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Tuesday, August 19, 2008

The Transition from Financial Sales Person to Financial Advisor

Financial Advisors Earn More

The tremendous benefit that accrues from status as a true financial advisor is that you have no agenda, no product to sell, and no objective other than to do what’s right for the prospect and the prospect can sense that. Because prospects do sense the difference between a financial sales person and financial advisor (no matter what term you use to describe yourself), financial advisors gather more assets per client and have longer term, far more lucrative client relationships. And, at the end of their career, financial advisors have a practice to sell—their client relationships have value.

Few people make the transition from sales person to advisor. Consider these figures: there are approximately one million people in the U.S. with a securities or insurance license. There are approximately 78,000 people entitled to use either the CFP® or ChFC® credential. That’s not to say that only people with one of these credentials is practicing as a true financial advisor (or that some with these credentials are product sales people and not advisors), but those that are serious about their financial advisor status do pursue one of these designations because they know that these designations are the best chance of quickly communicating their status as an advisor to the public. In short, about 8% of people with a license to sell financial or insurance products have made the effort to “brand” themselves as a financial advisor.

So the first step in the transition from sales person to advisor is to get educated—whether by enrolling in one of the recognized designation programs or through self study. You cannot advise if you don’t have adequate knowledge. Does this take a consistent effort to study each week over an 18 month period? Yes. Do most people make the effort? No. Do the people who make the effort get rewarded? Yes—the CFP® Board reports that financial planners with the CFP® designation earn 50% more than non-CFP financial planners. So if you struggle to earn more, knowing more is the first step to your goal.

Specialty Knowledge Attracts More Business

Of course, the CFP® and ChFC® credentials are indications of a fundamental and general knowledge base. But depending on your business, you should get specialty credentials. For example, if you do have a product specialty, such as long-term care insurance, then get one of the long-term care credentials like Certification in Long-Term Care (CLTC) or Long-Term Care Professional (LTCP). If you specialize in working with seniors, then you want to get the Certified Retirement Financial Advisor™ (CRFA) credential or Chartered Advisor for Senior Living™ (CASL). If you focus on estate planning, then consider the Accredited Estate Planner designation.

The important aspect of credentials is that they not only provide knowledge that allows you to deliver value, they have marketing value in attracting new clients. The more you specialize, the more attractive you become to potential clients.

Continual Learning is Mandatory

Once you earn a credential or reach your goal, you’re not done. You need to invest about 200 hours annually in self continuing education. I know that most credentials require 40 or so hours a year of continuing education but this is insufficient. Not only do you forget what you know, and must spend time staying current, you need to continually add to your knowledge base. Since your prospects and clients are getting more knowledgeable in financial matters, the value you add will diminish if they keep growing and you don’t.

Professionals Charge Fees

You must become a registered investment advisor so that you can charge fees for investment advice (check with your State about any licensing requirements if you want to charge fees for insurance or estate planning advice). Even if you work primarily on a commission basis, why are you doing analysis or preparing recommendations for free? That’s insane and no other professional does it. All you’ve got to sell is your time and your insight and giving it away for free is no different than Home Depot having customers take whatever they want off the shelf—no charge. You do not have a legitimate business when you give away your primary asset for free.

Now some advisors are stopped by the prospect of becoming an RIA because they think it’s difficult. Yes, your State may require you to pass the FINRA series 7 and 66 exam. But passing exams is the minimal mark of a professional as passing of an exam is not a mark of competence. Take initiative and take a review course if necessary. But don’t wait for someone to push you because it won’t happen. No product company, insurance company or broker dealer will call you up and say “I’m calling to tell you, you need to be an RIA and collect fees.” It won’t happen because there may be nothing in it for them.

This is an age of self learning. There are dozens of articles that have appeared in the industry press covering RIA status. There’s no shortage of information—you just need to go get it. Many agents will simply be able to use the RIA of their broker dealer or insurance company to charge fees, but either way, charging fees is essential to professional status and to survival in this business.

In fact, the only way you can provide full and complete service is to charge fees. For example, when doing a financial plan, would it not be a good idea to review your client’s P&C coverage? Most planners don’t since they don’t sell P&C insurance. This lack of attention leaves the client exposed. If you charge fees, you get compensated for complete caretaking of your client.

Form a Network With Other Professionals

You need to affiliate with other professionals because you cannot know everything. Those that have the CFP® or ChFC® credential use other professionals more, not less. They realize how much there is to the tax, estate planning, employee benefits and financing issues that they don’t know. But they know enough to be the quarterback for their clients and call in those professionals when needed. So stop going it alone. That’s not how professionals bring value to their clients. If you need a heart operation, does your family doctor say, “no problem, I’ll do it,” or does he bring in a specialist?

If you don’t make the most of every client relationship by filling all their needs either yourself or through your network of professionals, another advisor will and take your business away from you. If you don’t upgrade your knowledge and the value of your service, the public won’t need you because they are rapidly increasing their financial knowledge and will soon have no value for someone who simply has product knowledge.