Success as a Financial Advisor For Dummies

Ivan M. Illán, CFS, has directly raised and managed over $1B in assets from both institutional and retail clients. He's the founder and chief investment officer of an independent wealth management firmbased in Los Angeles. As a Forbes Contributor, an Investopedia Premier Advisor, and Five Star Wealth Manager, Ivan's insights are published routinely on both the financial advisory profession and capital markets.

Introduction 1

About This Book 1

Foolish Assumptions 3

Icons Used in This Book 3

Where to Go from Here 4

Part 1: Getting Started as a Financial Advisor 5

Chapter 1: Looking at the Big Picture 7

Understanding What a Financial Advisor Does (or Should Do) 8

Evaluating Yourself: Do You Have What It Takes? 9

Do you have the right personality? 10

What’s driving you to consider this career? 10

What are your qualifications? 11

Deciding Whether to Fly Solo or Work in a Firm 12

Weighing the pros and cons of working in a firm 13

Considering the option of operating as a lone wolf 14

Thinking about starting your own firm 15

Taking Inventory: What You Need to Know 16

Complying with financial regulations 16

Brushing up on budgeting basics 17

Wrapping your brain around asset management 17

Knowing what liability management entails 18

Looking at what estate planning involves 18

Identifying key tax issues 19

Comprehending behavioral finance 19

Providing Superior Service to Your Clients 20

Performing your due diligence 20

Creating personalized financial plans 20

Teaming up for superior service 21

Creating a tiered service model 21

Assessing your performance as a financial advisor 22

Growing Your Client Base 23

Winning lifelong clients 23

Marketing your services 23

Teaming up with colleagues 23

Moving Up: Starting Your Own Firm 24

Getting started 24

Sharing revenue (or not) 25

Planning your exit strategy 26

Chapter 2: Deciding Whether You’re Geared to Be a Financial Advisor 27

Evaluating Your Personality Traits 28

Do you like to teach? 28

Are you patient and supportive? 29

Are you willing to advocate for your clients? 29

Are you humble? 31

Are you well-connected? 31

Are you hungry for knowledge? 32

Questioning Your Motivations 32

Making a commitment to deliver value 33

Avoiding the siren call of commissioned sales 33

Balancing Leadership and Service 34

Embracing your leadership role 34

Maintaining a service-oriented mindset 35

Chapter 3: Performing a Self Background Check 37

Choosing a Career Path 38

Getting started fresh out of college 38

Changing careers from within the industry 39

Changing careers from outside the industry 40

Capitalizing on Your Personal Experience 41

Taking advantage of your childhood memories 42

Dealing with your own financial challenges 42

Helping others manage their finances 43

Evaluating Your Financial Position 43

Gauging your financial stability 44

Recognizing the risks of financial instability 45

Chapter 4: Deciding to Work for a Firm or Build Your Own Practice 47

Knowing Your Options 48

Hiring in as an employee of an existing firm 50

Setting out on your own as an independent financial advisor 52

Scoping out hybrid models 53

Investigating Different Revenue Models 53

Understanding the fee-only model 54

Collecting asset-based fees and commissions 56

Checking out the commission-only compensation model 56

Understanding how firm managers get paid 57

Getting On-the-Job Training as an Employee 58

Deciding where to go for your field training 58

Using internships to find the right fit 59

Finding Employment as an Independent Contractor 59

Affiliating with an independent broker/dealer 59

Finding work with an insurance-company-owned broker/dealer 60

Becoming a Registered Investment Advisor 61

Chapter 5: Surveying the Regulatory Landscape: The Fiduciary Standard 63

Familiarizing Yourself with Your Role as Financial Advisor 64

Recognizing the Confusion over Obligations and Care Standards 64

Sifting through the Clouds of Bureaucracy 67

Considering federal rules and regulations (DOL, SEC, FINRA) 67

Looking at state rules and regulations 70

Can you call yourself a financial advisor? 71

