Since I wrote my CFP vs CFA post and I explained that being a CFP was one of the best jobs in the world, I have received several questions about the route to follow to become a Certified Financial Planner. Some folks want to know which classes to take, others about how to build a good book of business and one of the questions that keeps coming back is “Should I start in a bank or with a revenue of 100% commissions?”.
Before I start with my thoughts on the topic, I must admit that I have never worked with a revenue of 100% commissions. I have worked with several independent advisors and brokers but I have never experienced it myself (so if you are an independent advisor and want to add your thoughts, you are welcome to do so!). And with that said, salary or commission, what is best to start with?
What I like about working for a bank is the hybrid compensation model. We have a decent base salary but our pay check can become very interesting with our year end bonus. What is nice is that I can have a few weeks where I don’t close any deals and still not have to worry about my mortgage payment and my ability to feed my family. My base income will cover for all my financial needs and my bonus will cover all the extras.
Banks are usually a good place to start with as a certified financial planner. You are given a book and learn how to deal with clients that are already “warm” to the bank. It’s easier to grow your book since you will have “free rides” when clients will just come in to invest or to take a mortgage with “their bank”.
As is the case with any other regular job, you are not your own boss. You do not own your book of clients and you can’t make your own schedule. You can’t sell what you want to sell and you have sales objectives that don’t necessarily jive with your personality. You will also have to do tasks that are not always related your functions (like opening accounts, dealing with banking transaction fees, selling Visa cards, etc.).
The last downside of working as a CFP in a bank is probably the potential for salary increases. You rapidly reach their highest bracket and you are sitting on it until you get a promotion for another type of job. While you have a pretty good salary, you can’t dream of making more than 150K with most banks.
Sky is the limit in terms of income ;-). I have met several people making more than 500K/year. In addition to that, once you have built your portfolio of clients, you benefit from a steady flow of income in trailer fees every year. Therefore, there are advisors making 50K-100k per year just by waking up in the morning.
You are also your own boss. This means two awesome things: #1 you make your own schedule and nobody is watching you. #2 you can deduct tons of expenses before you pay income taxes ;-).
You usually have a coach or director that will teach you how “real life” works. I think you have the opportunity to learn a lot faster since you are on your own and you need to make a lot of mistakes to succeed.
Now that I have hyped it up, I will drag you down to earth; 100% commission based CFP is a very hard job. The turnover for new advisors is 80% in their first year. The average income after a year is 24K. And I won’t tell you how many hours, nights and weekends you need to do in order to make 30K the first year! The sad truth is that it’s not made for everybody.
People don’t like to be followed and asked to explain their results. On the other hand, most people don’t do much if they are not required to it by their supervisor. If you are not highly self-driven, forget about being on 100% commission.
Since you don’t have a book of clients, you have to build it. It is ten times harder to get an appointment and close a deal when the person doesn’t even know you exist.
One last killer of being on a commission basis is that your income is not stable. Therefore, when you have a good month, it’s not time to celebrate but time to put money aside and make sure it is available for the bad months.
I think people are made to do either one of them (and sometimes both!). Fear would be the #1 factor why top salaried performers don’t make the jump and procrastination would be the #1 factor for 100% commission CFP who don’t make the cut.
I have made a chart with the comparison of pros and cons of both type of CFP positions. Don’t hesitate to contact me if you have any other questions about the best job of the world ;-).
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