Peeking Inside The World of Financial Advisors

Have you ever considered becoming a professional financial advisor? You can read about one man’s story in this article Evolution of an Investor from Conde Nast Portfolio. Blaine Lourd started out as a stockbroker, and found out he was really good churning accounts for his own profit:

“It was amazing, the gullibility of the investor,” he says. “When you got a new customer, all you needed to do was get three trades out of him. Because one of them is going to work. But you have to get the second one done before the first one goes bad.” […]

It wasn’t exactly the career he’d hoped for. Once, he confessed to his boss his misgivings about the performance of his customers’ portfolios. His boss told him point-blank, “Blaine, you’re confused about your job.” A fellow broker added, “Your job is to turn your clients’ net worth into your own.” Blaine wrote that down in his journal.

Although he kept at it and became rich and successful, Lourd eventually got tired of picking investments for his clients based on whether it made him richer and not them. When he tried to change his investment recommendations in a manner that followed his conscience, the large brokerage firm he worked for fired him. (A.G. Edwards, now Wachovia Securities) Now, he is a fee-only financial planner who makes less money advocating passive investing, but sleeps better at night. (I doubt he’s eating Top Ramen, however.)

His job, as he now defines it, is to tell investors that the smartest thing they can do is nothing. He acts as a brake on, rather than an accelerator for, their emotions. For that, he takes between one-half of a percent and 1 percent annually, which is more than they’d pay if they simply bought index funds on their own. “I tell them, ‘Look, if you can control your own emotions and you want to go to Vanguard, you should do it.’ And every now and then, someone asks the question, ‘Why do I need you, Blaine? What are you doing?’ And I say, ‘Howard, be careful or I’m going to send you back to Smith Barney.’ And they laugh. But they know exactly what I mean.”

The comments on the article seems to focus primarily on the whole active vs. passive investing debate, which is valid but I think misses the bigger point mentioned above that one way happened to make him a lot more money. Even if you believed in active investing, you could still avoid things like promoting high-cost, in-house mutual funds, trading in and out excessively to generate commissions, and selling unnecessary insurance products.

I also enjoyed this article because it reminded me of my idle fantasies of becoming a financial planner. Wouldn’t it be cool to help people manage their money better on a 1-on-1 basis? Unfortunately the reality seems to be that most people starting in this field have to put in at least a few years in a commission-based brokerage firm making cold calls and aggressively pushing whatever products they say to push. Otherwise, with no experience and no big recognizable company name behind you, it will be impossible to get any clients.

My own idea was to join some firm with low entry requirements like Ameriprise or Edward Jones, but only sell products that I felt were appropriate like index funds or term life insurance. I wonder what would happen? I suppose that I would be fired quickly for not meeting quotas. Even Mr. Lourd, who was still making lots of money for his old company even while advocating index funds, got fired for not following the company line. Still, it would be fun to try.


  1. Porkchop says:

    Or, for the king of low entry requirements you could go with Primerica (a Citibank company, they are always quick to tell you). Apparently their recruiting strategy is to go after any person at a fast food restaurant or retail store who smiled and was polite. When I worked at an auto parts store they tried to recruit me twice. Primerica – the Amway of financial services.

  2. It is interesting that you bring up your little fantasy of becoming a financial planner. You have described the entry level phase quite well, as I had to go through the same thing just starting out. Get in with a company that will take almost anyone, and then help you get your required licenses. That is really the most important part, because if you work in a high pressure commission outfit like an Ameriprise, Ed Jones, etc. you will go broke if you try to actually do the right thing for your clients. And if you are going broke, you won’t be meeting quotas, and your time is limited, as you pointed out.

    It is a catch 22 though. You can’t just sign up and take your Series 7 or 63/65 or 66 on your own, and you need to be sponsored by a member firm. And since these licenses are the gateway to any financial job that deals with working with people and investments, you almost have to bite the bullet and stick it out for a while with one of those firms just so you can get licensed.

    That being said, if you find yourself in a position where you can go about a year making minimum wage, working 60 hours a week being a salesman trying to drum up business, all while studying to pass all your licensing exams, you will have completed the most difficult part, and could eventually move on to something better.

