How to Become a Financial Planner

How to Become a Financial Planner

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Financial planners enjoy a unique level of professional freedom, since they are able to effectively customize their practice based on the types of services and financial products they wish to offer, the type of clients they wish to work with, and how they prefer to be compensated. This unique level of freedom comes with the burden of having to make some very weighty decisions about what licenses to pursue, what kind of degree to earn, whether to operate independently or as an employee of a firm, and whether or not it’s worth working towards elective certification

How to Become a Financial Planner 1

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Would-be financial planners give all this a lot of consideration, as these decisions will ultimately define their professional practice. When looking at how to become a financial planner, these aspiring professionals start by asking themselves a few questions:

  • What kind of clients do I want to work with — elderly, businesses, high net worth individuals and families, or retail investors?
  • How do I want to market my services — as a general financial planner, an investment advisor, an insurance agent, or as qualified through general or specialty certification?
  • What kinds of financial products do I want to work with — life insurance, mutual funds, annuities, or securities?
  • How do I want to be compensated for the work I do — fee only, commission, or fee-based?

The answers to these questions are rarely black and white, and more often are a thoughtful combination of a number of different options that take into consideration the individual’s strengths and knowledge, their existing network of friends and business contacts, and the general social and financial demographic of the area in which they want to solicit clients.

How to Become a Financial Planner

Registered Investment Advisor (RIA)

Earning a Registered Investment Advisor (RIA) license is fast becoming the main component to the foundation on which financial planners build their careers. This is because the designation comes with a fiduciary responsibility to always act in the clients’ best interest, putting individual profit motive second. In all states, earning this designation requires successfully passing the Series 65 exam, and most states also require the Series 63 State Law exam.

Registered investment advisers are in a position to offer their clients specific advice on which securities to buy and sell, and are often given discretionary authority over their clients’ brokerage accounts to make trades on their behalf. Many RIAs charge an hourly fee for their services, but because their work involves ongoing management of client funds throughout the year, most collect a fee of 1-2% of total client assets under management, which serves as an additional incentive to grow their clients’ assets.

Series 7 General Securities License

Although Series 7 General Securities license holders are often thought of as synonymous with broker-dealer agents, many registered investment advisors and general financial planners maintain their Series 7 license so as to be able to execute buy and sell orders for securities when it’s in the clients’ best interest. This allows them to uphold their fiduciary responsibility and market their services as “fee-based”, while still enjoying a commission on responsible transactions.

Since the Series 7 exam requires sponsorship from a broker-dealer firm, series 7 license holders always begin their careers as employees rather than independent brokers or advisers. In addition to securities, the Series 7 license also allows holders to offer their clients variable annuities and mutual funds.

State-Licensed Insurance Producers

Life insurance and annuities are staples of the financial planning industry, so many state-licensed insurance producers market themselves as financial planners where the law allows. Becoming an insurance producer with a life “line of authority” requires passing a state-specific life insurance exam, which also allows these professionals to deal in fixed annuities.

Annuities have always been seen as a safe and solid retirement planning product, however, variable annuities, which include a stock market component, are becoming even more popular as more investors look to take advantage of the stock market’s steady recovery from 2008 lows. Selling variable annuities requires the Series 6 license, which also allows access to mutual funds, without going through the additional rigors of the Series 7 exam.

Elective Professional Certifications

Many of the most experienced and highly respected financial planners have taken the time and effort to earn elective professional certifications, such as:

  • Chartered Financial Consultant (ChFC)
  • Chartered Financial Analyst (CFA)
  • Chartered Investment Counselor (CIC)
  • Certified Financial Planner (CFP)
  • Personal Financial Specialist (PFS)

Although the qualifications for earning and maintaining these designations are challenging — usually requiring a finance degree, a minimum number of years of experience, passing comprehensive exams, and ongoing continuing education — the benefits are well worth it.

Professionals that hold any one of these highly respected credentials are in a class all their own. The commitment to a code of ethics required by the bodies that grant these designations and the rigors involved in qualifying for them say a lot about the character of the holder, and instill a unique level of trust from prospective clients. These designations are so highly regarded by regulatory and licensing bodies that the Securities and Exchange Commission and most state Securities Commissions waive Series 65 exam requirements for RIAs that hold one of these credentials.

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