How to Become a Financial Consultant or Financial Advisor - dummies

How to Become a Financial Consultant or Financial Advisor

By Dummies Press, Ivan Illan

Various governing and licensing entities offer a range of programs for becoming a fully functional and competent financial advisor or financial consultant. Unlike other professions that have governing boards and standards, the financial advisory profession has no clear professional education or certifying standards. Even so, you need specialized knowledge to deliver value to your clients, and you need to be licensed to conduct transactions related to certain financial products.

You don’t need a college degree, a special certification, or even a high-school diploma to qualify as a financial advisor. To achieve success as a financial advisor, however, you need to know what you’re doing, and having the education and credentials helps differentiate you from those less qualified.

If you’re already a certified public accountant (CPA) or loan officer or you’ve worked in finances and you have plenty of life experience, you have a good start. However, you should get some additional, formal training under your belt and earn one or more financial advisor certifications.

A number of independent education institutions offer advanced and specialized financial advisor training. The few highlighted in this section don’t constitute an exhaustive list, but they offer the more recognized, marketed, and substantive education and certification programs specifically for financial advisors.

Work at a role in the field that would expose you to the world of financial advisory work before enrolling in a program to ensure that you want to be a financial advisor and you intend to stick with it. In many of these programs, you have to work in the field for several years before you can receive the designation. In addition, most programs require at least 30 hours of continuing education (CE) every two years. In other words, getting certified is a huge commitment, so you want to be relatively sure you’re going to stick with it.

Knowledge and certifications are fundamental, but getting licensed by the proper regulatory authorities is essential if you want to transact in mutual funds, stocks, bonds, or insurance products.

The American College of Financial Services

The American College of Financial Services (ACFS) offers many professional designations and degree programs. The more popular programs include the Chartered Financial Consultant (ChFC) and Chartered Life Underwriter (CLU). For a full list, visit ACFS’s website and click Designations & Degrees.

Established in 1927, ACFS is one of the older organizations in the field and has supported more than 200,000 people in their financial careers. The college’s website proudly highlights that the college’s “sales training can boost production by up to 40 percent” and that recipients of their “financial planning designations increase their sales by as much as 51 percent.”

This focus is on financial benefits as a missed opportunity to stress the importance of education in delivering value to clients. Regardless, this institution does a solid job developing an advisor’s expertise in various financial products and processes.

CFA Institute

The CFA Institute is considered the gold standard in developing professionals focused on investment management, especially portfolio managers and research analysts. The CFA Institute offers three programs:

  • Chartered Financial Advisor (CFA): This program is for “portfolio and wealth managers, investment and research analysts, professionals involved in the investment decision-making process, and finance students who want to work in the investment management profession.” To earn the CFA designation, you must pass three exams, have four years of relevant experience, and join the CFA Institute as a regular member. This is on average a four-year program.

The program’s focus is deeply enriching, addressing all aspects of asset management. Special emphasis focuses on ethics and conduct and every conceivable analysis to be performed on any asset (particularly risk and valuation analysis).

  • Certified in Investment Performance Management (CIPM): This program is for “portfolio managers, investment consultants, financial advisors, sales and client service professionals, and other investment professionals involved in selecting portfolio managers, evaluating portfolio performance, or communicating with clients.” To earn the CIPM designation, you must pass two exams, have two years’ experience in investment-performance activities or four years’ experience in investment decision-making, and become a CFA Institute regular member or join the CIPM Association. The program takes a minimum of one year to complete.
  • Investment Foundations: This program is for “anyone who works with or supports investment decision-makers in the investment management profession.” To earn the Investment Foundations certificate, you must pass one exam that takes up to six months’ preparation.

CFA Institute prominently displays its core message of delivering “professional excellence for the ultimate benefit of society.” The institute’s extensive global standards and mission to build market integrity “by improving investor protections and investor outcomes,” aren’t only admirable, but a consistent fixture in CFA Institute membership discussions. The academic rigor of its programs and its global network of more than 120,000 professionals make this organization highly respected among the most sophisticated financial advisors.

CFP Board

The Certified Financial Planner Board of Standards (CFP) is widely regarded as setting the gold standard in the financial planning profession. CFP designees must complete a comprehensive program and commit to completing ongoing continuing education. The core subjects this credential covers include all the main financial planning areas: as investment, insurance, tax, retirement, and estate planning, along with professional conduct and regulation. These are the initial certification requirements (referred to as the “four Es”):

  • Education: Certification requires a bachelor’s degree and the completion of a college-level program of study in personal financial planning or an accepted equivalent, including completion of a financial plan development (capstone) course registered with CFP Board.
  • Examination: You must pass the CFP Certification Exam, which you can take after completing the required coursework. (You don’t need to have your bachelor’s degree to be eligible for the exam.)
  • Experience: You’re required 6,000 hours of experience through the standard pathway or 4,000 hours of experience through the apprenticeship pathway. (“Qualifying experience may be acquired through a variety of activities and professional settings, including personal delivery, supervision, direct support, indirect support, or teaching.”)
  • Ethics: You must agree to adhere to the CFP Board’s standards of ethics and practice as outlined in its Standards of Professional Conduct. After you fulfill the education, examination, and experience requirements, you must complete a CFP Certification Application to disclose information about your background. CFP then performs a background check that you must pass in order to receive your certification.