  3. heather says:

    Consumerist has a series of articles on how Wachovia knowingly let con artists drain funds from senior citizens, because they got millions in fees from the certain percentage of fake checks that were caught. (fees came from the scammers account). Great company Wachovia, though I’m sure the story above is common.

  4. Gretchen_FeedTheFam says:

    That really is a cautionary tale. Thanks for posting about it.

  5. Danny Tsang says:

    Hi Jonathan,

    I thought of becoming a financial advisor as well on numerous occasions and sometimes still find myself browsing the edward jones’ careers section late at night. I also can’t stomach pushing products to people who don’t need it or won’t neccesarily benefit them in the long run. I also despise cold calling. In a perfect world, clients would come to me for advice but like you said, its tough if you’re a “nobody” in the FA world.

    I came to the conclusion that one way to do things our way is to join a firm that won’t fire you and has no quotas. The company I found is world financial group. However, I’ve been researching and its an MLM company and I’m sure they focus alot of recruiting. They have “offices” everywhere and supposedly you can sell whatever you want. Mutual funds, index funds, term, whole etc. They sponsor you for your licensing needs too. The only thing is I despise MLM companies and their cult-like (I’m assuming, never joined one) environment. But at the end of the day you’ll be able to sell what you want when you want, and I doubt any MLM company will fire you since they want numbers.

    I wonder if this company is right for us and can give us a good second career and additional income stream.

  6. I always suspected financial advisors for wrongdoings, but geez.. Taking it on poor senior citizens.. These people have no conscience !

  7. Justjoeguy says:

    The stock market is not what it appears to be. It’s basically a casino wrapped up in a delusion. If you want to invest in publically traded companies use bonds. Even then bonds are more of a speculation than an investment so be careful. And as far as I known there aren’t any brokers who just sell bonds.

  8. atomiclightbulb says:

    I attended an information session at Ameriprise, and came away unimpressed. Much of what the Ameriprise financial advisors do is making sales pitches for Ameriprise services. The Ameriprise employee actually said that it was mostly a sales job.

    I don’t know why Ameriprise doesn’t have a separate sales force. Having the Financial Advisor in the position of salesman creates a conflict of interest — as an FA you would be obligated to maximize your client’s returns, but as a salesman you want them to buy all your services (even if they may not need some of them).

  9. I was a financial adviser for 8 years, I was never told any of the things you were told or heard about The people I worked for seemed very ethical and always worried about being compliant with all laws. I just was not a very good salesman.

  10. Dave P. says:

    I have been reading your blog for a few years now and have always thought that you should become a Financial Advisor. You don’t need a professional experience because your blog speaks for that itself.

  11. Susannah says:

    I think you could use this website to help you get clients as an independent financial planner once you had the correct licensing. I also think a great spin on it would be to help people manage their household finances as well. Really, that should be part of the planning, too.

  12. Bob Evans says:

    You my not be a financial advisor but just think of the people that you help with your blog.
    The best thing about this is you are reaching people who might never have the net worth to even see a financial advisor
    Hopefully your advertising income offsets the cost to run the blog and from what I have read the last month you seem to enjoy what you are doing.

  13. Ameriprise is a joke. They push their own proprietary products and put everyone in variable universal life because it has the highest commissions. Edward Jones is not the same thing. If you think they encourage their employees to make decisions contrary to the best interests of their clients, you are mistaken. There are bad apples at any firm but it is not the norm at most brokerage firms. You have to get paid so if you feel putting people in A share 5.75% front end load mutual funds is not in their best interest, you shouldn’t be doing the job.

    Not everyone is financially knowledgeable and competent. Some people need their hand held. Some people need a call when the market drops 2 percent. Some people don’t have the brains or the desire to get online and research sound investment strategy. The whole field is NOT a bunch of crooks.

    After making it as an employee, many advisers choose to become employers and go independent. They can run their practice any way they see fit.

  14. I was actually a web development professional who switched over to the investment world a few years back… Fortunately, I didn’t have to do one thing on the way that would harm my conscience.

    I too looked at going the broker route and was appalled. It seemed the way to break in was to screw someone over. That said, there are other options available to you.

    If you want to try and dabble with being a registered investment advisor, it isn’t as hard as you think. Just pass the Series 65 and register with the state. The test is pretty easy. You’ll need to get a copy of the rules you need to follow and what records you need to keep, but at that point you can charge people to manage their money.

