Notwithstanding all the the talk in recent years about the challenges facing the financial planning industry, from including rising competition to “robo” fee compression, the financial advisor career path remains quite appealing. Not only can advisors make meaningful, life-changing impacts on their clients’ lives, but with experienced advisors making 2-3X or more than the median household income in the US, it’s also a potentially lucrative career choice as well. And, with a possible shortage of new talent to replace the wave of ageing advisors who are expected to start retiring in droves in the next decade or so, it’s little wonder why the profession holds so much appeal, particularly for those who are mid-career and looking for a more rewarding opportunity. The caveat, however, is that it still takes a lot of time to succeed and grow your income as a financial advisor, which presents a major roadblock for those who want to career-change into the industry and just don’t have a lot of “income flexibility” to take a pay cut in order to get their proverbial foot in the door. Which leads many to wonder if it’s possible to transition into a career as a financial advisor on a part-time basis.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the challenges facing the part-time transition for career changers, discuss why many consider simply opening their own RIA given the lack of part-time job opportunities, and offer some practical ideas for transitioning into the industry as a career-changer without going the (not-actually-recommended) part-time route.
Notably, the challenge of finding good part-time work to grow and develop as a financial advisor is a relatively recent phenomenon. Historically, there wasn’t much need for new “advisors” to have much professional knowledge or experience because, in reality, they weren’t providing actual advice, but were rather being paid to sell insurance or investment products (which simply requires some product and sales training). For career changers, it was often quite feasible to make the transition into such a sales role on a part-time basis, soliciting their existing friends and family and former co-workers for product sales for a few hours a week. However, for those who want to provide comprehensive advice, and get paid for it on an ongoing basis, the reality is that it’s really hard to gain the requisite experience in anything but a full-time setting.
Which is why there just aren’t many part-time job opportunities with real financial planning firms in the first place. As an alternative, some career-changers explore the option of simply launching their own RIA, which on the surface makes sense, because the raw startup costs to create your own advisory firm are very low, and it’s very possible to be up and running in a few months’ time on a shoestring budget. Unfortunately, the problem remains that giving people advice about how to handle their life savings is a sacred duty, so just because you can hang your shingle and open your own financial planning practice doesn’t mean that it’s the responsible thing to do! Not to mention the fact that it’s really hard to gain credibility as a professional, to be paid for your advice services, if you’re part-time anyway.
Accordingly, for career-changers who are looking for a practical (and responsible) path to a career as a financial advisor, the best thing to do on a part-time basis is start your education to become a CFP certificant. Because, by taking and passing the CFP exam, you’ll be in a much better position to get a better paying full-time job at a real financial planning firm. The next best thing to do is to take the Series 65, because while most states offer a waiver for the Series 65 exam for CFP certificants, the reality is that you’ll still need to meet the experience requirement before you can earn your marks. Also, start building your professional network by joining your local FPA chapter or NAPFA study group, because at some point, you’ll be looking for a full-time opportunity, and it’s a good idea to get in front of the folks who might someday hire you. Finally, simply recognize the fact that you are changing careers and that it’s just not realistic to think that you can do that without taking a step down in salary in order to (literally) pay your dues. So make yourself your first financial planning client, and figure out how to build up the savings necessary to take one step back in the short-term, so you can take two big steps forward in your new financial advisor career in the long run.
The bottom line, though, is simply that there are some very real challenges when transitioning into a career as a financial advisor on a part-time basis. However, those who are willing to do hard work of studying for (and passing!) the CFP exam, getting the Series 65 license, and building a professional network will have the best options. But rather than trying to be a financial advisor on a part-time basis, do those things on a part-time basis instead… which also allows you to stay in your current job a little longer in order to save up enough so that, when the time is right, you can make the transition to a full-time role as a financial advisor in a way that makes sense financially and professionally!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Well, welcome, everyone. Welcome to Office Hours with Michael Kitces.