The Institute of Business and Finance (IBF)

Since 1988, more than 16,000 professionals have leveraged the Institute of Business and Finance’s programs to deepen their knowledge to “develop successful careers — and successful clients.” IBF offers six programs, including Certified Fund Specialist (CFS), Certified Annuity Specialist (CAS), Certified Estate and Trust Specialist (CES), Certified Tax Specialist (CTS), Certified Income Specialist (CIS), and Master of Science in Financial Services.

If you’re a busy professional, IBF certifications are a great option, because you can integrate the learning more easily into your other responsibilities at work and home. The curricula are robust, so you still benefit from actionable substantive knowledge.

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority (FINRA) “protects investors and market integrity through effective and efficient regulation of broker-dealers.” Although not a part of the U.S. government, FINRA is authorized by Congress to “protect America’s investors.”

To protect investors, FINRA ensures that

  • All investors receive the basic protections they deserve.
  • Anyone who sells securities has been tested, qualified, and licensed.
  • Every securities product advertisement used is truthful and not misleading.
  • Any securities product sold to an investor is suitable for that investor’s needs.
  • Investors receive complete disclosure about the investment product before purchase.

Any would-be financial advisor should study and pass the following FINRA exams: (To register for any FINRA exam, you must be sponsored by a registered broker/dealer firm.)

  • Series 6 – Investment Company and Variable Contracts Products Representative Exam: A 135-minute test with 100 questions related to packaged financial products such as mutual funds, ETFs, closed-end funds, and variable annuities. Great for advisors who don’t plan to provide clients with sophisticated asset management services.
  • Series 7 – General Securities Representative Exam: A 360-minute test with 250 questions, this is the most comprehensive exam for financial advisors to pass, because it covers a wide range of financial products and instruments, including everything in the Series 6 exam, plus all other publicly traded securities, including derivatives such as option contracts. It’s a must for any financial advisor who prefers offering more diverse portfolio solutions.
  • Series 63 – Uniform Securities Agent State Law Examination: Passing this 75-minute, 60-question exam enables you to execute general securities transactions and effect sales within a state jurisdiction. It’s an exam for NASAA (North American Securities Administrators Association) that is administered by FINRA.
  • Series 65 – Uniform Investment Adviser: Passing this 180-minute, 130-question exam earns you the investment advisory representative (IAR) designation, permitting you to accept fees for services related to financial advisory or investment management. Series 65 is also a NASAA exam administered by FINRA.
  • Series 66 (a combination of Series 63 and 65): This 150-minute, 100-question exam conveniently combines the Series 63 and 65 exams into a single exam. (You must have passed the Series 7 to sit for this exam.)

A background check, finger-printing, bonding, and additional state fees are all related requirements for these exams. Additionally, every year, you have to pay renewal fees to keep all these licenses in good order.

Don’t forget to pay your license renewal fees annually. Failing to renew is a common mistake, especially when a financial advisor is between broker/dealer affiliations. A two-year window is a customary grace period, after which you have to retake these exams.

National Association of Insurance Commissioners (NAIC)

The National Association of Insurance Commissioners (NAIC) is a national system of state-based insurance industry regulators in the United States, the District of Columbia, and five U.S. territories. NAIC’s mission is to

  • Protect the public interest.
  • Promote competitive markets.
  • Facilitate the fair and equitable treatment of insurance consumers.
  • Promote the reliability, solvency, and financial solidity of insurance institutions.
  • Support and improve state regulation of insurance.

To sell insurance products, you must pass your state’s resident state insurance licensing exam, through the NAIC, which varies from state to state. Regardless of where you initially pass your exam, you’ll be able to apply for nonresident licenses for many other states. Sometimes, certain states have additional requirements beyond the basic nonresident online application process, which can be challenging and bureaucratic.

Apply Certifications across the Financial Advisory Spectrum

Leverage the power of your competencies and credentials by using your expertise in a given area to get your foot in the door. You can then expand your service offerings to accommodate the client’s needs in other areas in which you may be less confident and lacking in credentials.

Don’t try to be everything to everyone. For example, if you’ve earned a Chartered Life Underwriter (CLU) certification, it probably makes the most sense for you to lead into a prospective client discussion with how you could optimize the client’s cost-benefit experience in their insurance planning. After the prospect becomes a client in an area of your highest confidence, core competency, and credential, then you can introduce other areas of service, where you may add more value.

Don’t let a lack of credentials, education, or expertise in some areas discourage you. You can find plenty of clients who need the services in your areas of specialization along with your unique style, approach, advice, and guidance. The market for financial advisors is an extremely big sea with lots of fish and every fish needs something a little different.

Many clients are equipped with rudimentary knowledge and understanding on financial matters, which equates to low confidence. If you’re able to educate and support their good decision-making, their decisions are likely to produce better financial outcomes, and they’ll be more willing to seek your advice (and pay for it) in the future.

For example, a client owns a few stocks she heard about on cable news, but she routinely sells during periods of market volatility typically at a loss. She has three dependents but no life insurance or disability insurance. You can deliver tremendous value to her. You can start by educating the client on the wisdom of a diversified portfolio that gives her the confidence to stay invested during tumultuous times. Then, you can advise the client on the importance of basic liability management and planning to protect from catastrophic loss. (Her family will thank you.) Although the client can’t recover the money lost on erratic investment decisions, the money saved by having a balanced plan in place is likely to make up for the past losses and then some.