Executive Summary
With the number of different financial advisor business models and firm types that are in existence, prospective financial advisors have a lot of options when it comes to finding "real" financial planning jobs - the kind that don't have sales requirements, and are really focused on (learning to give) financial advice. And the reality is that not all financial advisory firms are equally great to work for. But the good news is that the best financial advisor companies to work for do share a number of common traits, that can make them easier to identify.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk how to find the best financial advisor companies to work for, and why those companies tend to be larger companies with recurring revenue and a healthy growth rate.
Perhaps not surprisingly, if you want to find the best financial advisor companies to work for that won't just make you a salesperson working on commission, the first secret is... to find companies that don't work primarily on commission. It sounds intuitively obvious – if you don’t want to work on commission, don’t go to a company that pays its advisors on commission – but the real reason this matters is more nuanced. Because the fundamental challenge for any financial advisor who is paid on commission is that, no matter how successful you were last year, when you wake up on January 1st, your income is zero (or close to zero with some small commission trails). Which is crucially important, because it means commission-based advisors can’t afford to reinvest into staff and create entry-level very many financial planning jobs. As a result, these firms tend to only hire salespeople who can go get more clients (and perhaps some administrative staff), but not real financial planning positions focused on financial advice itself.
The next criteria for finding the best companies to work for is that a company should be growing. At a minimum, you want a firm that is growing at 10% a year. Ideally, one that is growing at 15% to 25% a year. And the reason why is because the simple math of growth means a firm growing at 15% per year will double its size in about 5 years with compounding. Which means twice as much revenue, twice as many clients, and since advisors can only serve so many clients at a time, twice as many clients means twice as many financial advisor jobs in the coming years. And with the creation of many new jobs will also come new opportunities to grow in your own career path as a financial advisor.
Which leads us to the third and final factor that helps to determine which are the top financial planning firms to work for. Simply put: the best companies to work for are the biggest ones (ideally, a firm with at least $3 billion of assets under management or about $25 million of revenue, all the way up to mega-national firms like Vanguard's Personal Advisor Services and Schwab's Intelligent Advisory and Portfolio Consulting groups). This is actually a very controversial view, but the industry benchmarking data shows that the biggest firms are the ones adding the most new revenue, the most new clients, and consequently are the most likely to be hiring financial planners (and with recurring revenue, those jobs are likely to be focused on really providing financial planning advice).
The bottom line, though, is just simple to recognize to recognize that the best financial advisor companies to work for have three key traits: a recurring revenue business model, a healthy growth rate, and some size and scale to have a deep bench of new opportunities. The caveat to this is that because these firms tend to pay the best and have the best career prospects, they are also the most competitive. Which means if you want a job at one of the best firms to work for as a financial advisor, you better bring your A-game!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Welcome, everyone! Welcome to Office Hours with Michael Kitces.
As you can see, I'm not quite in the usual home office environment today. I'm actually here at the FPA Annual Conference, which is Financial Planning Association's big annual event and one of the bigger independent financial advisor conferences of the year. But for today's Office Hours, I want to actually talk about one of the themes that I continually hear bubble up, particularly at conferences like this, from new advisors coming into the industry, which is trying to figure out what is the right financial advisor company to work for and affiliate with in the first place.
And this challenge is very personal to me because as many of you know from hearing my story on the Financial Advisor Success podcast, I had a bad experience with my first job as a financial advisor. Because I came in working for a life insurance company, and even though my business card at the time said, "Financial Advisor" on it, the truth was I was a life insurance salesperson. And candidly, I wasn't actually very good at it. I was not very good at sales, and I was really bad at prospecting, so finding potential people to sell to. And as a result, I failed. I was out of that company in about a year. I didn't validate my contract, in industry terms.
Now, when it became clear to me that I wasn't going to make it, I didn't want to give up. I was fascinated by this world of being a financial planner. I wanted to be a financial planner, but I realized I had to switch firms and join one where I could really be a financial planner and not just a salesperson working on commission, which is particularly how it was back at the time in 2000 when I joined the industry.
