The Pros and Cons of Becoming a Financial Advisor

For many financial advisors, starting an independent practice gives an opportunity to grow. While working for a financial services company, financial advisors often gain the necessary experience to strike out independently. They also get loyal clients who are ready to keep using their services. However, running an independent practice involves risks and requires careful planning, which is why not all financial advisors are eager to start their own business. Want to learn the pros and cons of becoming a financial advisor before starting to work independently? Keep reading this article to find out.

Benefits of working as an independent financial advisor

Most financial advisors decide they want to work independently either because they want to choose the clients they work with or because their company doesn’t give them enough flexibility and growth opportunities. Let’s overview the key benefits of being an independent financial advisor and find out if launching your own financial consulting business is worth it.

Choose your clients and your scope of work

When you’re employed by a company, you rarely have the right to refuse to work with a client. In some situations, you don't even have much client-facing time, instead having to deal with paperwork and reports. Also, the chances are high that when you start working at a financial consulting firm, you will have to work as an entry-level associate and will have to wait for a promotion to get a chance to work with clients. Perhaps the projects you work with won’t be of any interest to you.

On the other hand, starting an independent practice gives you the opportunity to choose projects and find clients that will let you grow both professionally and financially. Not all financial advisors succeed as independent contractors, but the option to choose clients is definitely a huge advantage when you work for yourself. On the list of pros and cons of becoming a financial advisor who owns your own business, this is one of the hugest pros.

Earn more

One of the main differences between being an independent financial advisor and being an employee is that as an independent financial advisor you can set your own pricing. You are fully in control of your pricing model and your income. You also don’t have to share revenue with the company you work for.

Want to learn how to price your services? Check out our financial advisor pricing guide!

The more assets you manage, the higher your income. Moreover, if you decide to work as an independent contractor for a financial consulting firm instead of working as an employee, you will still earn more because the company won’t have to pay for your health benefits or unemployment compensation.

Get tax benefits

If you plan to run a sole proprietorship, you will have to pay taxes, but you won’t have to file taxes separately for your business entity. You will be considered a pass-through entity to avoid double taxation when you pay federal and state income tax. There are also states with no state income tax.

States where you don’t have to pay state income tax

You will still have to pay self-employment tax, but there are also some tax deductions you can take.

Taxes sole proprietors pay Tax deductions you can be eligible for
  • Federal income tax
  • State income tax (depending on the state)
  • Self-employment tax
  • Business expenses
  • Qualified business income

Set your own schedule

You are your own manager, and it’s up to you how many hours a day you work and what is your schedule. You can take a vacation when you like without needing your manager’s approval. You are responsible for your clients and manage your own time.

Financial advisors schedule

Work from home

The MQ Research Consortium recently revealed that over half of clients (57.04%) prefer virtual meetings with a financial advisor to in-person meetings. This indicates that clients are likely to favor financial advisors who offer some form of online services or may even be willing to switch to an online-only format.

There is a stereotype that to be a credible financial advisor, you need an office. However, the truth is that this depends on your clients’ preferences, and when you work with Millennial or Gen Z clients, most likely they will prefer online meetings to offline consultations.

To facilitate remote work, you will need to establish a workflow that will let you schedule meetings with clients, e-sign agreements, and hold consultations online. For this purpose, you should look for software that provides.

Check out our list of 15 tools for presentations, planning, client management, and scheduling in financial consulting.

Get more growth opportunities

As an independent financial consultant, you are solely responsible for your marketing strategy and scaling your business. You can grow professionally while extending your network and getting more loyal clients. There is no such thing as a salary ceiling — your professionalism and performance determine your success.

Challenges of becoming an independent financial advisor

Working as an independent financial advisor is different from having a scope of projects and clients entrusted to you by a company. As a business owner, you carry all the responsibility, which brings with it more stress.

Why financial advisors quit

Let’s explore the main reasons working as an independent financial advisor can be challenging.

Not knowing where to start

Most likely, by now you are wondering how you can be an independent financial advisor and what you need to do to become one. It’s important to understand what steps you should take to operate legally.

