Financial advisors are mostly financial planners. They guide clients who are looking to improve their financial lives. Thus, the typical tasks of a financial advisor are almost inexhaustible. Most financial advisors teach their clients ways to escape indebtedness and how to invest in securities and other financial investments. Some financial advisors also engage in retirement planning and portfolio management for clients.
personal financial advisors are somewhat like therapists. Hence, they are available at all the financial turns their client takes. Some go as far as engaging in estate planning or working as insurance agents.
The nature of the job of a financial advisor is such that they can make a lot of money within a short period. It is vital to work with an experienced financial advisor at the beginning. However, you can go solo, become self-employed and render services from the comfort of your home. The job gives you the room to affect the lives of your clients positively. More so, being an emerging market, it isn’t as saturated as other fields in the financial services sector. In all, if you are looking to make a career as a financial advisor, then you are on the right path.
However, one key thing to factor in is the all important question, how much do financial advisors make? It would interest you to know that financial advisors have been touted to have the fourth most desirable business jobs according to a ranking by a US news outfit. However, it makes sense to look at the expected salary you could make from being a financial advisor.
Before we get right into the nitty-gritty of the subject matter, it is important to point out that how much financial advisors make vary widely depending on several factors (similar to stock brokers and hedge fund managers). This guide gives you a cohesive view of the average financial advisor salary, factors that influence it, and what to do to improve yours.
How Much Do Financial Advisors Make?
The question of how much financial advisors earn has not been definitely answered. This is because of the conflicting data and information on the subject. For example, industry insiders have different numbers regarding the median salary, median annual wage, and annual mean wage of financial advisors. On the other hand, the Bureau of Labor Statistics (BLS) has its figures regarding the subject. This conflict has led to a situation where there is still no definitive answer to the question even after many years. In this section, we will provide you with information from different sources. The aim is not to confuse you. Instead, judging from the information, you can then arrive at a reasonable conclusion.
First off, according to the BLS, the median annual salary of financial advisors for 2020 was $89 330 per year and $42.95 per hour. Other data in this ranking include the number of financial advisor jobs available in that year; it was pegged at 275 220. About 12 600 individuals were reported to have made career changes from the financial advisor sector. This report from the BLS shows that the annual mean wage of an average financial advisor is higher than the national average.
Another independent report puts the annual average financial advisor salary at $72 581. This is significantly lesser than the figures from the BLS. The report also listed the average financial advisor salaries according to different states. The highest financial advisor salaries were typically from New York, Arizona (Phoenix), and Houston (Texas). States that pay the lowest salaries were North Carolina, Missouri, and Illinois. Remarkably, there were other states who could not match the powers of the high-paying states but nonetheless pay the median annual wage. States here include Rhode Island, the District of Columbia, Minnesota, Alaska, and several others.
In any case, it is essential to recognize that things might be different from what the data report. Some people still manage to get their highest salaries in states that are considered to pay poorly. Understand that if you want a job in finance, you should be willing to be patient. Once you become great at what you do, your salary will surely rise to reflect that.
How Financial Advisors Get Paid
There are three main ways financial advisors make money. They are through:
- Client Fees
Many financial advisors make money from commissions. Commissions typically accrue when the financial investor sells specific financial products to their clients. For instance, Robo advisors, like Betterment or M1 Finance, get some predetermined commission when they sell shares or other securities.
Financial planners try not to rely on commissions as their chief source of money. This is because it could compromise their integrities. A Personal financial advisor, for instance, ought not to subtly or overtly pressure their clients into taking up any deals. However, that is often the case when they focus on commissions.
Some financial advisors seek employment with investment firms and earn money through the salaries they get. Financial advisor salaries are different from one firm to the other, although, in the section above, we have discussed the average salary you can expect to earn. Asides from this, a financial planner could also get bonuses, exclusive offers, and incentives for meeting certain milestones. This is how many financial advisors make the most money. However, getting any bonus rests on the discretion of the firm where you work.
This is the primary way to make money as a financial advisor. Here, you earn fees directly from the client. At the start, financial advisors often negotiate with clients to determine how much they get from the client’s investments they manage. Typically, the more extensive the portfolio, the lower the charge. However, most Robo advisors take less than one percent of their client’s assets. This is significantly less than what human advisors charge, and for a good reason.
Client fees are either management fees or performance fees. Management fees refer to how much the financial advisor gets from just managing clients’ accounts. On the other hand, performance fees are to reward financial advisors who exceed the expectations of their clients.
The fees could either be hourly or flat. Most personal financial advisors opt for the latter. It helps them keep track of the time spent with clients and any possible incentive that might arise. Additionally, the financial advisor can decide to charge fees periodically, say monthly or quarterly. If you are starting as a financial advisor, you need to decide on the best option to suit your finances.