The Best Financial Advisor Jobs Are At Firms With A Recurring Revenue Model [Time - 1:43]
As it turns out, the reality is that if you really want to find the best financial advisor companies to work for that won't make you just a salesperson working on commission, the secret is to find companies that don't work primarily on commission. I know that sort of sounds intuitively obvious, if you don't want to work on commission, go to a company that doesn't pay its advisors on commission... but the real reason actually why this matters is much more nuanced.
Because the fundamental challenge for any financial advisor who is paid on commission is that no matter how successful you were last year (or all your prior years), when you wake up on January 1st, your income is zero. You won't make any money this year until you go and find new clients to do business with. Now, to be fair, commission-based advisors usually have at least a small amount of commission trails from prior years. So income isn't usually quite, like, literally zero. But the point here is that almost all of your income for the year as a commission-based advisor comes from the new clients you get this year.
And here's why that matters: It means commission-based advisors generally can't afford to reinvest and create entry-level financial planning jobs to serve their existing clients. Because it's terrifying as a financial advisor to hire and commit to staff and their ongoing salaries when you wake up every January 1st with zero income.
So what happens instead, the firm says, "Sure, we'll give you a job as a financial advisor. You can use our platform to go get clients," which is really just a nuanced way of saying, "Actually, we don't have any financial planning jobs here. All we have is positions for salespeople who want to go get their clients to sell to because the firm can't actually afford to hire financial planning staff. All they can afford to do is hire salespeople that bring in more clients because that's what generates the new revenue." And what that means is, it's really not a financial advisor job. It's a sales job.
By contrast, when advisory firms work for fees, or really any kind of recurring revenue, that can be actually just levelized commissions like C shares paying 12b-1 fees, or that could be generating assets under management fees (AUM fees), or that could be ongoing retainer fees, once the firm has acquired clients on a recurring revenue model (as long as those people stay clients and they continue to pay as clients). Which means an advisory firm owner who operates a recurring revenue model, when that person wakes up on January 1st, the business has income. Often a good chunk of it. And to earn that income for a year, all they need to do is give clients great service, great financial planning advice that makes the clients want to stick around.
And what that means is now the firm has a real incentive to hire for real financial planning jobs to do real financial planning advice for clients. Because the firm doesn't necessarily need salespeople selling products or services to bring in revenue. They simply need to service existing clients with financial advice, and that's where the jobs tend to be that are actually focused on financial planning and not sales.
And that's why I tell new advisors that if you want to find the best company to work for, especially getting started as a financial advisor, ask them in the interview process how much of their revenue is recurring revenue – AUM fees, 12b-1 fees, commission trails – as a percentage of their total revenue. I find when firms have 75% plus in recurring revenue, or in the case of most RIAs, 95% to 100% as recurring revenue, they tend to have the best financial planning jobs.
If their recurring revenue is less than 75%, maybe the firm is transitioning from commissions to fees and creating more stable jobs. But if the recurring revenue is less than 50%, it's a virtual guarantee that there will only be two types of jobs in that firm: base admin staff with moderate income and no financial planning upside, and salespeople that bring in business. Because that's all you can afford to do when most of your income is zero at the start of every year.
The Top Financial Planning Firms To Work For Are (Rapidly) Growing Companies [Time - 5:15]
That was the lesson I had to learn for myself the hard way when I started in the industry. My first job said "Financial Advisor" on the business card, but it was a commission-based firm and I was a salesperson, not a financial advisor. And even though the firm said it had great training and they sold me on their training, I didn't get trained in how to be a financial advisor. I got trained in how to sell products. And it was only when I changed to a firm where the majority of the revenue was recurring that I finally had the opportunity to really start doing financial planning work. Which actually brings me to the second key for finding a good company to work for as a financial advisor.