Governing Itself: Industry Organizations Weigh In 72

Recognizing that change comes from within 73

Taking the fiduciary pledge 73

Looking to the Future 74

Part 2: Mastering Core Competencies 77

Chapter 6: Pursuing Professional Development 79

Identifying the Core Competencies 80

Asset management 80

Liability management 81

Budgeting 82

Estate planning 82

Taxation 82

Behavioral finance 83

Getting a Formal Education 83

The American College of Financial Services 84

CFA Institute 84

CFP Board 86

The Institute of Business and Finance (IBF) 86

Obtaining Your Licenses to Practice 87

Financial Industry Regulatory Authority (FINRA) 87

National Association of Insurance Commissioners (NAIC) 88

Applying Certifications across the Financial Advisory Spectrum 89

Embracing Continuing Education 90

Chapter 7: Getting Budgeting under Your Belt 91

Guiding Clients on Household Budgeting 91

Estimating income 92

Identifying and estimating expenses 92

Shaking the piggy bank: Savings 96

Establishing spending and savings guidelines 97

Exploring Helpful Technology Tools 97

Leveraging the Power of Auto Pay and Payroll Deductions 98

Chapter 8: Brushing Up on Asset Management 99

Developing a Client’s Investment Policy Statement 100

Exploring the client’s goals and objectives 101

Defining your duties and responsibilities 103

Establishing portfolio selection guidelines 103

Concurring on a rebalancing frequency 108

Setting parameters for performance monitoring and reporting 108

Agreeing on an Investment Philosophy 109

Active, passive, or somewhere in between 109

Individual securities versus packaged products 111

Cautioning Clients on “Hot Money” Investments 115

Comparing Revenue/Compensation Models 115

Asset-based fees 116

Commissions and sales charges 116

Chapter 9: Delving into Liability Management 117

Assessing a Client’s Risk Profile 118

Following a formal process 118

Using the income replacement approach 124

Taking the needs-based approach 125

Reviewing Insurance Lines and Products 125

Life insurance 126

Disability insurance 127

Health insurance 127

Homeowner’s insurance 128

Auto insurance 128

Liability insurance 128

Annuities 129

Comparing Revenue/Compensation Models 130

Collecting a one-time, up-front commission 130

Getting paid in installments 131

Embracing transparency 131

Chapter 10: Excelling in Estate Planning 133

Addressing Estate Planning Essentials 134

Naming heirs 135

Naming beneficiaries 136

Planning for business succession or continuity 136

Accounting for estate taxes 138

Managing estate liquidity (or lack thereof) 139

Considering capital market conditions at time of death 140

Preparing for Estate Settlement Complications 140

Handling differences over a closely held business 141

Anticipating a struggle for control 142

Helping Clients Pass along Values, Not Just Wealth 143

Checking out donor-advised funds 143

Considering private family foundations 144

Brushing up on CRTs and CLTs 144

Teaming Up with Estate Planning Attorneys and Family Accountants 145

Chapter 11: Tackling Taxation 147

Reminding Yourself That You’re Not an Accountant 148

Adding a Tax Advisor to the Team 149

Managing Capital Gains: Don’t Let the Tail Wag the Dog 151

Using Tax-Deferred Accounts to Maximize Compounding Returns 152

Exploring Tax-Free and Tax-Lighter Investments 153

Buying municipal bonds 154

Investing in tax-exempt securities 155

Slashing Taxes with Retirement, College, and Health Savings Accounts 156

Contributing to a retirement plan 156

Socking away money in college funds 157

Trimming taxes with an HSA 158

Taking a Nibble Out of Taxes with Charitable Contributions 158

Chapter 12: Getting Up to Speed on Behavioral Finance 161

Recognizing Irrational Factors That Drive Thinking and Behaviors 162

Myopic loss aversion 162

Confirmation bias 162

Mental accounting 163

Illusion of control 163

Recent extrapolation bias 164

Hindsight bias 164

Herd mentality 164

Muting Irrational Thoughts and Behaviors 165

Appealing to the Rational Side of Your Client’s Brain 166

Step 1: Acknowledge your client’s fear 166

Step 2: Tell your client to take a deep, cleansing breath and smile 166

