What’s The Best Personality Type To Succeed As A Financial Advisor?

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#OfficeHours with @MichaelKitces Video Transcript

Welcome everyone! Welcome to Office Hours with Michael Kitces!

For this week's session, I want to talk about personality types, and the question of whether there is a certain personality type that it takes to succeed as a financial advisor.

I hear this a lot from new planners looking to come into the profession, and particularly from career changers who may have had success in a prior career or profession, and are now looking to come over to financial planning, and trying to understand: do they have the right fit to succeed as a financial advisor?

So the question I got this week was from Katy, and Katy asked:

"I'm on the fence about whether I have the personality to be successful in financial planning. I've got a background in finance. I've been working in human resources most of my career. I've been looking for a change and an opportunity to have my own business, and been interviewing with... [let's call it a major broker dealer that everybody would know the name of]. Seems like a great company to build a foundation. They have plenty of support. But I'm hesitant to pull the trigger, and I'm wondering if there's a particular personality type that you need to have out of the gate in order to be successful as a financial advisor and build a client base?"

Do Financial Advisors Have To Be Extroverts To Get Clients? [Time - 1:26]

I hear this question a lot. And most commonly, this is code for: do I have to be an extrovert to get clients and to succeed as a financial advisor?

"Financial advisors are extroverts" is the conventional view. In fact, in any situation where you're going to go out there and get clients, and sell to them and persuade them to work with you... anything that's sales oriented, societally, we tend to think of those as extrovert-oriented jobs. And so when most people ask this question of whether they have the right personality type to be a financial advisor, it usually comes back to this question: do you have to be an extrovert?

But as Megan [from Periscope] is saying here in the comments: No, you really don't have to be an extrovert in order to succeed as a financial advisor! I know a lot of introverts who were successful financial advisors and have built client bases and careers. I'm actually a rather strong introvert myself!

And in fact, when you look at some of the research about introversion versus extroversion, one of the interesting themes that you actually see amongst introverts is that they tend to make fewer, closer relationships. I know we're going to overgeneralize a little about introverts versus extroverts, but there's some research that substantiate when you look at the relationship patterns of introverts versus extroverts, extroverts tend to have a wider network of acquaintances, while introverts tend to have a smaller network of deeper relationships.

It's that wide network of acquaintances that extroverts often have, that we associate with sales and business development success. But the reality on the introvert side is that having fewer, closer relationships... that's where financial planning happens! That's going deep and getting to know a client and a forming relationship with a client. That's a referral relationship developed to a select number of centers of influence who believe in what you do and with whom you have that deep connection, such that they want to refer clients to you. It's really not a deal killer to NOT be an extrovert... you can still be successful in financial advising.

In fact, Daniel Pink did a fantastic book a couple of years ago about selling and sales, and who does well at sales and who doesn't. And he had covered this fascinating study that found the strongest extroverts are actually not the best salespeople. It turns out that if you're too extroverted - no offense to any hardcore extroverts over there - you tend to bulldoze people a little bit, and don't actually do a great job of connecting to the client's situation. And particularly in a world like financial planning, where it's all about understanding client needs and client perspective, being too extroverted and not listening well is actually self-destructive.

Now certainly you can be too introverted as well. If you're utterly terrified to talk to other human beings, and you're the quintessential extreme introvert, being a financial advisor will be rough as well.

But what the research has found about introversion and extroversion, as it relates to selling and business development, is that the ideal is actually the middle. While they did find that extroverts performed better than introverts by a small margin, it was the group they called ambiverts - people in the center, not heavily tilted one way or the other - who actually did better than strong extroverts or strong introverts. Because they are more effect on the listening skills, exactly as Eddie [from Periscope] is saying. The listening skills and the ability to connect, along with the willingness to meet new people, blended together for the strongest success.

Another book I recommend on this... Susan Cain did a fantastic book called "Quiet," a few years ago. And she talked about this dynamic of introverts who sell and do business development.

I'm an interesting example of this myself. I'm actually a hardcore introvert, who makes a living in part as a professional speaker... which is, shall we say, not exactly the classic profession you would think of for someone who's an introvert! But the reality that we find is, even for introverts, when you find something you're passionate about, that you're excited about, that really interests and stimulates you... it breaks down those classic walls that introverts have about being uncomfortable with meeting and connecting with new people.

Now if you put me at a cocktail party social event, I will still shrivel into a little timid wallflower. So if you're ever at a large party or event, and you want to find me, seriously... look for the most distant corner from the noise, and that's where you'll find me like sitting down. In a corner. Because I'm really not an extrovert at all. But it's not a deal killer for building a business. It's not a deal killer for being a financial advisor.