You need a firm that's growing. At a minimum, a firm that's growing at 10% a year. Ideally, you want one that's growing at 15% to 25% a year. And here's why. The simple math of growth means that a firm that's growing at 15% a year will double its size in about 5 years with compounding. That means, in five years, twice as much revenue, typically twice as many clients. And since a financial advisor can only serve so many clients at a time, twice as many clients in five years means twice as many financial advisor jobs in five years. Which means there will be opportunities to move up in the firm, to have clients you can work with that the firm gives you, because the firm is doing the sales and you are being the financial advisor.
This growth requirement is actually the problem that I ended up having at the second company I worked for as a financial advisor. It was a good job. I got paid reasonably well. I got to learn and really do financial planning. I had a chance to start earning my professional designations. But the firm wasn't growing. They served clients well and I had a good financial planning job.
But because they weren't growing, the job I had was the only job they had for me. And when I personally outgrew the job, there was nowhere for me to go, because they weren't growing and adding enough clients to give me any clients. They could only move me up if I went to get my own clients, which didn't work for me because the whole reason I took the job was that I failed at my last job because I wasn't good at prospecting and getting my own clients at the time. And so I had to leave and go to another firm and find one that was growing and would create more opportunities for me.
That was actually the path for how I landed at Pinnacle Advisory Group, which is where I still am today because the firm was growing. It was actually growing so well that the business nearly quadrupled in my first six years at the firm, which gave me incredible opportunities to move up and grow and advance my career at the firm. I went from a director of a department of me to two, to three, to four, to five, and training junior advisors and overseeing senior advisors. And the growth is ultimately how I was even able to craft the admittedly relatively unique position that I have with the company now.
Because when the business doubles in size every few years, there are lots of new jobs getting created. And good companies work with their good people to craft job opportunities that are mutually beneficial to the individual and the firm. And that's what I was able to achieve with my firm because the firm was growing enough to create those opportunities.
The Best Financial Advisor Companies To Work For Are The Biggest [Time - 8:05]
Which leads us to the third and final factor that helps determine which are the best financial advisor companies to work for. Simply put, the best companies to work for tend to be the biggest ones. Now, this is actually a somewhat controversial thing to say, and I'm sure a few of my advisor friends and colleagues that are listening that are at smaller advisory firms are going to strenuously object to this idea that the best jobs are at the large firms. But hear me out. The reason why working for the biggest companies matters so much is because the biggest companies are the ones that are actually growing the fastest in the industry right now.
I've called it this unique form of marketing inequality, that has actually emerged in the financial advisor landscape over the past few years. The largest firms are figuring out how to reinvest and scale their marketing in a manner that's causing them to gobble up an ever larger portion of the total new growth opportunities of the whole industry.
Now, it's hard to see, because if you look at industry benchmarking studies, you'll see things like large, multi-billion dollar RIAs grew organically at about 7% last year, and smaller, independent advisory firms grew at about 6% last year. And 7% for large firms versus 6% for small firms doesn't sound like a lot, but think of it in terms of actual dollars. When a $5 billion RIA grows at 7%, it adds $350 million of new client assets. At a typical advisory fee of 1%, that's $3.5 million of new revenue. For most advisory firms, that's about 10 to 12 new jobs, maybe more.
By contrast, when a smaller advisory firm with $50 million under management grows at, say, 6%, it adds $3 million of new assets. At a 1% advisory fee, that's $30,000 of revenue. That means they can afford to hire an intern this year, as long as it's a part-time intern. And that's why the best financial advisor companies to work for with the best job opportunities tend to be the largest advisory firms. They work with the most affluent clients, they tend to actually pay slightly above average wages because they work with more affluent clients. They're willing to pay up a little for top talent. And they're the ones creating the most job opportunities.
In fact, if you look at the recent 2017 Schwab RIA Benchmarking survey, 96% of large advisory firms over $1 billion of AUM are hiring for financial planning opportunities right now, compared to only 60% of smaller independent firms, and even smaller percentage as you get to the really small solo advisory firms.
Which means, simply put, if you contact a large and growing advisory firm, they will likely have several financial planning jobs or opportunities open right now. And if they don't, they will very soon. If you contact a small firm, they might have one job opportunity in the next year or two, maybe, if you're lucky and you time it right. Now, I don't want to be entirely negative about smaller advisory firms. If you want to be someone's succession plan and take over the firm and become the owner in the next few years, it's a lot easier to do that in a smaller firm. And you can find some great mentoring opportunities in small firms.