Step 3: Introduce a rational argument 166

Step 4: Have your client explain the strategy back to you 167

Riding Out Market Cycles: Balancing Fear and Greed 167

Calming common fears 168

Reining in greed 168

Part 3: Providing Superior, Personalized Service 169

Chapter 13: Formalizing Your Client Due Diligence Process 171

Deciding Whether You Want Clients or Consumers 172

Serving consumers as a broker/agent 172

Serving clients as a fiduciary financial advisor 173

Considering the Factors That Really Matter 174

Mastering the Four As of Due Diligence 176

Assessment 176

Audit 178

Action 179

Alignment 180

Chapter 14: Developing a Personalized Financial Plan 183

Obtaining Your Client’s Input 184

Going Deep and Broad with Every Client 185

Copy 186

Capital 187

Consequences 188

Outlining a Client’s Financial Plan 189

Focusing on cash flow 190

Considering savings and investment goals 190

Accounting for taxes 191

Addressing insurance needs 192

Connecting the financial plan to the estate plan 193

Connecting the financial plan to the client’s business succession plan 193

Making Your Job Easier with Tools and Guides 194

Reviewing the Plan Regularly 196

Chapter 15: Offering Collaborative Value-Added Advice 197

Recognizing the Benefits of a Collaborative Approach 198

Aligning your compensation model with that of other professional advisors 199

Delivering optimal results 199

Creating a system of checks and balances 201

Leveraging the power of specialization 201

Collaborating to Serve Your Clients Better 203

Teaming up with your client 203

Partnering with your client’s lawyer 204

Working with your client’s accountant 205

Working on your follow-through 206

Taking on the Role of Your Team’s Quarterback 206

Acting as the central point of contact 206

Maintaining separation among advisors base on their roles 207

Shopping solutions 208

Chapter 16: Adjusting Your Service Level to Different Clients 209

Building a Tiered Client Service Model 210

Scaling services to different clients 210

Giving your best clients concierge care 211

Scoring Your Clients 212

Considering demographics 213

Weighing psychographics 215

Assigning clients to service level brackets 216

Rewarding Quality Clients 217

Hosting special events 217

Inviting clients to breakfast or lunch 218

Recognizing the need to budget your time 219

Chapter 17: Benchmarking Performance 221

Measuring Portfolio Success Against a Chosen Index 222

Tuning in to the clients’ mindset 222

Recognizing the limitations of stock market indexes 223

Using a blended benchmark 223

Keeping it simple with your clients 224

Riding the Personal Benchmark Trend 225

Establishing the client’s personal benchmark 226

Using the personal benchmark to keep calm a client’s nerves 227

Using both relative and absolute benchmarks 229

Tailoring Performance to Each Client’s Needs 230

Own It! Don’t Make Excuses for Poor Performance 231

Part 4: Building Your Clientele 233

Chapter 18: Earning Clients and Making a Career for a Lifetime 235

Adding Value before Asking for Referrals 236

Making a choice: Sales or consulting 237

Differentiating yourself as a trusted advisor 237

Speaking to Clients in Plain English 238

Showcasing Your Value Proposition 240

Ask clients about their past experiences 241

Write your elevator pitch 241

Quantify your value and qualify your expectations 242

Being Humble and Honored to Serve Your Clients 243

Chapter 19: Raising Your Profile with Networking and Marketing 245

Establishing an Online Presence 246

Creating a website as your home base 246

Hosting your own blog 248

Becoming active on LinkedIn 249

Creating a Facebook page for your practice 250

Claiming your business in online directories 251

Making the most of your certifications 252

Getting Connected in the Real World 252

Discovering what you’re passionate about 253

Getting involved in a charitable cause 254

Serving on boards 254

Developing cross-industry professional alliances 255

Building Your Own Sales Force 256

Marketing to fellow financial advisors 256

Leveraging home office leadership personnel 257

Encouraging and rewarding client referrals 258

