I once thought financial advisers were “experts” in their field like a physician and that it was worth paying to get their advice. Now, while I’m sure there are some financial advisers out there that do their clients more good than harm, the vast majority are salespeople with little to no experience in finance or investing. Have you ever considered what the qualifications to become a financial adviser are? They’re posted on job hunting sites all over the internet. Here’s an example for an Ameriprise job:
Required Qualifications
- FINRA Series 7 and Series 63 or 66 licenses and state insurance licenses, or the willingness and ability to obtain them through our company-paid training and licensing program
- Ability to pass a pre-employment background verification and U-4 FINRA verification
- Outstanding verbal, written and listening communication skills; superior customer service skills
- Ability to develop and maintain professional relationships; have the desire, comfort and confidence in networking with others
- Ability to quickly compile, verify and calculate information to provide solutions and recommendations
- Demonstrated ability to display and maintain a highly professional demeanor consistent with Ameriprise values and brand
- Ability to work a flexible schedule; with some evening hours required
- High level of confidence, perseverance and a strong desire to achieve and succeed.
- Demonstrated high level of skill in the following areas: organizing, planning and prioritization
Preferred Qualifications
- Previous sales experience or exposure
- College degree
What are they looking for? Well, mostly prior sales experience it seems to me. Finance degree? Nope. MBA? Nope. CFA or CFP (designations that actually mean something)? Nope. The only technical requirement is a series 7 and a series 63 license. How long does it take to get those? Well, I’m not exactly sure, but there is a “Dummies” book for it. Here’s what some advisers say about it:
“Study your balls off for a week and you will pass! There is NO shortcut to pass this test, If you are a good student, a week is all you need, if you are a moron, you may need a month to study. Take every exam 2X and study why you got a question right/wrong. I did not bother to even read the material. You should not get a single options or regulatory question wrong. I studied for 6 hours a day for 7 days to pass the first time.”
“Buy series 7 for dummies 6 months before you take the test. Pick it up and fick through it twice a week for 6 months. 15 dollars USD secondhand on amazon.”
“There were guys at bright studying a week and getting high 90s. One guy just studing for the weekend and got something in the low 80s.”
“I was basically told “pass this or you’ll be fired” so I read the book, and then spent the weekend before taking practice tests over and over. I got an 89. There is no short cut.”
That’s in their own words. It sounds like you spent four times as much time preparing for a single anatomy test. As long as we’re using their own words, why don’t we take a peek and see what they think about doctors? We’ll just wander over to registeredrep.com and search “doctors.” Here’s what we find:
- “Follow them home from the clinic. Give them 5 minutes to kiss the wife and kick the dog. Then smile and knock, knock away….”
- “I’ve been getting doctors on the phone by telling them I have some great pictures of them with their daughter. The ones w/o daughters call back very quickly.”
- “You may ask the gatekeepers which times/days he sets aside to meet with drug reps. Call on them at that time.”
- “If you have a background dealing with these guys and know how to work their psychology to your advantage, it could be a win.”
- “I agree with Cape1. I have a few physician clients and prior to becoming an FA, I worked in the medical field. Learning their psychology is key as well as learning to massage their egos.I’ll go one further though… although most think they know more than you (about everything), what you’ll find is that most have crappy portfolios and ACTUALLY know very little about financial matters.”
- “I would say 35 earliest, over 40 would be ideal. They are generally horrible investors. Most are too proud to admit they know nothing about investing. I would maybe think about disability insurance or malpractice insurance if I was going to market to doctors. They hear sales calls and pitches all day from drug reps. Be original. Try speaking to the office manager or doing something different.”
- “My experience with docs is much better. Dentists, family practitioners, pediatricians, psychs, and even veterinarians, all terrific delegators. Surgeons, on the other hand, not so much.”
- “From my experience/perspective, attorneys, engineers and surgeons are not who I want to build a book around. I’ve had several engineers come to me through referrals, but I’m really upfront with them about how it’s important that they resist the urge to micromanage.”
- “I’m looking at the possibility of prospecting doctors for the sole reason I know they have money, and a lot have their own practice where a good potential for 401(k), retirement, business assets could come from.”
