August 4, 2010, 5:00 am

CFP: Starting as a Salaried Employee or on Commission?

by: The Financial Blogger    Category: Uncategorized
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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?

Pros of working as a CFP in a bank (or as a salaried employee).

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”.

Cons of working as a CFP in a 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.

Pros of working as an 100% commission CFP

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.

Cons of working as a 100% commission CFP

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.

Final thoughts on salary and commission based CFP jobs

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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Comments

Very interesting post TFB, great to see that you love your job. I would love if you could expand about the 100% commission CFP’s… it’s possible to work as an independant or for a company (as commission only)? If so, what are the differences involved?

Is it easier to gain “credibility”, especially when starting if you work for a bank as well?

I would think that as you described, the jump is difficult to make because you are giving up on the “certainty”, do you know of many salaried employees who made the jump? If so, what motivated them to do the jump and get it done? Did they have a family and a big mortgage?

This sounds like my dream job, and I don’t think I could take the stress of 100% commission.

So when is your post going out about how to get a bank job? Where should I start? I’m lost!

@IS
You basically have 2 options if you want to work as an independent.:

#1 work under a banner (Investors Group, Mackenzie, Templeton, Fidelity, etc.)
Pro: you benefit from the company marketing efforts and credibility
Con: you are stuck with a limited product offering

#2 work as a real independent advisor (TFB financial services inc. for example)
Pro: you can sell whatever you want
Con: you have no creditibilty at first

You can also work as a broker (i.e. under a banner but able to offer all kind of products) (like TD Waterhous, RBC Dominion, Scotia Mcleod, etc).
Pro: you get the flexibility of the products and you get the credibitlty of your banner
Con: you are stuck with lower commission (since the company is taking a cut) and you also have to follow some corporate guidlines

Working for a bank is interesting as you already have a book of client that you develop. but the pay check is much lower if you are a top performer ;-)

@BMSP
the only guys I know how made the jump were top performers in the bank so they know that can succeed through the “uncertainty”

I think what many do is the following:
- You start at the bank
- Make connections
- Then you go independent or commission and bring your clients!!!

I actually did talk to an advisor (I have known for a decade) on what it would take to do the switch and the biggest con for me was the big downgrade in salary to start over. Because of commissions and experience, anyone wanting to make a switch will potentially incur a pay downgrade.

He mentioned that all the courses can be taken while you work with someone else. (I don’t know how much of it really apply in most institutions) You are either a sales man or an analysts. At the end of the day, you need to sale investment products!

I also wanted to ask, how do the service differ for CFP/CFA that deal with MUCH larger portfolio (250K+). I know that some only take large portfolio and don’t waste their time on the little investors.

@ Passive Income Earner,

CFA won’t give financial advices. They usually work as analyst, traders or portfolio managers. CFP will most likely sell the product that CFA’s create ;-)

Depending on the business model, some advisor don’t take “smaller account” (under 250K, 500K or 1M$). But it’s not related to their title, it is related to their business model.

by: The Financial Blogger | August 4th, 2010 (7:59 pm)

@ Daniel,
in order to work for a bank, you just need a bachelor degree. Then, you will have to get your CFP title and work hard ;-)

cheers,

TFB.

[...] The Financial Blogger: CFP: Starting as a Salaried Employee or on Commission? [...]

by: Matt Tucker | August 5th, 2010 (4:48 am)

Hey FB,

Have you heard of the two CSI streams to get to the CFP, is there any preferences between the Wealth management stream or PFP stream?

by: The Financial Blogger | August 5th, 2010 (2:12 pm)

@Matt,

I went on the CSI site but couldn’t find the wealth management stream, can you send me the link?

Why not both? Let me explain…

I started as a financial advisor with a regional firm at the beginning of my career. My sole compensation was fees and commissions. Along the way, I became a CFP and jumped to the independent side. My income is still primarily fees and commissions (about a 80/20 split) but the difference now is I keep much more instead of giving it to the brokerage firm. I’m now a business owner, so that does add another level of complexities, but well worth it.

Just this year, my local credit union was interested in offering financial planning services to their members. I struck a deal with them to do so and they take a percentage of the revenues. In exchange, they market me to their members and I service what comes in. I formed a separate business for the credit union side, so essentially I have 2 businesses (one on the independent side and the other on the credit union side).

There are other advisors like me, but is rare to have an independent advisor on the financial institution side.

by: Matt Tucker | August 5th, 2010 (7:46 pm)

Sure FB. It is just on the page for the Wealth Management Essentials course in the overview. Just says:

Take a Step Toward Writing the CFP® Exam
Take a step closer to writing the CFP exam: CSC® + WME + WME Financial Planning supplement qualifies you to write the exam

https://www.csi.ca/student/en_ca/courses/csi/wme.xhtml

[...] The Financial Blogger explains the difference between working on salary or 100% commission. [...]

