10 Tips for Being a Successful Financial Advisor

By Dummies Press, Ivan Illan

Being a successful financial advisor or financial consultant requires more than mastering a collection of tips and techniques. It requires education, experience, and dedication. However, reading through a list of tips is a great way to remind yourself of what you need to do to stay on top of your game.

Here are ten tips for being a successful financial advisor. Some are specific action items, whereas others are more like attitudes or behaviors to adopt. All of them are essential ingredients to making you a well-rounded and thriving member of the financial advisor community.

Let Your Conscience Be Your Guide

You have a conscience that has been instilled in you since birth. It’s that little voice inside your head that makes you question whether a choice is right or wrong. Pinocchio had Jiminy Cricket to make him mindful of temptation. Others prefer to imagine the conscience as an angel sitting on one shoulder and a devil on the other shoulder debating over the wisdom of taking a certain course of action. However you choose to imagine your conscience, be sure to heed its warning when you encounter temptation. When you’re handling other people’s money and engaging in commissioned sales, you can expect to encounter more than an average share of temptation, so be particularly vigilant.

Most temptations in this field are the result of commissioned sales. Although nothing is wrong with selling a great product at a fair price and earning a reasonable profit from the sale, you must always put your role as financial advisor above your role as salesperson. You have a fiduciary responsibility to your clients, not to yourself. If you always act in the best financial interests of your clients, you have nothing to worry about in this area.

Your financial advisory career will lead you to some of the most important and powerful relationships and life experiences you’ll ever have. Don’t belittle it by taking shortcuts to make a quick buck or to get another referral. Live by the Golden Rule: Do unto others as you would have them do unto you. Better yet, follow the Platinum Rule: Do unto others as they would want done to them. For example, I hate to be harassed and sold to. I prefer to be educated and given the space to make decisions on my timeline, so a salesperson is much more likely to succeed with me if he takes that approach.

Beware of False Profits

A false profit is any promise of a low-risk, high-return investment, which is something that doesn’t exist. Think of it as a healthy diet that encourages you to consume lots of sugar. Such a diet breaks the laws of nature. It’s a contradiction. The same is true of false profits; they break the rules of capital markets.

Don’t advise or implement capital allocations when you don’t understand all the embedded risks. If an investment looks great on the surface, look below the surface by carefully examining the prospectus. If the investment product being pitched has a private placement offering memorandum, be even more skeptical. Remember the old adage, “If it sounds too good to be true, it probably is,” which reflects the rules of capital markets — you can’t make more money while taking on less risk.

As a competent financial advisor, you’ll be a student of the capital markets and be able to identify for yourself, or through the guidance of others, what thresholds dictate appropriate levels of risk. For my own practice, I keep things simple and use a modified version of the Capital Asset Pricing Model (CAPM) to determine when any asset price is fair relative to its risk.

Forgetting all formulas, I ask one question: “What’s the 10-year U.S. Treasury note yielding today?” Say the answer is 3 percent. The U.S. government, being the largest and most stable in the world, can be expected to honor its debt obligations 100 percent of the time, so the risk-free return would be 3 percent. If an investment product promises a 10 percent return, that’s more than three times the risk-free rate, so it has more than three times the risk. It’s that simple. If that 10 percent return is touted as risk-free, you should be extremely skeptical, because that rate would severely violate the laws of capital markets.

When comparing returns on investment products, the only risk to consider is that of permanent capital loss. Other products, such as annuities, have different risks, which are more difficult to quantify, such as liquidity risk, but with a sound insurance carrier, an annuity doesn’t carry a risk of permanent capital loss.

Protect Your Clients from Predators

One of your primary responsibilities to your clients is to protect them from predators who seek to scam them out of their money. Encourage your clients to openly discuss any investment ideas they’ve heard about. The only way you’ll find out whether your clients are being targeted is if they tell you. Con artists often discourage their marks from discussing what they consider an opportunity, because greater exposure increases the risk they’ll get caught.

Predators come in many forms: family members looking for support and cash flow, salespeople looking to make a big commission, and other people who aren’t aligned with your client’s best interest.

Don’t Use Big Words

The world is complicated enough, and it’s overflowing with information about everything — thank you, Google. Don’t contribute to the confusion or complication. Describe difficult concepts in plain language, and don’t leave out any gory details. Every strategy has a downside, and your clients should be aware of those downsides. You’re developing a big plan, so explain the upsides and downsides of any investment or insurance product or solution you recommend in the context of the bigger plan.