But the bottom line is that you can be successful as an introverted financial advisor. You still need to find something that you're passionate about in financial planning, get your knowledge, get your competency, get your skills up. Get your personal confidence up, that you can talk passionately about what you do, but that's a surmountable challenge. And the connections that you can still make - which introverts do well once they get one-on-one - can make prospecting and selling very effective!

Do You Have An Optimistic Entrepreneurial Personality? [Time - 6:36]

Now the second caveat that goes with financial advising, when I think about kind of the personality types that it takes - particularly in the context of Katy's question, where she's going to go get her own clients and build her own independent advisor business - is whether you have the mindset of an entrepreneur.

You can certainly work on a good platform that will give you the tools and the technology, and the rest that you need to build a business. But still, building a business is hard. You're going to get rejected a lot? Even advisors with fantastic close rates may only be closing half the prospective clients they meet. That means half of them say no. Good close rates for most advisors is about 30% of the prospects they meet who say yes. In other words, if you're doing a great job, two-thirds of the people you meet are going to say no to you and reject you to your face!

That's hard. And it's not an introversion versus extroversion thing. That's an issue of grit, and just being able to take that level of ongoing rejection, which is just inevitable in any kind of sales and business development role. And be able to push through the rejection.

And then once you get some clients going, you'll have the first client who fires you. Which is a whole other level of challenging rejection that we have to go through as financial advisors and business owners.

Basically, the reality for both entrepreneurship in general and financial advising in particular, is that it's an emotional roller coaster. There are big ups and big downs, sometimes in the same week or even the same day!

Career Changers Have Added Financial Pressure Due To The Income Gap [Time - 8:14]

When you come to financial planning as a career changer, the stresses get further amplified by financial concerns as well. Because you may have existing family, kids and college looming, a mortgage and other obligations. The virtue, if you can call it that, of coming in and starting your advisory firm as a 20-something is that the stakes are a little bit lower, simply because the typical level of financial obligations are not the same, even with some pretty hefty student loans and debt payments to deal with.

For a lot of career changers, the struggle is that they've got a house and a mortgage, and need to put a roof over their spouse and children. And that's non-negotiable. It must be sustained. But that creates a lot of pressure around starting an advisory business, because now there's not only just the anxiety of getting clients and doing business development and being rejected... there's also the financial stress involved.

Because even in the best scenarios, you have what I call the "income gap" - that space between what you were earning, the zero you're going to earn out of the gate when you start your financial advisory career, and the years it's going to take to build back your income to where you were.

Now the upside from there is fantastic. You look at most industry benchmarking studies, and average advisor is making somewhere between $100,000 and $150,000 once they've got several years of experience. That's two to three times the average household income in the US! So financial advisor is a fantastic career, and there's a lot of upside. But it's a huge dip before you get back to where you were.

And again, what all of this means is as a career changer, it takes a lot of mental fortitude and grit, along with a kind of entrepreneurial drive and optimism, to be able to push yourself through that. Both personal grit and having a social support system are really crucial, or you're not going to make it through. You're going to get too stressed, and you can become outright depressed. And that's before the financial challenges layer on, too!

The Employee Advisor Career Path Is An Alternative, Less Risky Path [Time - 10:27]

I feel the need to note that there is an alternative path, if all of this is feeling daunting for you. The alternative path is the path of what I call the employee advisor role, which means you go and get your CFP, you join an existing advisory firm in what typically is a support role, and you climb a ladder at that firm. You may start out as a para-planner. Then you become an associate planner. Then maybe you become a senior planner after five to seven years. Then maybe after 10 years, you can become a partner at the firm. That multistage career track is increasingly evolving as a bona fide career track for financial planners.

It exists predominantly in large team environments, whether that's large broker-dealer teams or larger independent RIAs that build out team structures. In many of those firms and roles, you have either no sales responsibilities at all, or you may have to still do some selling, but no prospecting responsibilities, because the firm brings the prospects in. So you may still have to convince the people that call in or contact the firm to do business with you, but you don't have to go to meet strangers and find those clients from scratch.

This could be local RIAs, big ones like Edelman Financial Services which has job opportunities like this. And even the so called "robo" platforms, particularly the ones that aren't actually robos, but are hybrids of humans and technology, solutions like Personal Capital, and even Vanguard Personal Advisor Services, have salary-based career track opportunities, or salary with bonus or other incentives for doing some business development.

Financial Advisor Career Risk And Reward [Time - 12:13]

Now the challenge to this alternative path is that frankly, your income potential is more limited. If you're not doing sales and business development, if you're not building your own firm, if you're not taking the risk of entrepreneurship, you will not enjoy the same kinds of rewards. So you might make what, relative to the US, is still a very good income. Maybe you can make $75,000 after three to five years. Maybe you can make $100,000 after five-plus years. Maybe you can get to $125,000 or $150,000 after 7 to 10 years. By most career standards, that's a good income.

