Hello everyone. I've lurked here on and off over the years and realize there isn't much activity regarding wealth management, but thought I'd register anyway. I'm in my 30s, at an independent broker/dealer, been doing this over a decade (after getting my B.S. in finance and an MBA at a state school) and sort of on cruise control at this point. I've always been disappointed in the lack of actual "finance" involved in the wealth management industry, but I think having the knowledge and being a "people person" has been really helpful. Mostly just looking around for entertainment, but happy to share anything I can about the WM industry if anyone is curious.
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Career Resources
What are your hours like?
Who are your typical clients?
Are all shops generally the same?
Since I'm independent, my hours are whatever I want them to be. While I was building my book, they were long-ish, but more "late" than "early." I built my book on retirement plans, so I'd prospect at employers (getting plans, and then building relationships with employees) during the day (9 - 3/4/5), and then meet with prospective clients in the evenings. Done anywhere from 7 - 11 at night. These days, I probably average 40 hours a week, but some weeks it's 30 and others it's 50. You could run a decent book with a good process working 30 hours a week with good support staff.
One unique thing about WM is once you've "made it" you can run your practice any way you like and keep whatever hours suit your model and your own growth goals. If you want to make 7 figures, you can keep grinding. If you want to make $300K and golf a lot, you can do that too (heck, you can work from home and make $150K if that's your thing).
As for clients, my book is built on "mass affluent" and small employer retirement plans (less than $5MM in plan assets). Many of my clients are state or federal employees that have nice pensions plus $250 - $750K in DC assets.
All of the shops are definitely not the same (but they are full of $hit in their own way). I'll put some details of the major channels in a subsequent post, so if it should be moved or made it's own topic, it's easier...
Curious on how you are handling the new Fiduciary rule since so much of your business is retirement focused. Are you facing any challenges that require significant changes (i.e. taking the EJ approach and no longer putting clients in MFs)?
Also would love to hear how you cut your teeth growing your book as a young guy. I work at a fee only RIA (lean shop, 1 PM, 1 client facing VP, and me--got about $300M under management)--currently focused almost exclusively on financial analysis (which is what I wanted), but in order to get some equity need to grow the book. I respect the sales-type person: it's not always easy convincing someone 20/40/50 years your senior to hand over their nest egg to some freshly minted MBA with limited experience... so how did you do it early on? Cold calls / direct mailings? Hosting info sessions?
So the major channels in the WM industry...
Wirehouse (Morgan Stanley, Merrill, Wells, UBS)
Will pay a salary to trainees (though the training is a joke). Have broad investment platforms, but usually limited on insurance and annuities. Fee-based business is the focus. Very high hurdles when you start out and most people don't "graduate" training programs (as in, less than 20% easily). Payout ranges from 35 - 45% depending on your production, plus 401K match, deferred comp, etc. If you aren't doing at least $400K you'll be struggling (and pushed to grow). Also, you'll need to focus on $250K accounts and up as most wires aren't accepting accounts below that (and if they do, they are reducing your payout, sometimes to zero, for taking small accounts).
Edward Jones
Putting them next because they aren't a wirehouse, but they are a major firm that doesn't fit anywhere else. They also pay a training salary, but it's less than the wires (and the goals are easier). One man offices, and you may start working from home. Much more limited investment choices and flexibility than the wires. Generally seen as a bit of a "cult" within the industry. They want you to focus on "door knocking" to build a book. Payout is typically 40%, plus 401K match and various profitability bonuses. You can become either a GP or LP if you become a decent producer.
Major Bank (Wells, JPM, BofA)
Usually lower payouts (20 - 35%) and more "cookie cutter" investment options than other shops. You aren't going to "own" the book because most of your clients do business with you because they have a relationship with the bank. They don't typically have training programs and like to hire licensed FAs that maybe failed out at a wirehouse. Good fit for people that might be decent at selling to "warm leads" but not so good at cold prospecting. This is the most like a "job" of any of the channels. You're getting leads from the bankers, pitching them, and moving on. Rarely will you be acting as an advisor except to close business.