- “I’d figure out where they live and prospect them there. Too many gate keepers at the doctors office – they are used to sales guys blowing their phones up.”
- “Clients pay us a lot of money so they don’t have to know what the freakin risk is of a CDO. If we as advisors can’t see that, then we shouldn’t be in this business. Most advisors don’t do NEARLY enough to earn their fees. That’s one thing that bugs me about life at Jones…there is this “belief” (which exists at many firms) that the firm will worry about the investments, and we just go out and prostltute for new clients. Of course, that’s masqueraded as “planning time with clients”. In reality, the firms don’t care what we know about investments, they just want us to dedicate as much time as possible to finding more assets.”
There you have it, in their own words. If you weren’t sure what kind of relationship a typical financial “adviser” was looking for with you, now you know. Our esteemed colleague, Dr. William Bernstein, said this in his classic 4 Pillars of Investing:
“Make no mistake about it, you are engaged in a brutal zero-sum contest with [the financial industry]– every penny of commissions, fees, and transactional costs it extracts is irretrievably lost to you….
Brokers do undergo rigorous training, sometimes lasting months–in sales techniques. All brokerage houses spend an enormous amount of money on teaching their trainees and registered reps what they need to know– how to approach clients, pitch ideas, and close sales. One journalist, after spending several days at the training facilities of Merrill Lynch and Prudential-Bache, observed that most of the trainees had no financial background at all. (Or, as one used car salesman/broker trainee put it, “Investments were just another vehicle.”)….
What do brokers think about almost every minute of the day? Selling. Selling. And Selling. Because if they don’t sell, they’re on the next train home to Peoria. The focus on sales breeds a curious kind of ethical anesthesia. Like all human beings placed in morally dubious positions, brokers are capable of rationalizing the damage to their client’s portfolios in a multitude of ways. They provide valuable advice and discipline. They are able to beat the market. They provide moral comfort and personal advice during difficult times in the market. Anything but face the awful truth: that their clients would be far better off without them. This is not to say that honest brokers who can understand and manage the conflicts of interest inherent in the job do not exist. But in my experience, they are few and far between….
Brokers will protest that in order to keep their clients for the long haul, they must do right by them. This is much less than half true. It’s a sad fact that in one year a broker can make more money exploiting a client than in ten years of treating him honestly….
Your broker is often your neighbor, fellow Rotarian, or even family. And eventually, by design, they all become your friend. Severing that professional relationship, although necessary to your financial survival, can be an extremely painful process.”
Eye opening? Of course. But a sad fact of life. Now there are financial advisers out there who will act as your fiduciary, but they are few and far between. The fact of the matter is that by the time you know enough to choose a good financial adviser, you probably know enough to do all of this yourself.
Thank you for this blog. That’s all I can say. You most definitely have made this blog into something thats eye opening and important. You clearly know so much about the subject, youve covered so many bases. Great stuff from this part of the internet. Again, thank you for this blog.”
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Great post!
One of my friends relatives is an government auditor and he said that doctors and lawyers and other high paying non-business professionals were the worst investors ever. They always get caught in a bunch of schemes and lose a ton of money.
So…its a note of caution I guess. Just because you are smart doesn’t mean you don’t need to read up and get a good background in finances before you start throwing your money around.
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Great post. An all-too-common career story for a typical “financial professional” can be seen in this NY Times autobiographical piece by a former Fidelity and Merill Lynch financial advisor (who’s now had to declare personal bankruptcy.)
http://www.nytimes.com/2011/11/09/business/how-a-financial-pro-lost-his-house.html
He called about a job as a security guard, only to find that it was a call-center job that involved *selling* securities. Then “things went well” and a few years later he’s in charge of everyone else’s money and plunking down customer fees on an overpriced house. These are the kind of jobs these people have – its about being good at talking people into fees and commissions, not having any kind of actual financial skill.
“Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market. A few months later I found myself working a phone at a Fidelity Investments call center.
