Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.
In this week's MailBag, we look at a question about how best to transition as a career changer into financial planning, the issues to consider, and some best first steps to take.
Tips For Financial Planning Career Changers
Comment/Question: I'm looking to make a career change and become a financial advisor after spending 15+ years on Wall Street in marketing, investor relations and research management [and earning my CFA]. I am a fervent believer in financial planning, and somewhat obsessively interested in personal financial and investment management. Based on what I know of the industry, I would prefer to be with an independent fee-only firm. So this is my question: If you were in my position, what would you do?
Thanks so much for reaching out! It’s great to hear that you're looking to transition into financial planning!
Key Decisions To Career Changing Into Being A Financial Advisor
Regarding your question about some advice on what I would do in your shoes, in classic financial planning fashion I have to answer “well, it really depends on your personal goals and needs” as there’s no one-size-fits-all answer. That being said, here are a few key issues/decisions to consider:
1) Employee or Owner? Ultimately, do you want to DO financial planning, or do you want to BUILD a financial planning BUSINESS? In other words, are you looking for a job where you will be employed as a financial planner, or are you looking to create and build a financial planning firm? Not surprisingly, starting a planning business entails more potential upside and rewards, but also more risks. Historically, most people have gone the “start a planning firm” route either entirely as an independent, or under the umbrella of a broker-dealer or insurance agency as an independent contractor, simply because there were no other options (the firms liked it, as the risk was all on the advisor, not the firm). The employee path can be more stable, and the opportunities in that direction have been growing significantly in the past several years; in fact, the majority of financial advisors are now employee advisors, and the list of job openings from New Planner Recruiting has never been higher. Unfortunately, though, some of the best jobs can be hard to find and get (especially when your experience is limited).
2) Income needs. For many career changers, transitioning into financial planning is difficult, as there’s often an existing lifestyle (and possibly family) that have certain needs, from a mortgage to kids heading off to college in a few years (challenges that a 20-something coming into financial planning straight out of college usually doesn’t face). In practice, I’ve seen many career changers struggle to find a job that will pay them well enough to handle their ongoing obligations; simply put, they can't “afford” to be a (new) financial planning employee, because of the "income gap" between an entry level job in planning and their prior career.
On the other hand, the reality is that starting a financial planning business is difficult, too, especially if you don't have a strong background and skillset in sales and developing business (not to mention lacking experience doing financial planning itself, and the sheer technical knowledge that must be learned to effectively deliver financial advice), so the truth is that the income gap of starting your own firm may be even more of an income drop-off than “just” getting a financial planning job on salary (not only would you start from $0 of income in a new business, but you'll have at least a few thousand dollars of costs just to get started, even with a very technology-enabled financial advisory startup practice). So consider your income needs and available resources; can you afford to be an employee (at least for a few years)? And can you really afford to start a new business from scratch as an alternative?
Part-Time Financial Advisor Transition
Beyond these items, I would also encourage you strongly to try to get some experience in the world of financial advising before making a final decision. Depending on your current circumstances, that isn’t always possible. But anything you can do for perspective will help you better understand what you're getting into, and what path may be best for you. If you have the means, working as a part-time financial advisor, or even a part-time internship while you wind down your current role, or a full-time internship for a few months while you're transitioning, will help a lot. Obviously, if you're ultimately going to seek out a financial planning job, you can just transition directly to finding a new job, although even in that context an internship (or at least more conversations) with advisors in a variety of business models may help you to get more perspective on the different paths that are out there and what may be the best fit for you. After seeing different firms, the nature of the business, and the kind of clients that are served, you may or may not even still want to go the independent fee-only route (though it’s certainly a great option for many!).
It’s also worth noting that getting experience is crucial not only to gain perspective on which job/path/approach may be best for you, but also because experience is a requirement to get your CFP certification, and experience is also crucial simply to ensure that you're really giving good and effective advice to your clients (especially if you're otherwise considering a start on your own, from scratch, in what would be an unsupervised environment). Though you are allowed to start your own practice and get your experience there, I have to admit that I think virtually all prospective planners are better suited to get their experience within a larger firm that at least has some colleagues going through the same new-planner process you can learn from, if not an overall more robust supervisory, support, and training environment. And by working within a firm in a supervised environment, you can become eligible for the shorter 2-year "apprenticeship" CFP experience requirement.
CFA Vs CFP Certification
And yes, I would consider going off to get the CFP certification as a crucial step in the process, notwithstanding the fact that you are already a CFA charterholder. Your CFA education will make the investment portion of the CFP curriculum a breeze, but there’s a LOT more to financial planning than just the investments that you'll need to learn. In other words, it's not really a matter of CFA vs CFP, but that delivering financial planning advice is about CFA plus CFP as well.
You can begin your CFP certification part-time even while you're still winding down your old job – many career changers do so, enrolling in an adult-learning CFP educational program to support their education on the CFP coursework (depending on where you're located, there may be local in-person classes, and there are certainly a number of online providers with both synchronous and asynchronous educational programs). Ultimately, you may even decide to pursue other "post-CFP" designation programs, too.
In the meantime, you might also be interested in this article I did on my blog last year on tips for new financial planners to maximize their careers. Though written in the context of new planners coming out of college, many of the tips there are equally relevant in your context, including getting your CFP certification, joining an association, getting a mentor, going to a conference, volunteering, and tackling your demons.
So the bottom line is that, as next steps from here, I would encourage you to:
1) Seriously consider your needs and goals on the two items above.
2) Start on your CFP certification if you haven't already.
4) Start networking (part 1): Go to your local association meeting, find three experienced planners, offer to take them out to lunch, and ask them the same thing you've asked me here. This will both get you some additional perspective and further advice, but might also begin your networking process of finding a job or a firm to affiliation.
5) Start networking (part 2): Volunteer to join a task force or committee for your association to continue getting to know more planners
And of course, if you haven't already, I'd also encourage you to sign up for the ongoing updates from this blog, so you can continue to learn more about and stay apprised of the profession you're about to enter into!
I hope that helps a little, and best wishes to you in your new path!