Community Bank / Credit Union
Payouts are all over the board with the major difference between the big bank programs being more autonomy and clearing through an outside custodian (CUNA, LPL, and Raymond James are popular b/ds for smaller banks).
Insurance (Mass Mutual, NY Life, Guardian, Northwestern Mutual)
Never pay a salary at startup, but sometimes you can get a "draw" for a few months. They all claim to be "independent" and want you to focus on "comprehensive wealth management." What they really mean is "do a financial plan and show the client why they need more life insurance...specifically our brand of permanent life insurance." They will tell you that you're free to do investment business, which is true...as long as you're meeting your insurance sales goals (and even then, the investment options are much more limited than at a wirehouse or indy b/d). Payouts are usually fairly high (ranging from 50 - 80%, sometimes higher for selling proprietary insurance annuities). Sometimes you'll be both a W-2 employee and a 1099 independent contractor, depending on the type of business you're doing. Many times you'll have a choice to "rent" space from the agency you're affiliated with, or open your own office as if you're independent. Main point...don't join an insurance broker/dealer unless you want to focus on insurance (likewise, don't work at a wirehouse if you do want to focus on insurance).
Independent B/D (LPL, Raymond James, Commonwealth, Cambridge)
No salary or training. They typically expect you to be coming over with an established book from an employee model firm. Many times you're doing business under your own brand, not theirs. Investment and insurance options are generally wide open and you're free to do whatever you want (as long as you're legal and compliant). Payouts are usually 80-95%, but you're paying all of your own expenses, and they find ways to nickel and dime you for b.s. that should be free (but the whole industry does that).
RIA (custody with Fidelity, Schwab, TDA, etc.)
No salary or training. This is the purest form of owning your own business in the WM industry. You can custody with multiple firms, and invest however you want. Payout is 100% (custodians make their money the same way they do on retail clients, $9.95 a trade, or 12b-1 fees or revenue sharing on mutual funds and ETFs on their NTF platform). Everything you use you'll buy on your own a la carte (performance reporting, research, E&O insurance, etc.). You can only do fee business as an RIA, so if you want to do any commission work you'll have to also affiliate with an independent b/d (above). Many times RIA FAs will form their own insurance agency as well, and run investment advice, brokerage, and insurance as separate entities.
RIA is definitely the way of the future. Every other business model on this list is going to undergo massive changes over the next 10 years. They are behind in many areas (technology, pricing, value proposition) and (in my opinion) are struggling to change.
One more area I forgot...
Discounter (TDA, Etrade, Scottrade, Schwab, Fidelity)
These are call center jobs. If you are decent, you can earn $150 - $200K. You'll always be running on the treadmill and you'll absolutely never "own" any of your book or your relationships. You're an order taker with sales goals.
Hope that's useful to someone.
thanks for posting! Can you provide a bit of clarity on this paragraph you mentioned above?
"RIA is definitely the way of the future. Every other business model on this list is going to undergo massive changes over the next 10 years. They are behind in many areas (technology, pricing, value proposition) and (in my opinion) are struggling to change."
you mention that RIA is a way of the future... but they are behind in areas such as tech, pricing, value prop and are struggling to change. Do you mean RIA is behind in those areas or every other business model is behind in those areas?
Can you expand on a bit?
Thanks again!
I suppose that depends partially on what firm you’re talking about. I think the warehouses probably have decent training programs these days because they are trying to push teams. I think most of them will get you on a team, have you work on your CFP, and maybe do some other semi-meaningful stuff. But in the end, the “training programs” are still basically just a test phase to see if you can prospect and sell.
Since I’ve only ever been in the WM industry, I can’t tell you how that experience might be viewed at an investment bank, commercial lender, etc. I’m guessing it’s worth SOMETHING (but worth more to any other area of finance that is more sales and analytical).