For today’s Office Hours, I want to talk about one of the most common questions I’m getting these days, which is how career-changers who want to become a financial planner can transition into the industry on a part-time basis.
Because the reality is that while we talk a lot in our world about the challenges and headwinds facing financial advisors, from robo-advisors and technology and the rest, at the end of the day, the median income for an associate advisor with 8 years of experience is almost $100,000 a year, and the median income for a senior advisor with 15-plus years of experience is $165,000, in a world where the median household income in the U.S. is about $61,000 a year. So, despite all the discussion of fee compression and competition and the rest, the average income for an experienced advisor is still anywhere from 50% to 150% higher than the median household income. This is an amazing profession to be in.
For which there actually appears to be an emerging shortage of next-generation talent. And I define next-generation rather loosely here because the average age of a financial advisor is 50-something and a huge wave of them are anticipating to retire in the next 10 years and have to be replaced, which makes being a financial advisor a pretty darn appealing, emerging profession to join, with the caveat, it’s still a really long time-consuming road to become an advisor and get clients.
And that can be especially challenging for career-changers, who often come to the table with existing life and family commitments, from a spouse and mortgage, to kids and looming college expenses. Very different in terms of income flexibility if you’re going to walk away from a prior career and whatever salary level you’d reached there to become a financial advisor instead. And so, I consequently often get this question, “Can I transition into being a financial advisor on a part-time basis as a career-changer?” For which I have to admit, I think the answer largely is no. You may find some opportunities, although they’re not necessarily what you’re expecting. And I actually worry more about the career-changers who try to transition to being on a financial advisor part-time basis than the ones who actually go all-in on the change.
Becoming A Part-Time Financial Advisor: Salesperson Or Real Advisor? [02:36]
And the fundamental reason why it’s problematic to try to become a financial advisor on a part basis is that in the end, we’re advising clients on their life savings and what are potentially life-altering career and financial decisions. It’s weighty stuff. It’s just not the stuff that should be done when you’re entirely new and inexperienced in the business of giving professional financial advice and figuring out how to give advice effectively that actually sticks.
Now, the reality is that historically, there was not much of an experience requirement to become a financial advisor. Because the truth is that in the past, being a financial advisor was actually about being a financial salesperson who got paid for the insurance or investment products that you sold, and any advice you gave was technically and legally solely incidental and ancillary to you selling the product. And companies would train new advisors in the details of their products and how to sell those products but not necessarily in advice, because you didn’t actually need professional advice experience because you weren’t in the business of advice, you were in the business of product sales.
And in that world, companies actually often likes to hire otherwise inexperienced career-changers because even if you didn’t have a lot of experience to give advice, you tended to have an existing what we call natural market. People you already know in your prior career who you could go back and sell stuff to. Thus why when you were often getting recruited in the past, and unfortunately sometimes still, companies will ask you to make a list of 50 people you know who you might do business with, or will focus on you because of the zip code you live in and whether you might have affluent neighbors, because they’re pathways to selling products, not giving advice.
And unfortunately again, though, some companies are out there that still do this. They’re offering financial advisor job opportunities, including often on a part-time basis, that aren’t actually job opportunities to be a financial advisor, they’re job opportunities to be a financial salesperson. Because you can learn a few company products to sell and then go prospect on a part-time basis, it’s a lot harder to give comprehensive financial advice about a person’s life savings on a part-time basis.
And in fact, when I look out there at the landscape of financial advisor job opportunities, it’s pretty hard to actually find part-time openings in real advisory firms. Now, in part, that’s simply because frankly, advisory firms tend not to hire until they really need someone. And by the time they need someone, they really need a full-timer. But the other reason is simply that if you’re going to learn to give comprehensive financial planning advice and get paid for it with clients on an ongoing long-term basis, it’s really hard to learn what you learn, gain the experience you need to gain and then build the relationships you need to build on a part-time basis. And that’s why firms rarely ever hire that way, and you just don’t see a lot of part-time openings for real financial advisor jobs the way you may see part-time openings for financial advisor sales jobs focused on commission product sales.
