Ever wondered exactly what comprises the roughly 300,000 “Financial Advisors” in the United States? There is an incredibly broad spectrum of professionals that can qualify; the hurdle rate is very low. There is no one regulatory agency nor designation.
Even looking at videos from unbiased sources leaves the public confused as to exactly what they need, and often place the burden of choice on the consumer. In fact, the video suggests that the different categories of financial advisor or financial planner distinguish themselves from other specialists. I have not found that to be the case in my career. Everyone seems to want to do everything and has confidence they can do everything.
In my career, I have discovered that different skill sets are useful at different ages. Early in clients’ lives, they need disability insurance, life insurance and perhaps an IRA. But, depending on where they work, they might also need advice on their retirement plan, buying a home or their stock plan. To be a true financial advisor, one needs to know about these things. I have found that many, many financial advisors servicing younger people or couples do not.
In clients’ 40s, 50s and possibly 60s, they might need to consider their parents’ financial needs, their kids’ education costs and perhaps a bigger home. These are new skills to learn if you choose to follow your clients’ needs through their lives. However, there is another approach that isn’t considered often, but should be. Handing the client to another colleague. Much like doctors and attorneys have different specialties, financial advisors need to pick a lane. Either you focus on younger families with their needs and stay there, or you up your education levels and focus exclusively on people in this new age demographic you find yourself working in. Pick a lane.
In clients 60s, 70s and even 80s, there are still more issues to deal with. You need to develop a good working knowledge of taxation and estate planning. Also, you need to figure out ways to minimize the effects of some of the investments that you or someone else might have put in in their 30s. I have found that some of those things no longer apply late in life and keeping them is expensive! You should also have a working knowledge of elder care and services related to aging seniors.
Another way to look at it: different needs at different asset levels.
You are a 30-year-old financial advisor. You begin working with two clients that you met at church, each between 30-35. They both want to open an IRA with you. Both are accountants. One works for the city; the other for a Big 4 accounting firm. Over the next ten years, both have two kids. The city accountant puts money into the County’s deferred comp. The Big 4 accountant is offered and accepts a job with a local car dealership as controller. She gets a sign on bonus of $25,000 and with it puts a down payment on a rental house.
Fifteen years from when you first met and set up the IRA, the city accountant runs for and wins a seat on the School Board. Now there are special filings necessary for investments, but it isn’t a problem: he has no outside investments! As his salary increased, he took out a home equity loan and installed a pool in his back yard. The Big 4 CPA/car dealership controller was first promoted to CFO, and then when the car dealer passed away, along with the General Manager and Service Manager, she bought the dealership from the late owner’s estate. She installed an ESOP for the dealership and is the trustee for the Retirement plan. Net worth is now around five million and climbing.
These two clients now have completely different needs. You have little expertise in dealing with government officials, and the only expertise you have for the car dealer is knowing a product wholesaler who says he has expertise in ESOPs. You can certainly learn both areas, but you should settle for one or the other. Pick a lane.
As you know, there are many, many other specialty areas. Throughout my long career in financial advisory, there have been countless coaches and specialists that have encouraged me to pick a lan, and I have. But then, early in my career, there were temptations with every enthusiastic product wholesaler that visited and every book I read to pursue something different.
Also, when someone hires you, they hire you. The minute you hand someone off to another specialist, you run the risk of losing the client. This has happened to me.
Specialization—lane picking—takes time and effort. There are well over 100 different professional designations. Most don’t spend the time and advertising money that the CFP Board spends, but they are still vital to learning a specific skill set. This is not to say you cannot spend time in one or two more lanes, but to be a jack of all trades, as the saying goes, you are the master of none. This is not good for the client who believes that—just because you say you are a financial advisor–you are right for them.
Below is a short list of financial advisor credentials. We aren’t even out of the “A’s” yet!
Each of the lanes has dynamic changes over time. It is simply not possible to swim in five to six lanes and stay up on all of the changes. One product that probably suits both young and older risk-averse clients is the fixed annuity. These might also apply to others. There have been dramatic changes in even this simple of a product. For more senior clients, estate planning has evolved over the last ten years also. These certainly affect clients in the ultra-high net worth >$30 million area but applies in other cases for those with substantially less wealth. One very specialized area of financial advising is structured settlements. These too have evolved over time.
After reading this article, I would challenge you to do two things. First, review your clients—or your interests—and decide one or two lanes in which to operate. Be creative! There are no set rules here, but you must be competent and embrace those areas’ constant changes. Next, join a few networking groups and, instead of considering other financial advisors’ competition, have deep conversations and find complementary skill sets and agree to refer business to each other. You will be glad you did.