Most firms are going to have some say over you expanding your book. At the independent b/ds, they mostly have a production minimum (could be $25K a year, could be $250K a year). Hit it, and you keep your contract. The insurance b/ds typically have some carrot (or stick) in your contract about writing insurance (specifically THEIR insurance), regardless of your other production. I think the wires used to be all about production (10 years ago), but it seems they are creeping in with carrots (or sticks) to get FAs to...team up, do financial plans, cross sell banking products (hello, BofA), bring in new households (not just coast), and bring in higher net worth households. The RIA custodians mostly just care about AUM (and they couldn’t care less what you charge because they don’t take a cut of that).
There are good FAs and bad FAs in every channel. But you’d do well to avoid most FAs at banks (of any size) or insurance companies. Too much “churn and burn” / quota focus at those shops.
Getting started in the RIA channel is fairly easy, the only question is whether it's advisable. If you don't have any experience in the industry, it might be best to find a local RIA in your area and do an internship there with the up front idea that you want to become a licensed IAR and build a book there after graduation (or even during college). You'll trade sweat equity for getting your feet wet. Find the right shop, and you may even be able to inherit some smaller households from one of the senior advisors at the firm. It's easy to find RIAs in your area, just Google "SEC Adviser Search" and plug in your zip code. Then make calls and introduce yourself (remember, these people all built their businesses being salespeople, so they will appreciate a direct approach).
If you have a bankroll (for startup costs and to live on while you're building your book) and want to go it alone, that's also pretty simple. You can find a compliance consultant to get you started up (legal entity, file your ADV, advisory contracts, etc.). Using a firm like RIA In a Box will probably cost you $10,000 bucks to be up and running. Aside from that, you just need a custodian, some E&O insurance, and a Series 65 license (which you don't need a sponsor for, just buy the book from Kaplan and go take the test).
You actually don't need a custodian, some RIAs (especially those focused on Millenials) don't even custody assets. They do hourly or retainer fee financial planning. But more common is an assets under management fee where you'll hold your clients money at Fidelity or Schwab, etc. Look at TradePMR too, they cater to startup and smaller RIAs and have a lot of whitepapers and turnkey tools (they actually overlay their services on First Clearing, which is a Wells Fargo company, so you get many of the same tools that a WFA wirehouse advisor would have).
It's really not that difficult or expensive to get started in the RIA channel, but there are so many things you just don't now starting out. Not in terms of financial knowledge, but the "in the trenches" stuff. A few examples...
You're going to run into prospects that have annuity contracts with different riders (GLWB, GMAB, GMIB, etc.) and different surrender schedules. Some of which require their own paperwork to transfer or rollover.
Some rollovers can be done over the phone, other times you'll need to request paperwork and get TPA approval. Sometimes those forms have to be notarized, other times you'll need a signature guarantee. You'll almost always need a letter of acceptance.
If you're going to do financial planning (you should, because straight investment management is becoming commoditized), you'll need software. You'll also need to figure out what you're going to do about insurance, especially life, long term care, and disability. You'll probably be a proponent of term insurance for most people. But what will you do when you find someone with an old VUL or WL policy with significant cash value? If you're going to do a 1035 exchange to a paid up policy, or a low cost VA or a MYGA, you'll need an insurance license too. If you're going to refer that business out to an insurance agent, you'll need a relationship with someone that won't try and steal the investment business from you, and won't try and sell your client more insurance than they need (after all, they would be an insurance agent).
Aside from that, no matter how well versed you are in finance, a big part of this job is hand holding and it's emotional. Not for you (well, maybe for you), but for the clients. How do you tactfully tell a client their idea to retire at 50 isn't feasible? Or talk them out of their new penny stock strategy? What is your value proposition and how do you communicate it to prospects and earn business? Better yet, how will you get in front of prospects in the first place?
Certainly not trying to dissuade you by any means, this can be a lucrative career where you can earn 7 figures if you're driven, or earn well into the 6 figures and have a wonderful lifestyle. And I'm happy to help in any way that I can, but there is so much more to it than managing money for people. In fact, the act of managing money is less than 20% of this job. I'd be willing to bet less than 25% of the USA's financial advisor population can succinctly explain (let alone do) an NPV calculation or use a financial calculator beyond basic add/subtract/multiply/divide. Disappointing, but true...but they all know what an RMD is or how to start a 72(t) or 72(q) for an early retiree (do you? I didn't when I started).