    Alternatively, you could pass the CFA on your own over three years. The “good” investment world is wide open to a CFA. Heck, even passing the level one exam will open most doors. The testing is brutal, but it is at your own pace and you can’t beat the cost. Less than $2500 total probably for something that is more marketable than a $30K MBA. It’s actually very interesting reading, there is just a LOT of it… you would have future blog posts for years to come based on the CFA material…

    A guy like you could easily pass the Series 65 and walk into almost any RIA and be their compliance officer. It seems like something that would be right up your alley. Many RIAs are clueless about the web too, so you would bring a lot to the table.

  15. Actually, Jeremy is incorrect on one count.

    You can take the Series 65 without having a representative firm sponsor you. It is the test you take if you want to start an RIA.

    I passed the test in Texas without any firm sponsoring me… It isn’t that difficult as far as tests go.

  16. There is a bad contradiction with IFAs they make money from customers being in the market so if we hit a bear market will they tell their customers to get out for a while?

  17. you are not the typical investor and the world doesnt need another typical salesman slimeball investment planner. as a fellow fwf guy though, i dont have time to read all the app-o-rama stuff and keep up with high interest rate accounts and getting in on that 8% apy 9 month cd.
    that is something i’d be willing to pay for, not much, but i think it is an interesting field to delve into. charge me, say, 20% of the profits you make me off of the various strategies. only thing is, how much to limit it so you dont ruin my fico. maybe gaurantee that my fico wouldnt fall more than x or 50 points. and that with one month’s notice you could bring my score close to what it was.

  18. I use to have a financial advisor but I felt like I was not given the chance to become an active participant in the process and any comments, suggestions, recommendations that I had about how my money was invested was not taken seriously. I did not like the fact that I was limited to what the company sold. Nor did I like the fact that I was paying fees, excessive to me, regardless of the performance of the investment (in this case, not well.)

    No I am not certified nor do I have any formal education in finance; to speak of. But I did begin to read whatever I coud get my hands on about investing, the stock market, financial planning, etc.,.

    After a while, I felt like I could manage my own investments. So, I pulled my investments from the financial plannner and began investing them myself. I chose a Vanguard Index fund, some international exposure, a growth fund, and an inflation protected security.

    Although I know I have so much more to learn but I feel like I a am better able to make investment decisions based on what I have learned so far. I also see how I have reduced the fees and costs by investing in low fee accounts that were not even an option with my financial planner.

    This is a new and exciting journey for me. I am blogging about this new experience. Hopefully others may benefit from what I am learning:

  19. Maury’s right, and I misspoke. For the 65 or 63, depending on what your state requires, you can take it without being sponsored. So that is certainly a backdoor into the industry. The main drawback is that you’re limited what type of business you can transact and assets you can manage. For most no-load funds, which would be the bulk of your business, that wouldn’t be much of an issue.

  20. As a Certified Financial Planner, I hope to point out a few things. Maybe I can bring some clarity (maybe not?):

    The world of financial advice and investment management is evolving at great speed and in 5 – 10yrs this industry will look & feel much different than it does now. Heck, it is already very much different than it was 5 – 10yrs ago. But that is a long winded essay which I won’t belabor here.

    Many of you are mixing up the job/role/function of a financial planner, stockbroker, investment advisor, & money manager. Each is slightly different, and this is part of the problem with the industry. It is very very difficult for the average consumer/client to figure out the differences. Many are masquarading as a financial planner with the intent to only sell you something.

    Many of the comments are aimed at “financial planners” but you have to understand that financial planners are not necessarily money managers. In my case, I do manage money, but I farm that out to other money management firms who do a much better job of picking investments allocations. I oversight those money managers and ocassionally will add a fund or stock I believe on top of what they do. The primary role of a planner is to give advice. Not necessarily or strictly investment advice, but financial advice for retirement, estate planning, insurance planning, tax planning, etc. In most cases, fees charged for asset management is simply a way to subsidize payment for ongoing financial planning advice.