[...] The Financial Blogger, a Certified Financial Planner (CFP), sheds some light on the financial planning industry with his comparison of salaried and commissioned CFPs. [...]

@ TFB: CFA won’t give financial advice — NOT TRUE

In the upper tiers of wealth management (ex: RBC Private Council for clients with $1 million + to invest) they ONLY hire CFAs to be investment advisors.

by: The Financial Blogger | August 9th, 2010 (6:15 pm)

@ Steve,

Let me rephrase this; CFA can’t do financial planning and won’t be the go to guy to optimize your investment with tax saving strategies. They can talk about portfolio management but not gives financial advise outside portfolio management. If a CFA does it, it’s because he has experience outside what has been required to get his CFA’s.

When you talk about Private management or Wealth Management, you will find people with tons of diplomas at the same time. So obviously those guys will give financial advices.

by: The Financial Blogger | August 9th, 2010 (7:22 pm)

@Matt,

I’ve look at the CSI wealth management program and I’d says that it would be a great addition for an existing financial planner. I really like the fact that they added more classes in investment and portfolio management. I’d definitely go for it if I had to get my CFP title today ;-)

@ Jeff,

interesting perspective! since you are mostly a fee based planner,this is a great idea to do a deal with a credit union and earn some sort of salary at the same time. I like the idea ;-)

by: Matt Tucker | August 9th, 2010 (9:23 pm)

Cool, that is what I was kind of wondering too, whether the wealth management would be more beneficial. I will have to keep track of it though, and make sure things don’t change too much, since I think it still might be a bit until I can start those courses, need to make sure I have enough time for the current one.

out of curiosity, what are you doing at the moment?

by: Matt Tucker | August 11th, 2010 (6:33 am)

CFA level 1 for next June.

by: The Financial Blogger | August 11th, 2010 (7:11 am)

If you can combine the CFA + a CFP certifications, you’ll be a top notch advisor ;-D

by: Matt Tucker | August 11th, 2010 (8:31 am)

Indeed, that is some of what I thought too. Unless I enjoy portfolio valuation to much or something and stick with that type of work.

by: Piecesofenergy | December 29th, 2011 (9:04 am)

Hi,

I am a CPA and planning to become a CFP. I want to work as a personal financial planner doing tax planning, estate, investment and etc, but after reading your website, it seems to me that a personal financial planner is just a sales person. Are there advisors doing tax return preparation or estate planning more and making good money? Or most of income is earned by selling an investment product. If a personal financial planner means to become a sales person, then it might not worth spending time, money and effort to become a CFP…Please get back to me if you can. Thank you!!

by: The Financial Blogger | December 29th, 2011 (2:02 pm)

@Pieces of Energy,

there are fee only financial planner but they are rarer. The main reason is that most people won’t pay $1,000 + for a financial plan :-(

So if someone wants to become an independent CFP, is it better to start out in a bank as a salary employee? Or would it be better to get on with a small local CFP firm?
Also, do CFPs buy leads? What is the best way to build a client base as an independent CFP?

One more. I noticed that there was mention of doing both ways at the same time. Being a salary CFP at a bank and starting your own independent thing. Is this feasible? Would a bank really allow you to do this? It seems there would be a conflict of interest going on with that situation.

by: The Financial Blogger | May 13th, 2012 (1:08 pm)

@Curt,
I think banks are great school to learn the ropes while being paid. Starting from scratch could be very hard.

You can buy a book of business, I guess this is the best way to start as an independent (but it doesn’t meant that the clients will follow you either). Tuesday May 15th, I’m sharing my cold call techniques, this is another great way to build your client base.

Regarding your last question, I know it’s not feasible in Canada (obvious conflict of interest), I don’t know if you can do it in USA…

Thank you very much for sharing your knowledge in this subject. I am very glad to have stumbled upon your website. By far the most information I have gathered about being a CFP is on your site.

Hi,

what are your thoughts on becoming a CFP at an insurance company (like Sun Life, Manulife)? Where there is a focus on wealth management in addition to insurance services? I am looking for experience in the industry so the stress of commissions shouldn’t bother me my first two years.

by: The Financial Blogger | June 22nd, 2012 (1:37 pm)

@James,

it’s definitely a good title to have. I’ve seen a lot of insurance advisor with a CFP. it will make you a more complete advisor.