Yes, definitely. It varies by day but never anything insane. I would say 8-10 calls per week, but if you have an assistant it's fairly easy for them to be screened out if you don't want to talk to them. What's far more annoying is the emails. I swear to god every broker/dealer on Earth sells their entire advisor force's email address to every mutual fund, ETF, annuity, insurance, REIT, SMA, etc. firm out there. And then you unsubscribe, and a month later, they're back.
As far as adding value, the overwhelming majority do not, especially on the mutual fund side. They usually want to talk about their latest and greatest growth & income fund, or their view on what's going to happen this quarter with China or the Fed. If they had a clue what was going on, their funds wouldn't be trailing their benchmarks like clockwork. I suppose if you came into WM with no finance background, they could give you some talking points or at least give you practice talking to people about the market, economy, etc. But most of them don't provide any value on this front.
On the insurance and annuity side they can be helpful by keeping you up to date on all of their product changes. The only wholesalers I really talk to are the fixed annuity guys (for one, that's the only type of annuity I use). Many of the rates change monthly, so it's nice to know who's offering what rate. But variable annuity rides change all the time, as do life insurance rates, long term care products, etc., so if you do that type of business you'd want to talk to those guys as well.
Some wholesalers, the ones who "get it," will help you with marketing ideas (if you're struggling in that area). Help you figure out a seminar topic, how to present it, offer to bring in a speaker, etc. Some of them also will get you access to databases that have contact info for businesses, 401K plans, 5500 data, etc. So this could be handy.
Many of them will also contribute (financially) to your marketing efforts as well, but you have to ask.
Thanks for the kind words John. In regards to your question on the Series 7/63 (I actually hold the Series 7 & 66, and the 66 is the combination of the 65 and 63).
The lines are somewhat blurry in regards to what an "independent financial advisor" actually means. It really could mean any firm where you are a 1099 contractor as opposed to a W-2 employee. The three "real" ways you could be consider indy are...
Indy broker/dealer: A good example here might be Raymond James Financial Services. You're not an employee, but you are contracted with RJFS's broker/dealer (as a registered rep) AND their corporate RIA (as an IAR). The advisor may use the RJFS brand (i.e. their office says "Raymond James" on the door), or they may setup their own brand (i.e. their office says "John Smith Financial" on the door). This is the most common setup for an independent FA, and it's the way I'm setup. Any broker/dealer can sponsor you for the Series 7, even the independents (and mine did sponsor me when I started). At a bare minimum, you need the 6/63 (mutual funds and annuities, commissions only) or 7/63 (general securities, commissions only) to work in this channel, but most hold the 7/66 (general securities, fee or commission).
Indy RIA: An example here is you forming your own RIA as an LLC and contracting with a custodian like Fidelity. Since you're independent, you can actually custody at more than one firm if you wish. In this business model, you're going to do business as your own brand, you can't use the Fidelity name on the door. You'll need the Series 65 to work in this channel, which you don't need a sponsor for. Some newer RIAs (that used to be RRs) will still hold their 66 instead of a 65. But once you drop your Series 7 (or escrow it), two years later your Series 66 automatically converts to just a Series 65 (because the Series 7 is a pre-requisite to the Series 66, so once the 7 expires, you're no longer eligible to hold a 66).
Hybrid RIA: This is where you affiliate with both an independent broker/dealer and form your own RIA. The difference is you don't do your RIA business through the corporate RIA of the broker/dealer you're affiliated with. Many independent broker/dealers don't allow this setup (because many times it's a stepping stone to full RIA, it's only a matter of time before the broker/dealer gets cut loose permanently). Many hybrid advisors affiliate with PKS as their broker/dealer (they specialize in this channel), and then do the RIA at a popular custodian like any other RIA. In this channel, you're going to work under your own brand. You do need to hold Series 7/66 for this channel, as you're doing both fee and commission business.