Every profession has its own terminology that enables people within the profession to communicate more precisely and efficiently. For example, medical professionals communicate in their own language. However, you expect your doctor to explain tests and treatments using language you can understand. In the same way, as a financial advisor, you pick up a lot of specialized terminology, but that terminology isn’t appropriate for communicating with your clients. Don’t assume that your clients are up on the latest Bloomberg catchphrases or sound bites.

Remember That Good Service Makes Up for Other Shortcomings

Ideally, you want to be the financial advisor who offers the best financial performance and customer service available in your area. However, you can still be successful by offering superior customer service and average financial performance. People will want to work with you and stay with you because the level of care, education, and time you offer is worth something to them.

You may lose some clients who expect better performance, but you can easily replace them with clients who value service over performance. Of course, you’ll strive for above average performance and above average service, but if performance drags in the short term, your clients won’t be quick to judge.

Be Active in a Community Cause

Visibility is key to your success as a rainmaker. It’s also a key ingredient to the success of any multi-advisor business. Become involved, giving both your time and money. Seek an issue or cause that’s close to your heart and mind, and do something about it — without a hidden agenda, only a will to change the world, or at least your little corner of it, for the better.

Living a life for others is an exciting way to be a human being, and it’s great for business too. People want to work with others who inspire and motivate them. Prospects will see you passionately engaged in a common cause, earning you instant trust and admiration. When prospects discover you through your passion, you have a much easier time transitioning them from prospects to clients.

Be Eager to Acquire New Information and to Share What You Know

Inspire the acquisition and sharing of knowledge for the purpose of continuously improving the industry and everyone in it.

Throughout my career, I’ve benefited from the knowledge that others acquired through their experience and innovation. I continue the tradition by sharing my knowledge and innovations with others.

The more you discover and find out, the more innovative you become, generating unique knowledge that’s valuable to others. If you’re not at a point at which you can be innovative, then pick up as much unique knowledge as possible from others and begin to apply it to your own practice, which is yet another way to share what you know.

Focus More on Skills, Less on Tools

A great financial advisor doesn’t need a one-of-a-kind financial product that’s perfect for every client’s needs. A financial advisor who has a thorough understanding of financial fundamentals and asset and liability management can use a variety of products and solutions to create a personalized plan that serves each client’s unique needs.

Focus more on developing knowledge, techniques, and skills than in looking for the perfect products and solutions. If you’re not developing financial planning techniques and skills, then you’re not evolving into a financial advisor. You’ll remain relegated to the more simple life of a salesperson.

If you believe that all financial concerns can be answered with a quick turn of phrase or product pitch, then dig deeper. Ask yourself why or how a certain product or solution would impact the client’s life and her dreams. In the process of answering this question, you begin to uncover and explore more interesting intellectual and emotional connections to the client’s money and other assets. The insights gained enable you to make the right recommendation to this client and reveal ways to add value for other clients.

Appreciate the Trust Your Clients Place in You

Advising on other people’s money is akin to holding the fate of another’s life in your hands. Make no mistake, the gravity of client-advisor relationship is tremendous. You have the power to fulfill or destroy dreams. Be the beacon of hope and financial leader they need to achieve their goals.

Don’t thank your clients for their business because that revenue is a small fraction of the wealth that’s been entrusted to you, but rather thank them for being open with you and allowing you to do your best work investigating and uncovering uniquely designed solutions for them.

Better yet, show your clients your appreciation by caring for them, as a loving parent cares for her adult children or as a doctor cares for her patients. Remember that their future rests on your shoulders.

Always Ask: What If I’m Wrong?

When he was about to make a major decision or recommendation, Ken Fisher, one of my early career mentors, would always ask, “What if I’m wrong?” Asking this question is a great way to force yourself to analyze the situation more objectively. It always struck me as a relevant, prudent, and truly selfless question.

When you challenge your thinking, you begin to find the source of good advice. Good, unbiased advice is balanced and reasoned without other temptations to sway the final recommendation.

“What if I’m wrong?” is the question that every client wants you to be asking yourself. I’ve taken to sharing this question with every client. This method ensures clients understand that every financial decision has pros and cons. Finding the best product or solution for each client involves having to reveal every factor and aspect while monitoring the client’s reaction and sensitivity to those aspects/factors. This approach is the best way to develop custom solutions.

Challenge your own presumptions routinely in full view of your clients and prospects.