When people say that they’re a financial advisor they could be describing a number of different roles and responsibilities. “Financial advisor” is a very broad term and, therefore, a financial advisor salary can cover a very broad range.
If you are thinking of becoming a financial advisor then you are probably wondering what you should set your salary expectations to and what factors could affect the type of salary you earn. In this article, we will answer some of the common questions aspiring financial advisors have about the role.
In addition, we will also explain the various factors that are put into consideration when setting the salary for a financial advisor. After reading this article you should have a better idea of what financial advisors earn for their work and how you can prepare yourself to earn the salary you have been dreaming of.
The Different Types of Financial Advisors
As mentioned, a financial advisor could take on a number of different roles and responsibilities. There are so many different areas of finance with detailed rules and regulations that financial advisors usually specialize in certain areas rather than being a Jack of all trades.
The most common type of financial advisor is a personal financial advisor. In this role, advisors tend to focus on individuals and their immediate family like their spouse and children. In this role, the main goal of financial advisors is to provide personalized advice to help clients meet their immediate and long term goals.
Personal financial advisors will do everything from helping families set household budgets to retirement planning to college planning for children. Typically, these financial advisors work for a bank or investment company.
The next common type of financial advisor you will find is often referred to as a stock broker. Of course, when you hear the term “stock broker” you might think of high powered securities traders in New York - much like Leonardo DiCaprio in The Wolf of Wall Street.
The truth is that stock brokers tend to take a much more broad view of their client’s needs to develop customized investment plans to help people meet their own unique goals.
In this role, a financial advisor must take time to understand their client’s life situation and specific goals to build a portfolio of securities that will match those goals. For example, a young person saving for retirement may be able to endure more volatility with the goal of securing greater gains while individuals closer to retirement will be seeking more conservative investments to reduce volatility as retirement draws closer.
There are a number of other roles that can also fall under the financial advisor role that are less common than the roles mentioned above. Some financial advisors mainly deal with insurance while others may be in a corporate role helping advise companies about business finances.
As you can see, “financial advisor” means a lot of things. Narrowing down your focus to what type of financial advisor you hope to become is a major part of determining your financial advisor salary.
Factors that Determine Financial Advisor Salary
As we discussed above, there are a number of different roles that fall under the broad umbrella of “financial advisor.” In addition, there are a number of contributing factors that determine what type of salary financial advisors earn.
Education and Certification
One of the major contributing factors is education and certification. Many financial advisor roles require a certain level of certification in order to be able to advise people on their finances.
In the United States, FINRA (Financial Industry Regulatory Authority) provides oversight and licensing for financial advisors. There are a number of different types of security licenses available and each one gives advisors the education and authorization to complete different types of transactions on behalf of their clients and employers.
Financial advisors working in a bank or investment company setting at the customer-facing level will typically have their Series 6 certification. This certification allows advisors to sell basic types of investments like mutual funds that are pre-packaged and designed to meet certain goals. For example, a financial advisor within a bank may sell 6 different types of mutual funds each with their own risk levels and expected returns.
For financial advisors with Series 6 certification, understanding how to properly listen to clients and advise them based on their needs is most important. As the pre-packaged investments are already designed, there is little research or development required on the part of the financial advisor and, in that sense, this very much an advice type of role rather than an active investing role.
Series 7 is another common type of license that financial advisors will attain. This license opens up a number of different investment opportunities including stocks, bonds, fixed income investments, and more. In fact, the only major investments not included in the Series 7 license are real estate, life insurance, and commodities futures.
A financial advisor role that requires a Series 7 license is likely a role where advisors are helping build customized investment portfolios for their clients and trading on behalf of their clients. Since these investments are not pre-packaged like mutual funds, advisors must do more research to stay up to date on investment news, stock performance, and volatility.
In order to conduct business, advisors with a Series 6 or Series 7 license must also have a Series 63 license. For advisors who plan on charging an hourly fee for their services, a Series 65 license is also needed but many opt for the Series 66 license which essentially combines the Series 63 and Series 65 into one.
As you can see, there are a number of difference licenses available and each one opens up a different path of opportunity for financial advisors.
What Do Financial Advisors Actually Earn?
As you may have guessed, a financial advisor salary can vary wildly based on the type of role the financial advisor takes on. Consulting a salary aggregator like Glassdoor will reveal a range anywhere from $25,000 per year to more than $90,000 per year.
One thing that complicates nailing down a specific financial advisor salary is the types of pay an advisor can earn. This can vary based on role and the type of company the advisor is working for. Some advisors are paid based on a fixed salary while other advisors may be paid 100% commission and other advisors earn a mixture of salary and commission.
Advisors at banks or investment companies often earn a salary with the opportunity to earn a bonus or commission based on sales or size of their client base. When considering a job with this type of compensation, job seekers should ask themselves if the threshold to earn a commission or bonus is realistically achievable before factoring that amount into their compensation.
Active traders that build portfolios on behalf of their clients are almost always paid on a commission basis. This is determined as a percentage of their client base and is built into the management fee attached to their services.
For example, an investment company may collect an annual management fee of 3% from the total balance of a client’s investments. A portion of that will be paid to the advisor who holds the client’s book of business.
Flat Rate Fee
Finally, another way that financial advisors are paid is by a flat rate fee. This is much less common than the above examples but not entirely unheard of. For financial advisors who offer their services independent of a larger organization, this is a great way to market themselves compared to other advisors on the market.
Usually, a flat fee is based on an hourly commitment from the advisor which would, obviously, require the advisor to have their Series 65 license. For some investors who dislike high management fees, working with a flat rate financial advisor may be an appealing alternative.
Build a Career Path and Follow It
The median financial advisor salary, according to Glassdoor, is just under $50,000 per year. Of course, as you have learned, there are a number of factors that could make this salary higher or lower.
For people who are aspiring to become financial advisors, determining a career path first is most important. Since licensing is needed to become a financial advisor in most cases, some time, effort, and investment is needed in yourself before you can begin actively working with clients.
Do you hope to work with families to help them plot a path toward retirement or are you interested in researching individual stocks, building customized portfolios, and earning a percentage of the business you are able to secure?
Top financial advisors have almost no limit to how much they can earn. Finding a path you are passionate about can help you secure the compensation you deserve.