TL:DR - Even independent broker/dealers can sponsor a new FA for the Series 6 or Series 7. And if you're going to be fee-only, you don't need either of those, and can just take the Series 65 at your leisure.
Note: To my knowledge, the Series 63 is useless on its on. It may carry some weight on its own technically/legally, but no broker/dealer would put you into production in any way with just a 63.
By the way, the reason I say those are the "real" ways of going independent are because there is no product quota for any particular type of business. There may be a minimum total production requirement to keep your contract, but you're free to do business however you'd like.
Some of the firms (mostly insurance b/ds) claim to be independent because they pay you (at least partially) on a 1099. But most of them have quotas to sell their proprietary insurance/annuity/fund products (this would be true of NY Life, Mass Mutual, Guardian, Northwestern Mutual, Primerica, etc.).
Firms like that are generally not considered part of the broad "independent" channel.
When I started, fee-only wasn't such a big deal and the RIA movement at the retail level was still in its infancy. I started "independent" versus going to a wire because I had a business in an unrelated industry at the time that I was working on selling, so starting at an employee model firm wasn't even an option.
Looking back, or if I were doing this over, I would without question start as a hybrid RIA. I'd affiliate with PKS for brokerage, start my own insurance agency, and probably custody my RIA business with TDA (Fidelity and Schwab have pretty high minimums these days because they are the two heavyweights in the channel).
There really aren't any pros to starting with LPL or Raymond James, etc. unless you want to use their brand (which doesn't matter), or really value having all 3 lines of business integrated in one place (which you can mostly do with the help of some 3rd party software as a hybrid).
Unless you really know how it works in the trenches (say you came from a wholesaler or paraplanner role) and have a nice bankroll to start, I'd start at a wirehouse (specifically UBS or Wells...though in the short term, Wells obviously has some PR headwinds to deal with, but is otherwise a solid wirehouse).
Stacks of SB's for ya..
What tools do you use? Like Morningstar Advisor Work Station/Office, Direct, Zacks, YCharts, Factset etc...
Thanks!
I don't use a lot of 3rd party tools. My b/d provides CRM, Sungard, Smarsh, and performance reporting. I do occasionally use Money Tree Silver planning software, but mostly I use the SPIVA scorecards to make active versus passive decisions when doing asset allocation, and a few Morningstar tools provided (for free) by BlackRock and Vanguard for advisors.
I do know a lot of advisors that use Redtail, Act! For Advisors, Morningstar Workstation, YCharts, Kwanti, Blueleaf, and various Dorsey Wright & Associates tools.
Thanks man! 3 more things...
Can you describe your experience with B/Ds...is having tools provided by them (either discounted or free) a need or just a sweetener? From my experience on the buyside, using soft dollars/BD for research, tools, etc.. is on the decline given the regulatory scrutiny. Does this apply to FAs? Would you say B/Ds are still a smart way to get a get tool in Advisors hands?
Can you explain more on the Morningstar tools provided by BlackRock and Vanguard? Im interested in the process- Why do they do this, How do advisors go about obtaining them? And what Morningstar tools specifically?
Is there anything you think technology wise that would be a big help to you. Client related, investment decision making, reporting, anything really.
I'm in the business, happy to treat you and thebrofessor if you end up in NYC (or maybe Chicago) at some point.
Thanks again.
Sorry for the way late response. I would say that it depends on what your long term goals are. If you want to live in a major metro and don’t mind the hustle, avoid PWM.
If your goal is to live somewhere outside of a major metro, and want long term work/life balance, I’d give PWM a try, with an eye to the fact (my opinion?) that the industry is going through major changes and I’m not sure if this industry has 30-40 years left in it (technology, pricing, etc.).
If you give PWM a try, I’d advise you to get on a team at a wire with succession opportunity, or a similar situation with an Indy/RIA (increase your chances of making it past the 5 year mark).
And then don’t live up to your income potential. If you make $300K, live like you make $150K. Invest the rest into something else (a business, real estate, etc.). Just in case we aren’t here in 20 years, you have a fall back.