From the foregoing, you can see that financial advisors are divided into fee-only and fee-based advisors. Fee-only financial advisors or companies rely solely on client fees. Therefore, they do not charge commissions. However, the client fees could include percentages, management fees as well as financial planning fees.
Fee-based financial advisors, on the other hand, earn both from client fees and commissions. They charge fees to clients for managing their assets. On the other hand, they also receive commissions for recommending certain financial products to their clients. The most common are insurance products. However, advisors who make money this way open themselves to potential conflicts of interest with their clients.
How To Make Money as a Financial Advisor
From the BLS data and information shared above, you can infer that financial advisors make quite a lot of money. As someone in the industry or looking to get into the space, how do you make sure you cash in too?
Get the Required Qualifications
Before you even begin to seek employment as a financial advisor, you need to have a bachelor’s degree. Typically, it can be in any field, although a bachelor’s degree in finance could help you stand out. However, if you intend to go into financial planning professionally, that is, become a Certified Financial Planner (CFB), you have to complete a CFP board-approved course on financial planning and take a CFP exam. In addition, you can improve your education by getting an internship with a reputable financial institution. This gives you hands-on experience that could be helpful when providing financial advice to clients.
Financial advisors rely almost exclusively on their reputations. No one will be aware of the extensive knowledge about the sector unless someone (most likely you) tells them. Thus, consistently prospect for clients. This is especially important for the first few years afer you establish your services. At some point, your place in the financial services sector will become established, and clients will naturally come to find you. However, before that happens, do know that you should be the one going after them.
Apart from prospecting, another solid investment you can put into making more money as a financial advisor is following up your prospects. The difference between financial advisors who make a lot and those who have lower salaries is that the former consistently retain their prospects. According to an independent report, most people make sales after the fifth contact with a client. This merely shows that patience is critical to be successful as a financial advisor. Beyond that, it also demonstrates the importance of sticking with prospects till they become clients.
Do Your Job Well
Regardless of how much you learn about making money as a financial advisor, your income will not exceed the national average if you do a shoddy job with clients. People need to expect to trust your judgment and suggestions. For instance, if you hold yourself out to have the best Robo advisors, ensure that your work backs up this claim. People who earn the most on Wall Street are those who know their onions. The higher you are on the food chain, the better your pay as a financial advisor is.
It should be your aim as a financial advisor to retain as many of your clients as possible. This is because your repeat clients could be instrumental in keeping you in business. In addition, as highlighted above, success in the finance sector hinges on how many people know your financial acumen. Therefore, a key indicator that you are doing well is the number of clients you retain after the initial financial services you render to them.
Most of the ways to achieve this have been discussed above. If you stick to the steps in the preceding sections, you will be an influential financial advisor and get to retain clients more. One follows the other. Additionally, always identify and resolve potential conflicts of interest during and after transactions with clients.
How Financial Advisors Can Boost Their Earnings
Financial advisors can make more money by implementing a variety of strategies. Here are a few examples:
- Expand Your Client Base: The more clients you have, the more money you can make. Implement an effective marketing strategy to attract new clients. This could include social media advertising, content marketing, or hosting informational webinars or seminars.
- Offer Comprehensive Services: The more services you can provide your clients, the more they will rely on you for their financial needs. This could include tax planning, estate planning, insurance needs analysis, retirement planning, etc. Specializing in one or more areas can also help you stand out from the competition.
- Implement a Fee-Based Model: Rather than earning money on commissions, consider switching to a fee-based model. This could be a flat fee, an hourly rate, or a percentage of the assets you’re managing. This not only aligns your interests with those of your clients, but it can also provide a more stable income.
- Leverage Technology: Use technology to improve your efficiency and to provide more value to your clients. This might include financial planning software, customer relationship management (CRM) systems, and automated marketing tools.
- Continuous Education and Certification: Pursuing higher education or additional certifications can make you more appealing to potential clients and allow you to charge higher rates for your services.
- Client Retention: Make sure you’re not only bringing in new clients, but also keeping your existing ones. Provide excellent customer service, communicate regularly, and make sure you’re meeting their needs.
- Niche Market: Identifying a specific niche market, such as doctors, entrepreneurs, or professional athletes, can help you focus your marketing efforts and become a specialist in dealing with the unique needs of that group.
- Referral Program: Encourage your satisfied clients to refer their friends, family, or colleagues. Offering a referral incentive could be beneficial in this regard.
- Upsell and Cross-Sell: If you have a variety of services, make sure your existing clients know about all of them. You may find opportunities to help them in more ways than you are currently, which could lead to more revenue.
- Partnerships and Alliances: Develop relationships with related professionals like accountants, attorneys, and real estate agents. They can refer clients to you, and vice versa, thus expanding your reach.
Conclusion: How Much Do Financial Advisors Make?
As you can see, even though what financial advisors earn varies widely, it is nonetheless possible to join those who make higher salaries than the average. However, do understand that the suggestions are not foolproof. You will still have to be dedicated and hardworking to make the most of every situation.