considers this the biggest issue for the advisor businesses on both sides of the border. Those planning to leave the business are having a hard time finding rookie advisors to train and have take over A-list clients. From a purely business standpoint, there’s no shortage of mentors, and they’re willing to give new advisors a role in their practices.

“The average advisor age is in excess of 54. It’s moving at about a year at a time, next year it will be 55,” he says. “There are not a lot of financial planners who are going to be addressing that huge windfall market coming in, but there is a lot of market that needs to be served. The people that need to serve that market will basically be retiring themselves.”

Merrick says for the new crop of advisors, it’s literally a once-in-a-generation opportunity to find mentor and successor opportunities. Some rookies actually have the luxury of entering into succession-planning arrangements right away. Of course, advisors are not going to just give away their life’s work. Rookies are expected to earn their keep – which includes prospecting to grow the business.

“This is a huge opportunity for mentorship. It’s a chance for younger advisors to find older advisors to work with. Older, established advisors need a succession plan. And when they’re sitting at the table with a client, the client needs to know that seasoned older professional has someone to pass the baton to,” he says.

In Merrick’s experience the best mentors are those that run the type of practice you would one day like to run.

“There are a number of associations in Canada to address this. There’s Advocis, there are the financial planning associations, there is the Canadian Institute of Chartered Accountants, there is the CMA Society – they all have opportunities,” he says. “Within these organizations, unless the new advisor raises his hand and seeks mentorship, he’s not going find it. I want to emphasize that just because an advisor works at a company and gets an assigned mentor, that doesn’t have to be your mentor. I think it is important to search for your own mentors; look for someone who is doing what you want to do.”

Pashke says older advisors will find the role of mentorship rewarding.

“Mentoring goes both ways. You don’t know enough and you have to learn. At some point those roles start to be reverse. You feel a need to become the mentor and pass on your knowledge to the next generation of the profession,” he says.

Mark Noble