The market for good financial advisors who provide comprehensive planning has never been stronger than it is today. The average age of Americans is getting older, particularly as millions of Baby Boomers hurdle into their 50s and 60s.
The traditional defined benefit retirement has gone by the wayside, and people are ill-prepared to take responsibility for their own financial security. Finally, the economy continues its slow pace of recovery following one of the worst financial crises in our history. Bottom line: people need help. And yet the number of financial advisors to serve them is actually dropping.
Rising demand for good advisors, combined with a falling supply, has led to competition for the best talent (ours is one of the few industries in America today that can’t recruit good people fast enough). It also spells opportunity for the right type of candidate.
But who is the right type of candidate? We believe it has less to do with direct experience as it does with what drives you as an individual. Whether you’re fresh out of school or you’re someone 20 years older who has hit a career ceiling and wants to make a change, the people who succeed as advisors have two distinctly strong qualities — a high achievement motivation and a high service motivation.
Let’s say that’s you. You see the need and the opportunity; and you believe you have the right skill set and drive. You’ve made the decision to be an advisor, and you’re being courted by several different companies. How do you decide who to join?
As with almost anything else, there’s no easy answer. So do your homework.
What to Look For
When you’re buying a car, you don’t base it on the paint job without looking under the hood. The same can be said about deciding where you want to have a career as a financial advisor. You have to consider multiple factors; you have to see the big picture. Below is a list of considerations that we suggest you consider as you’re making your choice.
I. Values — Look for a company that you believe genuinely puts its policyowners’ interests first. A good place to start is by looking at how they approach relationships. Today’s clients don’t want to be sold products. They want to understand how those products will help them achieve specific outcomes. They want a plan. So you have to be an advisor before you’re a salesperson. You have to be able to listen, understand concerns, identify goals, and develop solutions. You want to make sure the emphasis isn’t on pushing products right out of the gate. II. Product quality — You want to represent products you believe are the best. But there is a whole range of quality on the permanent life insurance market. So you have to figure out how to evaluate what’s out there. We recommend looking at four different factors:
Customer satisfaction — The best way to measure satisfaction is to look at either the “persistency rate” (how many clients keep their policies in force) or the “policy lapse ratio” (how many clients let their policies lapse). Compare these stats to industry averages.
Selectivity — How selective is the company about taking on policyowners? A good way to find out is to look at their mortality experience. A high mortality rate, relative to peers, speaks volumes about underwriting guidelines and has all kinds of implications from the cost of claims to lower potential dividend payouts. So look for a low mortality experience. And don’t be surprised if it goes hand-in-hand with higher dividend payouts.
Product value — Compare the rate of return on the permanent life products you’ll be offering to the rest of the industry. Remember that these are the ultimate buy-and-hold products, so be sure to look at returns over a horizon of 20 years at a minimum. You want to get a sense of how these products grow over decades, not quarters.
Expenses — How much does it cost to put a unit of insurance on versus at other companies? The lower the expenses, the more value you can deliver to policyowners in the form of potential dividends. It may seem like you’re looking pretty deep in the weeds, but this matters. You want to work with a company that has a tight control on its expenses.
III. Financial strength — Permanent life insurance isn’t like most other products. You need to make sure you work with a company that will be around in 50 years or more, since many of the policies you write will be in force that long. As a result, financial strength is the pillar upon which this industry stands.
Look at the four major rating agencies — Moody’s, Fitch, Standard & Poor’s, and Best’s Review — to evaluate the financial strength of the insurance providers you’re considering. Also look at how each company has managed their own general portfolios. Check the rate of returns they’ve achieved over time, as well as the consistency of the dividend interest rate they’ve delivered back to policyowners. No company can guarantee a dividend, but you want to establish a track record.
IV. Distribution — Once you’ve decided who you think manufactures the best products, next consider how they’re distributed. Is it a brokerage model, where many different advisors with multiple affiliations can sell them? Or is it a closed distribution model, where there is more exclusivity? You want to get a sense of the competition you’ll be facing, and pinpoint early on how you will differentiate from them.
V. Training, development and support — The financial services industry is highly technical and closely regulated. This is not a job where you want to be thrown in the deep end. So look for a strong training and development program. Ask what kind of opportunities exist for education and credentialing (CLU, CHFS, CFP), and if it’s reimbursable.
And see what kind of supervisory support you’ll have to stay abreast of — and in compliance with — the constantly-shifting legal and regulatory landscapes. Remember that you’re looking for a company where you can launch a career; where you will have avenues to learn and grow; and where the investment in you is equal to your investment in the company.
VI. Client development — Determine what the expectations will be regarding your ability to tap or build a market of prospective targets. Will you be expected to know — and reach out to — a base of wealthy contacts right out of the gate? Or will the expectation be based on your ability to build relationships regardless of people’s wealth? Look for a company that is interested in your long-term ability, not your wealthy friends.
VII. Productivity — You want to join a winning team, and learn from a set of colleagues who have had success. To do that, look into the productivity of the total field force you’re joining. Then drill down into the productivity per advisor in the office you’re thinking about joining. High producers tend to develop alongside other high producers.
VIII. Compensation – Most companies will offer you multiple different sources of income, so you want to make sure you consider the full package. Companies that offer 100% commissions have a high ceiling for the income you can make; they give you complete control and have more of an entrepreneurial feel; but the onus is on you to produce. Companies that pay small salaries give you a little cushion, but that might come with smaller commissions and less control over your long-term upside. You also want to look beyond commissions alone. Is there a bonus pool? Are there benefits such as a 401k plan, reimbursable education and more? There are no universals here. These are personal decisions about what’s most important to you. But if there is one guiding principle, see the big picture; focus on total rewards rather than any single aspect of compensation.
The opportunity is there
At a time when unemployment in America remains high, a career as a financial advisor stands out as a unique opportunity for the right candidates. The potential for success is unlimited, but the decisions you make early on are critical.
If you have a high achievement motivation and a high service motivation, it can be incredibly rewarding — for you and the clients your serve. But deciding you want to be an advisor is only part of the equation. Deciding what company and products you represent has far-reaching ramifications. So choose wisely.