Yet, candidly, we see a lot of advisors joining XY Planning Network these days because they initially worked for a small firm to be the succession plan and get some mentoring. And then five to seven years later, realize that the firm owner had no intention of retiring after all, and the succession plan was never actually going to happen, and so the advisor leaves and either then joins a large firm that maybe they should have gone to in the first place or decides that they're actually ready to be an advisory firm owner. And since they can't be a succession plan advisory firm owner, they just go create their own and be the owner.
It's worth noting the largest advisory firms are still kind of a relative opportunity. Big is kind of a strange thing in our industry. This doesn't necessarily mean you have to work for a large, mega national brand, although some of the biggest, including Vanguard's Personal Advisor Services and Schwab's Portfolio Consulting and Intelligent Advisory teams are actually creating a lot of great financial planning job opportunities right now for entry-level CFP professionals and career changers coming in.
But, you know, the biggest firms could be independent RIAs, your large firms in our space like United Capital, Edelman Financial, Wealth Enhancement Group, Colony Group, Savant Capital, Aspiriant, or even a large independent broker-dealer office or a big team at a wirehouse. As long as they're focused on financial planning, have a recurring revenue business model, are growing, the odds are good that you're going to find a pretty good opportunity. Ideally, that's probably a firm with about $3 billion of assets under management or about $25 million of revenue, or at a minimum, probably a firm with about a half million dollars of assets under management or $5 million of revenue that's growing fast and has a strategy to sustain its growth so it'll be more job opportunities in the future.
That's where we tend to see the best and the deepest job opportunities right now. Now, perhaps some of the biggest caveats to this approach is just that more and more advisors are actually figuring out these are the best opportunities to work for. And as a result, we actually see in our New Planner Recruiting businesses that these jobs tend to be very competitive, with the most candidates applying and the most competition. So, if you want to get a job at one of the best companies, you better bring your A game to the table in the application process.
But the bottom line is just to recognize that the best financial advisor companies to work for where you can really do financial advising and not just a sales job have three key traits: recurring revenue business model, a healthy growth rate, and some size and scale to have a deep bench of new opportunities, training capabilities, and room for growth.
And as a financial advisor trying to find a good job, you need to be ready to ask the right questions during the interview process, to suss out whether this really is a good company to work for and a good opportunity. But again, it doesn't necessarily have to be a large national firm. It can be a large local firm or regional firm that's growing rapidly, but it needs to be growing, with recurring revenue and have the size to create more opportunities.
So I hope this was helpful with some food for thought in figuring out what are the best financial advisor companies to work for, at least based on some of my own life lessons learned. Ultimately, you may want to go out on your own, but I do not recommend that for advisors getting started. Work in a great company, learn your financial planning profession, and you can decide what to do in your own career trajectory five to seven years out. This is Office Hours with Michael Kitces. We're normally 1 p.m. East Coast time on Tuesdays but I was traveling for this FPA national conference, so thanks for joining us, everyone, and have a great day!
So what do you think? Where are the best jobs for financial advisors? Is recurring revenue essential to a firm being able to offer true planning jobs? Are the best opportunities with the largest firms? Please share your thoughts in the comments below!
My two cents worth (from a 25 year veteran)
1) Find a company with a good training program
2) Find a mentor within that company. May take a while, but could make a HUGE impact on your future.
3) And if that company treats you well and trains you well, stay with that company.
Your first two points make sense, your third point is a common mental error, bigger is almost never better. Excellence is not scalable. Mediocrity is highly scalable. Small highly profitable firms with very successful highly skilled professionals will always be better at what they do then big firms that are focused on their business model and not on the client. If a young person can get hired by a highly growing, highly profitable small firm, they would be way better off.
“Mediocrity is highly scalable”
Love it! It’s true!
David,
Except most small firms aren’t rapidly growing. And the ones that are don’t stay small for very long.
