I’ve been considering making the move from investment consulting/research to be a financial advisor (background - CFA, 6yrs exp). While I am aware that the FA landscape is littered with clowns, due to the low barriers to entry, and there is a very high failure rate of new advisors. The entrepreneur in me is drawn to the autonomy the career offers as well as the lifestyle once a practice is established. I guess I am looking for some perspective… - Am I foolish to leave the institutional side of the business for retail FA? - Is the autonomy/lifestyle that I observe of established FAs a reality? - Assuming I would make this move, how long should I expect to bootstrap until a regular paycheck? - Anyone else on this forum considered this, or done it already? Thanks for any comments.
What your definition of FA? Someone who does financial planning, estates, life insurance, asset management, etc… or someone who strictly manages personal assets for individuals (RIA)?
More of the former - financial planning/asset management/estate/trusts…
spope Wrote: ------------------------------------------------------- > Am I foolish to leave the institutional side of the business for retail FA? Many FA’s actually have rather large institutional business/books (often from small/midmarket orgs) - granted this is at the higher level, but presumably you’re not looking to move into the role with minimal expectations or aspirations. Timeline is tough to say, and to Chuckrox’s point, it depends on your intended structure, network, and luck. EDIT: I see what you want to do, but you’ll have to decide on a structure; are you starting or joining, RIA or wirehouse, size, product set, etc. These all impact how quickly you can setup a book. Personally, I like the idea, but I’ve also been called an idiot before so grain of salt and what not.
I did it for a year straight after college. I only made 32k working 60+ hour weeks. It’s a tough business to start up (as is any business). But yes, if you have a lot of connections and you can build a nice book of business, the lifestyle is great. Some of the top guys in my old firm would only work a couple months out of the year. A good resource is www.registeredrep.com They have forums there.
I’ve heard of folks like you (2) buying out another RIA’s book. Might be worth looking at.
The only way you can make it in this profession is if you are hooked up with a senior Advisor with a big book of assets who is planning to hang 'em in a couple of years or so. The only way! If you think you can build a book of assets from scratch to a reasonable size within a reasonable time period, it’s time to wake up, and keep your current job.
Go work in a private bank, learn the ropes, try to move into an investment counsel type of role, which should be possible given your background. You can use the connects to win clients and eventually build your book while learning from servicing bankers’ clients’ investment needs. Being a straight FA, as stated above, is really only lucrative if you can inherit assets.
If you start from scratch, you’re looking at 3-5 years before you’re making steady money, and another 5 before you’re (potentially) making really good money. It’s a lot of work to bring on new clients, but you do set your own schedule. Work hard early on, annuitize your book, and you can play golf 4/5 days a week in a decade. I’d strongly recommend the RIA route. Plenty of RIAs are full service financial planners with clients ranging from small individual accounts to large endowments and DB plans. Just depends on what you go after.
Yeah, as Brain_ Wash mentioned, you could go the IC route too which is definitely possible given your background and the Charter. I had given it some serious thought at a point in my career. Don’t get me wrong, lifestyle-wise, this is the best job one could ever have if you’re lined up to buy assets from some senior dude. My 53 y/o senior advisor works three days a week during the winter and about a month in total during the summer and makes over $2 mil per yr. I’m only an associate advisor and I’m already loving my life even though I’m a couple yrs away from getting those assets. But, there is no way in hell I could have made it if I strated to build my book from scratch. Redistribution of assets can only take you so far becasue every asset out there has been taken. You’re just trying to snatch it from from another Advisor in the process of building your book. Which is not easy.
The trouble with being a financial advisor is that their standard practices don’t provide clients with good value for the money they charge. If giving poor value for money to folks who aren’t in a position to properly evaluate the services you’re providing troubles you (and it should, though it doesn’t seem to trouble most of the schmoes doing the job), that will make it even more difficult to earn a good living at it.
Iginla2010, what sort of multiple are you looking at to buy the assets from the senior dude when he retires? How do you determine the value of his book and what you will pay to buy the assets? What if he decides to sell to another dude that is willing to pay him a higher multiple?
Iginla2010 Wrote: ------------------------------------------------------- > The only way you can make it in this profession is if you are hooked up with a senior Advisor with a big book of assets who is planning to hang 'em in a couple of years or so. The only way! Your point is well made, though given the past few years there’s been many ways to inherit a book without having a senior person pass it down. Anecdotally, I’ve seen mid/late 20’s people inheriting large, large books. This also comes down to the structure of the organization (he goes to a PBank, he’s not building a book). Agreed on timeline, there’s really no way to know with any certainty - but that’s kind of the point isn’t it (“no pain, no pain” is only for commercials, hehe). Like BWYF mentions you can join a team given your speciality skillset and expand your client facing responsibility - many of the large books are managed as a team and you can join without being pressured to build a book. He also mention the PBanking model, which is different than the brokerage model, which is different than the RIA model, which is why it’s important for you to understand what specifically you want to do and how you plan to get there. …to further muddy the waters you’ve got plenty of firms who say/think they are one thing, but do something different. GL.