Things went well, and by 1999 I was a Merrill Lynch financial adviser and a certified financial planner. By then, we also owned a house in Salt Lake City. We’d bought it two years earlier, with a $25,000 down payment. A few years later, an opportunity arose to form a partnership with a successful Merrill adviser in Las Vegas. “
Nothing new to my attention. The story on the guy mixing up security guard job with securities, all the while being actually in charge of people’s money is the lack of substance of financial industry in a nut shell. This is so absurd.
I used to be in family medicine, but left to go into finance because I loved economics and investing. I would agree that the bar is set pretty low for entry into the field and there is a big push for sales and finding high net worth clients for obvious reasons. It’s a business, just like medicine is. I would disagree with you on the education part though. Degrees really don’t mean anything in this field, that’s why it’s not required. There is no certified training course/degree or text books that can substitute for real life experience. Instead of residency, we have on the job training. Take for instance a medical student who just got their MD. The MD doesn’t mean that they know how to treat a patient. They have to finish a residency to do that. The same is true in finance. Are there bad advisors out there who are just in it for the money? Sure, and apparently you found one, but every field has bad apples including medicine. I can tell you after seeing some incredibly complex strategies that my firm has come up with for clients…they come up with stuff that you can’t find in a text book or online. Trust me, I’ve tried in order to learn more on my own. I’ve seen the amount of planning and consulting with other specialists that goes on and heard of cases where the client initially balked at the what? a $20,000 fee that later saved them a quarter million later. The most frustrating thing for a financial advisor is that our value is not something immediately tangible. Our value is often not recognized until it’s too late for the client. In the mean time, we’re just seen as money sucking vortexes in it for our own self interest. That just really sucks for people like me who actually do want to do a good job.
The phrase “bad apple” suggests they are rare. While many advisors want to help their clients, most are handicapped by a need to make money and support their family and a lack of understanding of what is actually best for their client. Why else would we see so many people “advised” into loaded mutual funds, high-expense insurance based investing products, expensive and ill-advised limited partnerships etc etc? I would submit the vast majority of “advisors” are bad apples, whether they mean to or not. All of them? Of course not. But by the time you know enough to identify the good ones, you know enough to do most of your financial tasks yourself.
While a $20K fee that saves $250K is obviously a good idea, why in the world should a financial adviser get paid $20K for something that takes less time, effort, and risk than a surgery that a highly-trained neurosurgeon only gets paid $2000 for? It doesn’t make any sense.
A quality financial advisor should be able to make a darn good living charging $100-500 an hour. Yet most don’t work that way. Why not? Because there are too many of them. So they make nothing for the hours they spend prospecting for new accounts, and then charge too much on the handful of accounts they do get. It’s a silly system.
“While a $20K fee that saves $250K is obviously a good idea, why in the world should a financial adviser get paid $20K for something that takes less time, effort, and risk than a surgery that a highly-trained neurosurgeon only gets paid $2000 for? It doesn’t make any sense.”
Seriously? You’re comparing apples to oranges. Personally I’d be willing to pay a fairly generous paycheck for someone’s knowledge and experience if it truly saves me/earns me a shit load of money later. The amount of time and effort spent would be irrelevant to me. Value is in the eye of the beholder I guess.
Anyways, yeah… practically anyone can call themselves a financial advisor because the term is very broad. It’s like saying someone is a health care worker. What matters most is the amount of knowledge and experience the person has which is incredibly hard to prove because there is no standard as far as education and training goes, unlike medicine. When I left medicine to go into the business, I’ve learned a couple of things so far. One is you can tell a lot about a financial advisor by the kind of questions they ask you. If they don’t take the time to understand your personality, make sure you’re organized financially, go over your finances with a fine tooth comb, and make sure you have all your basics covered before recommending investments that will “make them rich” then you should probably look for another advisor.
PTFA-
I think that’s what the first phrase of my sentence you quote says…i.e. it’s okay to pay a lot of money if it saves you even more. But if you had the option to pay $20K to save $250K or $10K to save $250K, which is the better value?
And while I agree making sure “the basics” are covered before recommending investments is important, I’d prefer an adviser who recommends investments that don’t “make them rich.” I want him recommending investments that make me rich.