Career Advice: Stockbroker Vs. Financial Advisor
Under U.S. securities law, only certain licensed professionals are allowed to place security trades for customers or offer paid investment advice. Stockbrokers and financial advisors are two such professionals, although they tend to service different kinds of clients and focus on different outcomes.
It is not impossible for a professional to be both a stockbroker and a financial advisor at the same time, or for a professional to fluctuate between one designation and the other. The hallmark of stockbrokers and advisors alike is the Series 7 exam, which allows an investment professional to offer a full line of general securities. Everything else depends on the kinds of relationships he wants to have with clients.
One critical legal difference between a stockbroker and a fully registered advisor hinges on the word "fiduciary." A fiduciary is a professional who manages money for another, called the "beneficiary." U.S. law places a positive obligation on any fiduciary to put the interest of its beneficiary first.
Under the Investment Advisers Act of 1940, all registered investment advisors, which many financial advisors are, carry a fiduciary obligation to their clients. This is not so with stockbrokers. Instead, the nonfiduciary stockbroker must only follow the standard of "suitability," which does not require the client's interests be placed first; stockbrokers need only provide suitable advice given the client's resources.
There is one exception; stockbrokers owe fiduciary duties to their broker-dealers. Registered investment advisers do not have a broker-dealer. It is important to note that some financial advisors are not registered investment advisors; they are registered representatives who work for a broker-dealer. These financial advisors are bound by the same suitability standard as stockbrokers, and the only difference between the two might be the securities licenses they hold.
The other major difference is the kind of service provided to customers. Financial advisors normally present themselves as full-service money experts, meaning they offer tax advice and mortgage help; build budgets; and even sell insurance. They may make their money through fees, commissions or both. Conversely, stockbrokers are much more transactional. They still have clients and can build long-term relationships, but the emphasis is on securities products and not other aspects of financial life.
Education and Skills
Almost anyone can become a stockbroker or financial advisor. It helps to have an undergraduate degree, preferably in finance, economics or some related field. It can also be a big plus to have prior experience working with investments or in sales, although it is not a prerequisite.
The only real requirement is passing the securities license exams administered by the Financial Industry Regulatory Authority, or FINRA. There is one catch; FINRA requires you to have a sponsoring entity before you may sit for most of its exams. This means an aspiring advisor or broker needs to find a firm to sponsor him.
Common securities licenses include:
* The Series 6, which grants the ability to deal in mutual funds;
* The Series 22, which grants the ability to deal with direct participation programs;
* The Series 7, which is the most common and covers a wide range of securities;
* The Series 65, required by most states for those who wish to act as investment advisors;
* The Series 63, required by some states for official registered representative status;
* The Series 66, which covers the 63 and 65 exams without repeating Series 7 material.
FINRA exams are
not free; most cost between $100 and $150 per attempt, but they are not particularly difficult to pass. FINRA creates its own study materials, and most individuals only have to study for a few months to pass the Series 7, which many consider to be the most difficult test.
It is imperative for advisors and brokers to have effective communication skills and interpersonal skills. Success and failure depend on the ability to market, find clients and then explain complex financial topics in a digestible manner.
As of September 2015, the average stockbroker in the United States earns a salary of $72,000 per year. Since the large majority of stockbrokers make a living off of fees and commissions, salary is variable and can fluctuate dramatically from one month to the next.
If you take out the top 10% of stockbrokers, however, the average pay drops all the way down to approximately $49,000. This suggests the industry is top-heavy and most brokers struggle to generate repeatable, consistent business
It is a similar story for financial advisors. U.S. News & World Report research came up with a median salary of $75,320 for advisors, but the top 10% brought in an average of $187,199 per year and the 25th percentile just $49,410. Financial advisors have a slight advantage when building a book of business because of their greater range of services, although this may result in spending too much time on low-paying activities and not enough on what actually earns income.
In the abstract, stockbrokers and financial advisors have very flexible schedules and enjoy outstanding work/life balance. A large number work independently and make their own schedules; even those who work for firms and have office hours can work their way to relative self-determination.
However, watch out for a "grass is always greener" mentality. The first years as a broker or advisor are often filled with low pay and long hours until a book of business is established. Many in the field do not survive this introductory period, and those who do often come in on weekends or work late at night to accommodate client schedules.
Even though the financial industry is expected to grow over the next decade, the nature of investment advisory careers is changing. The market is trending away from classic, fee-based advisory services and moving towards remote, even automated, and cheaper alternatives. Robo-advisers and online brokers make it easier than ever to receive investment advice. More options are good for consumers, but they place a squeeze on brokers and advisors.
Successful stockbrokers and financial advisors in the 21st century need to have plans to deal with changing service dynamics, whether by embracing new platforms or creating a clear value-added service differentiation.
Which One to Choose
There is a great deal of crossover between these two professions. A successful stockbroker could likely be a successful financial advisor and vice versa, even if the target customer base is a little different.
Those who enjoy comprehensive, big-picture strategies likely enjoy building full-service financial plans more than simply selling securities. Conversely, stockbroking is a better fit for those who prefer focusing narrowly on market products.
Both jobs are demanding and require a lot of self-marketing, initiative and strong communication skills. The best decision is likely made on the basis of comfort with an employer rather than the specific title attached to the work.