Launching An Independent RIA On A Part-Time Basis [05:25]
Now, the alternative that I know some career-changers explore if they want to transition to being an advisor on a part-time basis and can’t find a job opening, because there generally aren’t any part-time openings for real financial advisor jobs, is they simply hang their own shingle by launching their own independent registered investment advisor or RIA for short. As the reality is that, in order to become your own independent advisory firm and legally get paid advice fees, you just have to take what’s called the Series 65 exam, that you can really study for in a few months or even a few weeks if you’ve got time to dig in, and then go through the process of getting the firm registered with the state, which you can do on your own or maybe engage an outside consulting firm to help with the registration and setup process.
There are advisors out there who have completely started and launched and run their own RIA in the first year for less than $10,000 of hard costs. Now, that doesn’t necessarily mean you’re generating any income yet, so you still need a lot more money in the bank to do this because you have to pay your personal bills while you’re still trying to grow and generate revenue, but the actual cost barrier to launch your own firm is a very low bar and therefore appealing enough that some career-changers I know just decide to start their own firm on a part-time basis and then slowly get their own experience, take on clients one at a time rather than trying to find mostly non-existent part-time financial advisor jobs.
The problem here, though, is again, giving people financial advice about their life savings and major financial decisions is a sacred duty, and it requires some education experience to do well. You wouldn’t go see a doctor because they were really savvy about medical stuff because they read a ton of articles on WebMD. Yes, having some background knowledge and doing all that reading will perhaps make it easier for them when they go to medical school and get their medical license and actually learn to become a doctor, but personal life experience and reading articles online, even a lot of them, is not what I recommend is the foundation for building a professional career. If you want to be a recognized professional, you go and learn from another professional. You gain experience working under them and in their firm, and then if you want to, go out on your own when you’re experienced and ready. That’s been the pathway from apprentice to journeyman to master in skilled trades and professions for literally hundreds of years, and the same is true in the world of financial advising as well.
So simply just because you can start your own firm with little or no experience having just passed the Series 65 exam doesn’t mean it’s a good idea to do so. The experience you get will not likely be very good with no one else to supervise you and give you feedback. And from a practical perspective, it’s just pretty hard to get people to trust you and pay you for your services if they can see you’re still doing this on a part-time basis and haven’t even taken the full leap. So in other words, when you hang your shingle on a part-time basis, you’re only getting experience and making money if you can convince people you’re a credible expert worth paying, and it’s hard to even convey the credibility when you’re an inexperienced part-time financial advisor.
The Best Way To Transition Into A Financial Advisor Career [08:22]
So with all that being said, what is the best way to transition in as a career-changer if it’s not to try to find a part-time job or just hang your shingle on a part-time basis to be an advisor? So the first thing I recommend that you can do on a part-time basis to at least get ready for the transition to start your career is to start your education for CFP certification. There are a lot of different CFP educational programs out there, both virtual and online as well as in-person, so choose the one that best fits your preferred style of learning. Even for people who do the exam, an educational process quickly, it usually takes them six months. For most, it’s about 9 to 12 months. If you’re doing on a part-time basis, it may be 18 months or more.
But hey, if you’re studying on a part-time basis while you’re still getting paid from your current job, that’s not a bad way to ease into the career change. And we definitely see better starting salaries and just the ability to get a starting job in a real advisory firm when you’ve completed the CFP educational program and passed the exam, so the firm doesn’t have to worry about hiring you and then find out you can’t pass it later. Now, I realize there’s a non-trivial cost associated with getting your CFP certification, but in the end, it’s not nearly as expensive as the income you’ll lose out on by trying to be a part-time financial advisor with no experience and no credibility and little ability to convince prospective clients to pay you much for your advice anyways.