But you're not going to see the upside that exists for financial advisory firm owners and founders that build it from scratch, where we see incomes that can hit 200 grand, 300 grand, 400 grand, 500 grand, and up. That's the risk and reward of entrepreneurship and founding a business. But I think it's important at least to recognize that there's the entrepreneurial-founder advisory firm path, and there's the employee advisor path.

In terms of opportunities, the reality is that you'll always have opportunities in the entrepreneurial direction. Because there are plenty of platforms who will say "well, we're not going to pay you anything anyways, but if you want to build your business here and you turn out to be successful, great, we'll give you a shot because there's not much risk for us and a lot of upside. Our cost is offering you our infrastructure to build, and we'll see what happens."

The jobs on the employee career track are fewer. There are not as many of them right now. And the standards to get in the door tend to be higher. Those firms are often going to want to see the CFP marks out of the gate, or at least completed coursework and a passing grade on the comprehensive CFP exam (since you may not have the experience to have the marks). In addition, your starting salary is going to be low (by industry standards) to start. First para-planner jobs at most firms might be $45,000 to $55,000 (depending where you are geographically).

And that's tough for a lot of career changers, because you might have been accustomed to making a higher salary where you were. And at least if you start your business, your income might dip lower, but once you accumulate the clients, you can get back to a much higher income later. And the faster you can accumulate the clients, the faster you can get to your old income. By contrast, if you're going to take an employee career track position, it could be 3, 5, 7, 10 years of promotions that you have to work through to get back to where you were.

So the employee advisor transition is tougher for many career changers. You may find the work more rewarding in other ways, but at least recognize there's a big difference between a salaried career track with likely slower progression, versus an entrepreneurial track with a lot of more upside but a lot more risk and downside and the possibility that you could do this for a few years and basically have no money to show for it.

Or think of it this way: do you want to do the bond version of your career, or the stock version of your career, with all the attentive risk/return trade-offs of bonds versus stocks?

Financial Advisor Startup Risks And Failure Rates? [Time - 14:52]

Question from Periscope: "Is there any statistic out there on failure rate [for] new planning firms?"

Andy [from Periscope], you have a great question there about failure rate on new planning firms.

If you look historically at places like large wirehouses that tended to recruit advisors in large numbers, put them out there, and see who survived, the common rule of thumb when you started out in a wire house is: look around the group of five of you, and say goodbye, because four of you are not going to be here in three years. Eighty percent attrition rates were common. A lot of wire houses I know have been pushing towards improving that, and they're really excited if they only lose two out of three new advisors instead of four out of five!

Sales and entrepreneurship is a tough business by any standard. Now I see those number improving slightly as we get better about training people and guiding them through the financial advisor career. And certainly, if you come into an employee role, your odds of getting fired out of being a para-planner is not nearly that high. You may or may not have the income upside that you wanted, but your downside and failure rate is not the same. And again, I think better platforms and better focus are helping that as well.

When we look internally at XY Planning Network, we're not seeing failure rates remotely that high, either. We're seeing most advisors still going in their businesses after two to three years. We'll see whether a few of them still don't quite get to where they want, but we're not seeing that drastically fall-off and failure rate after just a year or two at all. With the caveat that even within XY Planning Network, we tend to get advisors that are a little bit more experienced, having worked in the industry for a while already, who then went to start their own firms. They're not necessarily entirely new to the industry and starting from scratch, which is where the failure rates are the highest.

But Katy, getting back to your original question... the one thing I hope you take away from this is to recognize that, if your question is about introversion versus extroversion, extroversion is not required. You may have a different dynamic about how you do business development as an introvert, but it's not a deal killer. However, if you want to get your own clients and build your own advisory business, and have that desire to be an entrepreneur, recognize that you'll need a lot of grit to deal with the amount of rejection and the financial stress that just inevitably comes with starting a business and starting from zero (or negative because you got some business expenses and no client revenue yet). And that entrepreneurial challenge is probably the biggest deal killer for most of those trying to get career change into being a financial advisor. And if that's too daunting, you do have other options, like trying to find an employee position, but just recognize that's a salary base that may be much lower than what you were doing in the past, and it may take longer for you to earn back to where you were. You can get back more steadily, but it may take you longer to get there.

So I hope that's helpful as some food for thought around personality types and the issues entailed in trying to become (or career change into being) a financial advisor. Thanks for hanging out with us today. I will get back to our normal time next week - Office Hours at 1:00 p.m. East Coast time on Tuesdays. Thanks for joining us, and great questions everyone today! Have a great day.

So what do you think? Were you a career changer that came into financial planning? What did you learn in making the transition? Or are you still considering whether to career change into financial planning now? What are your questions? Please share your thoughts in the comments below!