First, check if you have sufficient:

  • Education. You need to hold at least a bachelor’s degree in any business-related field.
  • Certifications. You should be certified to work as an independent financial advisor. Becoming a Certified Financial Planner (CFP) will demonstrate your credibility.

You also will need to choose what type of business you intend to run. You can be a sole proprietor, or you can choose to register a limited liability company, or LLC in case you plan to hire employees.

Learn how to start a financial consulting business and choose a proper business model!

Though everything might seem complicated at first and you might feel discouraged because you’ve never done anything like this before, thousands of people successfully run their own independent practices. Starting a business isn’t rocket science, especially with many online resources explaining how to register and pay taxes.

Having lower client acquisition and retention rates than expected

If you don’t have clients ready to follow you after you quit working for a company and start out on your own, you should be prepared for the struggle of client acquisition, which is very real in financial advising. Many advisors quit because of that.

Retention rate for financial advisors

Financial consulting companies not only invest in marketing and have professionals working for them to reach out to new clients but also often have established workflows that help them maintain client relationships. Most of the marketing and client relationship management is done behind the scenes and is noticed only when it’s missing.

As an independent financial advisor, you will have to take care of both your marketing strategy and marketing costs as well as building client relationships.

Pricing your services

As new financial advisors struggle to understand how much they should charge for their financial consulting services, they have little room for mistakes. Incorrect pricing can ultimately lead to failure. You should have at least several business plans in case things don’t turn out as optimistically as you expected them to.

Business plan for financial advisors

You should prepare several strategies in your business plan and be ready to switch if your current plan isn’t working out.

Facing severe competition

Many financial advisors offer the same services, making it difficult to differentiate themselves. As a result, financial advisors meet severe competition and can’t get enough loyal clients.

To cope with this challenge, follow these six tips:

  • Research competitors. You should know what competitors offer and which pricing models and unique selling propositions they use. In particular, make sure you pay attention to financial advisors that started out at the same time as you.
  • Look for a niche to focus on. There are multiple niches you can choose in 2023 to stand out from your competition: corporate financial advising, product-based financial advising, occupational financial advising, advising based on clients’ life events.
  • Create a unique selling proposition. To create a powerful USP, figure out what unique values you provide to your clients that your competitors don’t. You can use this USP throughout your client acquisition and client relationship management processes.
  • Tailor your services for specific clients. Chances are high that there is more than one client looking for a specific service most financial advisors do not provide. Check which services can be tailored to your clients’ needs and include them in your business offer.
  • Personalize your communication. Reduce generic messaging and work on making your communication with clients more human.
  • Build your online brand. Explore every way you can build your personal brand online, from participating in conferences and podcasts to networking and launching social media channels.

Finding that your expectations have not been fulfilled

When you start an independent financial advising business, you probably expect it to resemble your previous work. Many financial advisors are driven away from the profession because of the extreme level of personal responsibility and the need to be both a financial advisor and a business owner at the same time.

Being an independent financial advisor is not for everyone. But unless you try it, you won’t know if it’s for you.

Final thoughts

When facing the pros and cons of becoming a financial advisor at the very start of your business career, you should remember that your competitors have similar concerns and experience similar difficulties with client acquisition, competition, and a lack of business experience.

However, there are still upsides to becoming an independent financial advisor, and you have all the chances to overcome any obstacles and succeed. Subscribe to the the ExpertBox newsletter to get more tips on working as an independent financial advisor.

  • To cope with the competition, follow these six tips:

    • research competitors
    • look for a niche to focus on
    • create a unique selling proposition
    • tailor your services for specific clients
    • personalize your your communication
    • build your online brand
  • Your business plan should address the following matters:

    • who your clients will be
    • what you will do for them
    • how you will reach them
    • how you will measure successful goal completion
    • where you will focus your time
    • how you intend to scale your business
  • The key benefits of being an independent financial advisor are:

    • your ability to choose clients and projects you want to work on
    • no ceiling on your income
    • tax benefits
    • ability to work from home
    • opportunities for professional growth
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