Promoting Yourself over the Long Haul 259

Chapter 20: Teaming Up to Build Synergies 261

Choosing Your Preferred Role: Lone Wolf or Leader of the Pack 262

Considering the pros of flying solo 262

Considering the cons of flying solo 263

Collaborating with Other Financial Advisors 266

Teaming up for joint-work opportunities 266

Sharing unique techniques and skills 269

Finding your niche: Minder, finder, or grinder? 270

Exploring broader practice partnerships 271

Part 5: Running Your Practice as a Business 273

Chapter 21: Transitioning from Solo Practitioner to Business Owner 275

Gut Check: Deciding Whether Starting Your Own Firm Is the Right Move for You 276

Determining how tethered you are to your current firm 276

Considering a change in roles and costs 277

Putting All the Pieces in Place 278

Structuring your business 278

Choosing a broker/dealer platform 279

Sketching your organizational chart 279

Staffing your firm 281

Dotting your i’s and crossing your t’s 281

Getting someone focused on rainmaking 282

Battling client attrition 283

Measuring Success in Terms of Profit Margin 283

Achieving Growth through Mergers and Acquisitions 284

Planning Your Exit Strategy 284

Bailing out with a buyout 285

Choosing a successor to take over 285

Handling your own estate planning 285

Avoiding the “die at your desk” scenario 286

Chapter 22: Structuring Your Firm as a Well-Oiled Machine 287

Organizing Your Business by Department 288

Minding the business: Administration 288

Finding clients: Business development 289

Grinding out the work: Client service 291

Identifying Business Development’s Focus Areas 292

Getting your firm’s foot in the door with 401K plans 292

Expanding opportunities through corporate benefit programs 293

Networking through trusts and estates 293

Easing the burden of household’s financial manager 294

Delegating Responsibilities to Client Service Associates 294

Assigning Administrative/Operational Responsibilities 295

Managing the office 295

Harnessing the power of client relationship management (CRM) software 296

Coordinating the workflow for new clients 297

Outsourcing accounting and legal 298

Chapter 23: Divvying Up Your Business: Equity Participation 299

Keeping Some Profits in the Firm 300

Adopting a Founder Mentality 301

Playing the role of visionary 301

Serving as the primary rainmaker 302

Avoiding the temptation to deal with day-to-day operations 303

Offering Equity Buy-in to Team Members 304

Being selective 304

Putting your agreements in writing 305

Proceeding When Equity Ownership Doesn’t Matter 305

Maximizing annual compensation to advisors 306

Having no desire to ever sell the business 306

Chapter 24: Ensuring Business Continuity and Planning for Succession 309

Creating a Hit-by-the-Bus Business Continuity Plan 310

Protecting Your Heirs’ Interests with a Buy-Sell Agreement 312

Planning for Succession 314

Picking a successor with the right credentials 314

Addressing personality and values compatibility 315

Considering transferable skills 316

Sizing up a candidate’s leadership potential 316

Accounting for loyalty 317

Part 6: The Part of Tens 319

Chapter 25: Ten Tips for Being a Successful Financial Advisor 321

Let Your Conscience Be Your Guide 321

Beware of False Profits 322

Protect Your Clients from Predators 323

Don’t Use Big Words 323

Remember That Good Service Makes Up for Other Shortcomings 324

Be Active in a Community Cause 324

Be Eager to Acquire New Information and to Share What You Know 325

Focus More on Skills, Less on Tools 325

Appreciate the Trust Your Clients Place in You 326

Always Ask: What If I’m Wrong? 326

Chapter 26: Ten Business-Building Activities 327

Schedule Client Review Meetings 328

Keep a Log of Friends and Family That Your Clients Mention 328

Sponsor One Charitable Event Each Year 329

Break Bread with Your Best Clients 329

Be Responsive: Practice the Same-Day Rule 329

Attend Every Party You’re Invited to 330

Have an Elevator Pitch 330

Welcome All Prospects, Large or Small 330

Stop Selling and Start Telling Stories 331

Be Active on Social Media 331

Appendix: Financial Advisor Resources 333

Index 343