Captain Windjammer Wrote: ------------------------------------------------------- > The trouble with being a financial advisor is that > their standard practices don’t provide clients > with good value for the money they charge. Well said! Same is also true for a hedge fund manager, or a research analyst, or a candy salesman, or a bartender. However, it is these individuals who end up on the short end of the stick. I’ve seen all sorts of Advisors with all kinds of business model and money management styles. Only those survive who have been able to build relationships. And you don’t build relationships based on fake identity, false advise, skimming the clients, etc. Those come and go all the time. I am looking at a book that has some 25 years old relationships and that’s why this is a slow process. It normally takes around 3 yrs of transition and making clients comfortable with the new guy. A huge advantage of this process is the fact that you (as an associate) learn the management style of your senior advisor which the clients are used to and are comfortable with. That usually translates in retention because you don’t just come in and start changing clients’ portfolios at will. You maintain that style. Retention means the advisor is actually going to get paid for his book. So, it’s all in good intentions. One day this guy in our office called one of his clients and said “hey, so I shorted CAT in your portfolio and I think we’re looking good here. I’ll keep you posted.” The client respomds (I know this because I heard this guys’ response) that “Ohhh, really? I’m actually bullish on CAT”! Guess how long this guy lasted? 3 months. You have to put it all in perspective. At the end of the day, everyone is in it to make a buck, whether you’re a sell-side ER reverse engineering a valuation model to make the company sell, or selling burgers at Mac to a high cholesterol, diabetic.
thommo77 Wrote: ------------------------------------------------------- > Iginla2010, what sort of multiple are you looking > at to buy the assets from the senior dude when he > retires? How do you determine the value of his > book and what you will pay to buy the assets? What > if he decides to sell to another dude that is > willing to pay him a higher multiple? thommo: I work for a big Canadian bank and they have their formula that they use to calculate the payout. Usually, it is the PV of annual gross revenue (an avg of past 3-4 yrs) amortized for 5 yrs. So, let’s say the turn is about 75 bps on a book of $200 million, so you generate $1.5 mill. Roughly, you would amortize that for 5 yrs at 300K per yr. This is just a rough idea, though. You actually sign a contract when you get into this agreement. So, it’s not just a rosey picture that everyone is painting. It will stand in the court of law. Plus, you have the Branch Manager, the Regional VP, and the compliance officers involved in the paperwork. It could happen in a smaller shop that the senior guy changes his mind and sells the book to someone else, doesn’t happen where I come from. Guys with CFA are the most successful in my office, and i’m sure it’s not a spurious relationship.
Iginla2010 Wrote: ------------------------------------------------------- > Captain Windjammer Wrote: > -------------------------------------------------- > ----- > > The trouble with being a financial advisor is > that > > their standard practices don’t provide clients > > with good value for the money they charge. > > > Well said! Same is also true for a hedge fund > manager, or a research analyst, or a candy > salesman, or a bartender. However, it is these > individuals who end up on the short end of the > stick. I’ve seen all sorts of Advisors with all > kinds of business model and money management > styles. Only those survive who have been able to > build relationships. And you don’t build > relationships based on fake identity, false > advise, skimming the clients, etc. Those come and > go all the time. > > I am looking at a book that has some 25 years old > relationships and that’s why this is a slow > process. It normally takes around 3 yrs of > transition and making clients comfortable with the > new guy. A huge advantage of this process is the > fact that you (as an associate) learn the > management style of your senior advisor which the > clients are used to and are comfortable with. That > usually translates in retention because you don’t > just come in and start changing clients’ > portfolios at will. You maintain that style. > Retention means the advisor is actually going to > get paid for his book. So, it’s all in good > intentions. > > One day this guy in our office called one of his > clients and said “hey, so I shorted CAT in your > portfolio and I think we’re looking good here. > I’ll keep you posted.” The client respomds (I know > this because I heard this guys’ response) that > “Ohhh, really? I’m actually bullish on CAT”! > > Guess how long this guy lasted? 3 months. You have > to put it all in perspective. At the end of the > day, everyone is in it to make a buck, whether > you’re a sell-side ER reverse engineering a > valuation model to make the company sell, or > selling burgers at Mac to a high cholesterol, > diabetic. If you’re suggesting that people in all of the roles you named fail to give value for money in the same way most financial advisors do then I disagree, except probably with respect to most equity analysts and hedge fund managers. Humans are poor at making investment decisions, not to mention that most of them are ignorant to a greater (usually) or lesser (less commonly) degree. Heck most “financial advisors” are largely ignorant about investing as well, or at least deeply misunderstand it. You can have relationships and still be providing poor value, or even ripping people off, as a “financial advisor” - that is exactly my point, people don’t know any better, don’t understand how the world works and can’t properly evaluate the services of investment “professionals”. The same is not true of someone selling candy, an alcoholic drink or a hamburger.
No, my point is you can be ripping people off in whatever capacity/profession if that’s your intention. You sound like you haven’t really met any ‘real’ advisors in your life and have a very narrow perspective. Come out of your little well and I can open your eyes. It’s almost like me saying all Americans are ignorant, self-serving rude sons of b!tches because a lot of the ones I know, are. But, that’s not really true. You need to learn a lot, my friend. Most of the advisors I know will school almost anybody in investing. Do you really believe hedge fund managers haven’t ripped people off? That’s, at best, laughable. What about lawyers, doctors, dentists, etc. Do they not rip people off? If you want to throw a stereotypical and generalized statement out there, merely because you don’t have the intelectual strength to do any better, then you have found the perfect platform for it - an anonymous online forum where you can get-off whenever you want. Now look who’s ignorant. My point is, every profession has bad apples, but that does not entitle us to throw a blanket statement like yours. Think!
I almost fell off my chair laughing when I got to “Most of the advisors I know will school almost anybody in investing.” I don’t have any interest in responding to ad hominem attacks, and you’re missing my point (it actually not even being clear you’ve read my posts) in any case.
Historically, I’ve never atacked or name-called anybody on this forum. But your ignorance warranted that. Come to my neck of the wood and it’ll be an eye-opener for you. What is your point? How, exactly, do you provide value for money to the society? Let’s hear it. Or are you just being a wimpy @ss whiny b!tch because you know you can’t make it?
You seem like an angry person.