Second, you can go ahead and take and pass your Series 65 exam as well. If you’re going to get your CFP certification first, technically, you actually don’t need the Series 65 if you have CFP certification because most states will accept the CFP marks in lieu of the Series 65 exam. But if you’re career-changing, you won’t have the CFP marks yet even if you take the education and pass the test because you won’t meet the three-year experience requirement yet. Which means you will need your Series 65, so go ahead and take it. There’s a small cost involved. Obviously, you’ll have to take the time to study for it. But again, if you’re transitioning in on a part-time basis anyways, these educational exam requirements are a much better way to lay the groundwork than trying to hang your shingle from scratch. They get you a much better start into your career moving forward and just make you a more compelling candidate when you actually try to go and get a full-time job and wrap up whatever is left of the requisite experience requirement at that point.
Third, recognize that eventually, you’re going to be searching for a full-time financial advisor job, join your local Financial Planning Association chapter or a local NAPFA study group if there’s one in your area, and take that part-time, that you’re willing to allocate your future financial advisor career. And don’t try to go get clients. Start networking your way to meet other advisors in your area and other firms who might someday hire you.
Fourth and final, I understand that for many career-changers, becoming a financial advisor is difficult simply because you’re accustomed to a certain level of income and standard of living from the salary you’ve got from what you were doing before and it’s hard to take that step down and backwards to an entry-level job as an advisor with a big pay cut in the hopes of working up again. But in the end, that’s just how it works if you want to change careers into a new profession. If you want to switch careers and become a doctor, you’d be going back to med school for four years and then four more years of residency, and maybe eight years out you get a paycheck again. If you wanted to switch to become a lawyer, it’s three years of law school and then probably a couple more years in a big law firm trying to get some real experience.
So by comparison, the requirements for financial advisor are a lot more reasonable. Yes, the starting salaries for full-time associate advisors is lower than entry-level doctor or entry-level lawyer, but as a financial advisor, you can do all these educational licensing exam requirements part-time on the side. You don’t have to step out of the workforce for three to four years of graduate school, losing out on income and racking up potentially large graduate school student loan debts in the process. Which means in the long run, it’s still better to take some step back on salary and then rebuild your career and a profession as an advisor than to walk away from your salary entirely for years while paying the graduate school bills on top like a lot of other career-changers.
But it does mean that you need a plan for that income gap. So welcome to the world of financial planning. The first one you have to make is your own, for those years where your salary will be lower until you rebuild your income with experience in your new career. Because the single greatest determinant of income for financial advisors is actually years of experience, just learning your trade, improving your skills and accumulating clients over time. There’s no shortcut to that. And frankly, trying to transition in part-time probably stretches out how long it will be before you really have the experience to get your own clients who will actually pay you well for your expertise. Not to mention putting your clients at risk if you don’t really have the training and education to know what you’re doing when you’re giving them advice about their life savings.
So my recommendation, if you’re really desperate to, yes, you can hang your shingle as an independent RIA and start getting clients on the side, but please, please, if you’re going to do that, at least keep the scope of your advice limited and narrow to the areas where you really, really know how to help clients and stay there. But ideally, don’t try to get financial advisor experience on a part-time basis. Use the time you would have spent doing that getting your CFP certification, finishing your Series 65 licensing exams, and perhaps if you have a little bit of flexibility about time, start networking, find an internship or some part-time work in the advisory firm, not necessarily an advisor job, just in any job to get your foot in the door, start learning more about the industry, and starting that clock on your three-year experience requirement. And if you can afford to go part-time in that effort to be a financial advisor, just stay full-time where you are a little bit longer and save up that extra income so that you can make the full-time transition when the time is right.
So I hope that’s helpful as a little bit of food for thought. This is Office Hours with Michael Kitces. Thanks for joining us, everyone, and have a great day.
Disclosure: Michael Kitces is a co-founder of New Planner Recruiting, which was mentioned in this article.