Five years ago, I had the opportunity to shadow a financial advisor.
I was excited to see what financial advisors actually did on a daily basis.
Spoiler Alert: It was nothing like Wolf of Wall Street.
Without further ado, here are the three most important lessons I learned from shadowing a financial advisor.
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Lesson 1 – Persistence Pays Off
Like many in college, I had no idea what I wanted to be when I grew up (5 years later, I still don’t).
However, while getting my B.S. in Finance, I developed an interest in learning more about the financial advising industry.
So I applied to nine different financial advising shadowing opportunities.
I was then rejected nine times.
My motivation got knocked down a few levels and I was beginning to write off any hopes of shadowing a financial advisor.
A few days after the 9th rejection, I saw a financial advisory firm that I never noticed before.
I remember saying ‘oh, what the hell‘ and made the decision to go in and attempt to speak with somebody.
With a stroke of luck from a cancellation, I ended up speaking to a Certified Financial Planner.
After talking with him for an hour, he gave me his phone number and said to call him whenever I wanted to come in and shadow him. I was on Cloud 9.
Getting rejected sucks. Getting rejected 9 times really sucks.
However, things happen for a reason.
That is when I learned the value of never giving up and that persistence pays off.
Lesson 2 – Investing is Easy, Taxes are a Different Story
I remember one afternoon we were discussing the specific skills needed to successfully become a financial advisor.
He then told me something that surprised me:
Investing is the easy part, understanding taxes is what takes real skill.
He justified his position with two points:
- If you understand someone’s goals and risk tolerance, it is easy to create a portfolio that meets their needs
- Unlike our tax laws, core investing principles don’t change over time
He justified his first point by saying that if we clearly understand our financial goals, then we can determine how much money is required in order to accomplish those goals.
Regarding his second point, when you really think about it, financial concepts like dollar cost averaging and portfolio diversification haven’t changed much over time.
Contrast that with the tax code which is subject to change based on the current political landscape.
We can make the best investment decisions in the world. However, if we don’t understand how to navigate the world of taxes, then we are potentially not optimizing our overall total return.
This is why I have a CPA do my taxes every year. While I am more than capable of doing my own taxes, having a CPA that is knowledgeable of all the latest tax law changes can easily pay for themselves.
Lesson 3 – Financial Advisors are Emotional Coaches
Managing someone’s investments and/or giving them financial advice takes a great degree of trust.
So how do you know whether or not that person is doing whats best for you?
Because as silly as it sounds, financial advisors are not legally required to act in your best interest!
Fortunately, the financial advisor I shadowed was a Certified Financial Planner.
Certified Financial Planners are bound to a fiduciary standard which means that they have to act in the best interest of their clients.
This trust serves as the foundation of every relationship with each client. It alleviates any concerns that he is not doing what is in their best interest.
So when the markets are down and his clients ask for advice, they know they can trust his judgement. He would then act as their emotional coach and remind them of their long term goals.
This was such an important part of the job, that he gave me a copy of The Psychology of Investing by John Nofsinger.
This book explores the field of Behavioral Finance – a field of finance that attempts to explain the psychology behind how people make financial decisions. I even wrote a post about 10 behavioral finance concepts with examples that Nofsinger discusses in his book.
My mentor mentioned that reading that book helped him better understand the underlying causes of why his clients felt the way they did.
He could then be both a financial and emotional coach and ensure that his clients were not making irrationally emotional decisions that could jeopardize their long term goals.
Ironically enough, we had this conversation on August 21, 2015.
Fun Fact: the Dow Jones Index fell 531 points that day.
I left the office with my mentor on the phone with a client. He was logically explaining the market’s current volatility and how this wouldn’t likely impact their planned retirement in five years.
I hope they listened.
Final Thoughts
Although I did not end up becoming a financial advisor, I was happy for the opportunity to shadow one. It helped me find my passion for finance.
It was also an eye opening experience – I honestly didn’t expect how much emotional coaching was involved.
So if you want to be a financial advisor one day, don’t watch Wolf of Wall Street. Instead, you should watch Mr. Rogers 😉
Which one of these lessons were you most surprised to hear about? I’d love to know!
Thank you for reading! 🙂
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