    It’s surely easy to manage your own money. I’ve told clients many times they’re welcome to go to Vanguard because managing money is not all that difficult. The value of an Advisor comes from helping a person make correct & wise financial decisions and to navigate the sometimes rough waters of the stock market (as we’re currently seeing). My job is to help people stay away from making those “big mistakes”. Managing a persons financial life by looking at numbers on a page is only half the story. The other half is managing emotions. It has been shown time & time again that the average investor will buy high & sell low. They get caught up in the upswings of the market, then get scared in the down swings and consequently they buy & sell at the wrong times. An Advisor can & does help them through those times.

    For most everyone on this blog, it’s harder to understand the need or value of a competent, experienced Advisor because you’re all do it yourselfers. There is nothing wrong with that, I do a lot of my own home repairs because I have the knowledge & ability. I couldn’t imagine paying “x” dollars to have someone do remodeling work on my house. I can do it myself and save SO MUCH money. However, many people can’t do construction & carpentry work and they have no desire nor inclination to figure it out. The same principle holds true in finances. It baffles my mind in some cases because many people could manage so much more of their finances themselves, but they don’t want to, so they pay me do it for them.

    Now….I must agree with many comments about slimy salesmen in this business. There definitely are. Many so called “Advisors” who believe they know so much, but really don’t. A consumer/client should be very careful when choosing a Financial Advisor.

    The flip side is that there are very good, very talented, very knowledgable Advisors who are able to offer complex planning strategies that the average do-it-yourselfer would just never be able to figure out without massive research and a good network of contacts with other talented pro’s like CPA’s & Attorney’s who are also very good at their craft.

    For those seriously interested in this field, please read Nick Murray’s book: The Excellent Investment Advisor.

    Good Luck,
    Bill, CFP

  21. Thanks for the article, Jonathan.

    Funny that a bunch of us have the same dreams & hangups about becoming a financial advisor. I went through the first phone interview with Edward Jones, and they wanted me to quit my current profession and make 125 cold calls a week to get started… and then push their products(which included insurance) Needless to say, that firm was not for me.

    Maury’s comments above intrigue me, and I will look into going that route.

  22. For some states, you don’t even have to be registered per De minimus exemption. For state of GA, if you have less than 6 clients for preceding 12 months, you don’t have to be registered with the state.

    I am sure other states have similar requirements, so you need to check with your state.

    So, it is a plus if you are starting out, up to 6 clients, you can provide advise without even registering it with the state. Once you pass that number, then register with the state (or Federal level, which ever fits your business).

    I may also be looking into this route to get inside the business of “fee only” business model on a part time basis to start building my client base.

    Big firms for me would create huge conflict of interest, as they would first want you to market their own product (may not be the case 100% of the time, but most of the time for sure)

    If we can share more ideas on how to become or start an independent financial advisor, that would be great for many of us “closet FA”.

  23. I understand the frustrations of starting out in this business but I have a hard time understanding how anyone got fired from AG Edwards. They never had any proprietary products (pre -Wachovia) and since I started they have certainly had no hands in my business. I never made a cold call nor was it required. The main consideration when starting out as a FA, as in any new business, is to have enough savings to get you through a minimum of two years of low to no salary. You cannot make it in this business without start up funds, no matter how or where you start.

  24. Hey Jonathan;

    My two cents. My father worked for a firm here in Canada: Merrill Lynch Canada (formerly Midland Walwyn, formerly Midland Capital and a few other names before that). He left, got his CFA and started his own hedge fund.

    Why did he leave? Merrill Lynch was a little miffed that he wasn’t selling their funds, so they ran an “internal audit” on his top client. They claimed to be looking for churning b/c of the sheer number of transactions. Turns out they were beat the market by 10%. In fact, they’d have been up 30% if it weren’t for the fees.

    This was in 2002, and the on-line banking was available so he opened a Schwab account and this began his own on-line trading ventures, the CFA and the hedge fund.

    He told me a lot of stories, but one of the prevalent themes was that people weren’t necessarily making lots of money. In fact, most brokers in general simply misunderstood how the stock market worked. My father for his part, was great at the game, but had to force himself to learn sales. He gave me a copy of his “Bible” before he died. (I was left to discover Malkiel on my own, though he quoted many of Malkiel concepts)

    But I always remember the stories of Charlie “The Millionaire” Spiring. Let’s say that he wasn’t a millionaire because he made people money. He was just the best salesperson around, that’s all he needed to be. So it’s worth remembering that when dealing with brokers, if you get the best person in the office, it’s because he’s the best at selling, not at making money.

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