The article wasn’t a statement about who does “better” planning. It’s about who gives “better” job opportunities. Finding a job at a “good” firm that is small is like finding a needle in a haystack. Sure, it may be a great needle, but I can’t counsel people to look for a needle in a haystack when there’s a PILE OF NEEDLES at the larger firm next door… :/
– Michael
Speaking to the introductory paragraphs, it seems that the article confuses the roles of sales and commissions with advice. It is possible to be in sales, get paid a fee, give advice, and never be paid a commission. The article makes it sound like sales and commission are exclusively linked, although I know that is what was intended. To that point for a moment, there is nothing wrong with receiving commission. Insurance advisors (including CFPs and CPAs who sell insurance) get paid a commission on policies sold that cost clients less money than fee insurance policy. So, this overwhelming anxiety about those who get paid a commission fall into the fake news category.
But back to the less stressful fees and advice discussion most of this audience is comfortable writing about.
This article has a hint of being opportunistic and self-centered rather than being true to yourself, and true to others who help new advisors in their career. More on that in the last paragraph.
So, if everyone wants to be an advisor, but no one wants to sell, then how does a small to medium sized firm without the resources to hire a professional marketing person generate qualified prospects? And further, if the firm is a niche or target audience, not any type of prospect will do. And if no one, or less people, in this business want to sell, where does this growth come from if the “industry” AUM is growing at ~6% to 10%, including market gains
Here is something: advisors do indeed sell. They sell themselves, their firm, concepts, advice, good behavior, education. When we are listening to clients, we are increasing our ability to be effective in communicating, which is selling. More and more, articles are being published about advisors who don’t want to sell, and who don’t want to call themselves salespeople. This keeps up, and God forbid the business could be training future accountants with better manners.
Finally, most new advisors want to be on their own. They consider themselves entrepreneurs, although since this industry is a road well-traveled and the term entrepreneur is both miss and over-used (these folks are really just new business owners who like the fancy their pursuit high risk-reward and call it being an entrepreneur), how do you reconcile working for yourself with working for a large firm. Unless it is the classic Millennial strategy to work at a firm to learn for the first few years, leave to try him/her, and leave in a lurch the firm who invested in him/her… blaming them that they did not keep you interested enough.
Not being fancy here, and not being rude. Just keeping it real without worrying about perception, as you should. My two cents on this topic … understand your strengths and weaknesses, focus on your strengths and minimize the rest, be true to yourself, and slot yourself in this business accordingly. If you can sell, you make more money. If you cannot sell, you make less money and should not complain. If you can give good advice, you make more than less. If your roles and responsibilities fit your strengths, you will be happy. And whatever you do, work hard. commit the time needed to learn quick (taking time off is over rated in the beginning, and does not help you), commit to others, and grow your business be it as part of a team or on your own. And don’t complain where you end up – and certainly don’t blame others. We are the architects of our own experience.
This article leads me to the following. From a consumer POV what are the best firms and advisors to place my trust in? What criteria should I be looking for?
I would tend to agree with the controversial third point, solely based on personal experience. In any technical field (law, accounting, engineering, consulting) the advice for those starting out is to “cut your teeth” in big firm where the vast majority of your time is spent on substantive work, rather than admin, ops or business development. I worked at The Colony Group in Boston for three years and I can’t imagine a better way to start my career in wealth management. It served me well now that I’m on my own.
Indeed, large firms tend to have the depth for formalized and systematic training and career tracks (in almost all professions). Not that everyone stays at the large firm in the long run (although some do). But the structure and depth of opportunities is invaluable in the early years!
– Michael
Just thinking about this a little, one segment of the workforce who tend to stay with firms large and small are people who are not front line advisors. The nature of their work and personal wiring probably allow them to be overcome or even ignore shortcoming of these firms or their circumstances. God Bless them … they are like the clients we help who stay at a single business for a career and accumulate $1-2M in their 401ks or 403bs. Staff is another segment of this industry that may be exempt from most of what is covered in these blogs. They probably don’t even read these blogs.