The Financial Advisor

Financial Advisors

Part two

It’s time to get down to the part everybody wants to know; how much money can you make being a financial advisor. The answer is simple, and needs no fancy calculation. You can make an unlimited amount, there is no ceiling. It is just a matter of how hard you are willing to work.

When I began in the industry I came from a place of not even knowing what the Dow Jones was to breaking through the 100,000 dollar mark in my third year in the business. Tell me, what other career can you advance so fast in?

Here’s how your broker gets paid, and there are two methods, although one is going the way of the dinosaur; extinct. When I began in the business all commissions were based on transactional business. In other words for every transaction (trade) you got a commission, be it stocks, bonds, mutual funds, or derivative products. If you placed a stock trade that had a 100 dollar fee, you got 30-35 percent of that and the house got the other two thirds. If you sank a million dollars into mutual funds, the commission generated was forty thousand dollars of which you get about 12000 dollars. That’s not bad at all for a few phone calls.

However, the industry has been moving away from transactional business towards fee based business. The reason for this is when your broker called you never knew whose best interest he had in mind. Was he thinking that this investment was good for you or a good commission for him? How do you know? The answer is, you don’t know. With a fee based account you pay a flat fee every quarter and all trades are free. If your broker does well and your account value rises his fee is greater. If he does poorly your account goes down and his fee is now based on a lesser amount. Now you can relax knowing that if he calls, his investment idea will be with your best interest in mind.

It is now tougher than ever to break into the business, and even tougher to survive it. When most or all business was transactional, one could earn money right from the get go. With a fee based account you first have to talk the guy to opening an account with you and paying a percent to a percent and a half to keep the account. That’s a tough sell when the market is struggling. People don’t want to pay fees when their account is dropping.

When you have fee based accounts it takes millions of dollars in assets to begin to make enough to survive on. It takes a long time to get that millions of dollars in assets, especially for a new guy. If you are really thinking of getting into the business, finding a position as a junior broker is the way to go, unless you have another source of income to pay the bills for the first two years. If you work for a seasoned broker, as a junior broker, you get a salary for working his book of business. This way you can make money while trying to get established in the business.

Let’s talk education and training. Things may have changed lately, but it used to be that you had to have a bachelor’s degree in finance, economics, business, or some related field, and as much as two years in sales. Before you can start trading you have to take a couple of tests, one being a seven hour marathon. When I began in the business we had to take a test on bonds, which was the Series 52 test. The subject matter was narrow, bonds, so that meant you had to know them intimately in order to pass the test.

The test is broken up in two parts. You take the first half, three and a half hours, and then you can opt for a thirty minute break, and then take the last three and a half hours. It really was an endurance test. After awhile you find yourself just wanting to get it over with and you begin making mistakes. Now here’s the kicker. If you failed the test you lose your job. You are sponsored by your employer and if you score under 70% it’s over for you. I believe it is still this way. The fail rate is not as bad these days as the study material is much better. The fail rate used to be in the high sixties to low seventies.

The next test you take is the series 63, which is a two hour or so test on the rules and regulations governing financial advisors. It’s a short test, but agonizingly boring subject matter. The last test you have to take is the Series 7, which is another 7 hour marathon having to do with everything about the stock market. No stone is left unturned. Like the Series 52, if you flunk this one you lose your job. That rule may vary from firm to firm though.

So there you have it, the life of the Financial Advisor (stockbroker). You work hard, play hard, make lots of money, get lots of swag, and take long luxurious vacations every chance you get. Hope this answers any questions that people have about the industry, and hopefully you will be able to make a more informed decision as to what direction your career path will take.

Good Luck and Happy Investing.