I recently had the opportunity to return to my alma mater, DePauw University, to speak with the Management Fellows program about a career in wealth management. Next month marks my 10-year anniversary in wealth management.
For college graduates that are entering wealth management or thinking of doing so, here are six things I’ve learned over the past 10 years that I didn’t know when I graduated college.
1. Financial advisors are held to different standards of care.
Most college students aren’t diligently following industry news, but the discussion around being a fiduciary has gained prevalence ever since the Department of Labor proposed rules that would require financial advisors put their clients’ interests first when providing advice on retirement accounts.
You may wonder, “Why wouldn’t I give advice to a client that wasn’t in their best interest?”
You’d be surprised to know that the client is rarely put first on Wall Street. There are two standards of care among financial advisors: fiduciary and suitability. Most of the big brand financial firms that you are familiar with (Morgan Stanley, Goldman Sachs, Merrill Lynch, Raymond James, UBS, Edward Jones, Wells Fargo, etc) are held to the less strict suitability standard.
Once you understand the difference between the fiduciary and suitability standards, you will likely want to work for a firm that acts as a fiduciary at all times.
2. You must continue learning and honing your craft.
The people that are constantly learning tend to be the fastest risers. The best way to jump start your career in wealth management is to read books from investing legends that pour decades of experience into something you can consume in a few weeks. I recently compiled a list of ten investment books, which serves as a good starting place.
The internet is obviously a great resource as well, but it is hard for the untrained eye to tell what is good and bad information. I always encourage students and recent graduates to subscribe to Abnormal Returns, which I believe does the best job of aggregating great investment content from a wide range of investing viewpoints.
Finally, I would recommend you look into the Certified Financial Planner (CFP®) program right away. This designation provides the most comprehensive financial planning education of the many designations in the market. Investment advice is slowly becoming commoditized, so I believe people with the best financial planning skills are likely to rise to the top.
3. You can’t beat the market.
There are a very select few investment teams that are capable of consistently beating the market, but they make up less than one percent of market participants. There are millions of people competing for excess returns, which makes the opportunity to profit from market mispricings rare.
Luck plays a far greater role in picking a winning stock or fund than most people realize. Even for the most skillful, nobody knows when the stock market will rise or fall.
4. Your boss doesn’t know everything.
When you are new to wealth management, you will have lots of industry veterans teaching you a particular view on investing. These people have a lot of experience and confidence in their investment philosophy, but you must realize there are opposing views.
When I give the investment orientation to new employees at Plancorp, I encourage them to challenge the ideas I’m teaching them. My hope is always that they understand the opposing viewpoints as well as they do our own.
Similarly, I’ve heard tons of stories of young employees making personal trades that mimic their bosses’ trades. You think, “if my boss is doing it, then it must be the smart thing to do.” I was fortunate to have a great first boss who told me the perils of assuming your boss knows what he or she is doing.
When you are investing your own money, consider using a target date retirement fund from Vanguard for the first two years of your career as you develop your own investment philosophy. Your views on investing will change over time, so starting with a passive approach using index funds is a reasonable way to grow your wealth for a few years while you learn.
5. Name-brand firms aren’t necessary the best.
When you are in college, working at a firm that everyone is familiar with can be a big draw, but working for the household names means that you might get less experience than if you worked at a smaller firm at the beginning of your career.
Smaller firms allow you to wear multiple hats and blur the lines of your responsibilities in a way that will make you a more experienced advisor at a younger age.
6. Network like crazy.
There are three opportunities everyday to meet with someone: breakfast/coffee, lunch, and dinner/drinks. There are five days a week, which means there are 15 spots in your day available for networking. Prior to having children, I aimed to fill 10 of those 15 slots.
Wealth management is a relationship business and you must devote serious time to building relationships. It means that you sometimes have to work later or even on weekends to get all of your primary work completed, but intentionally spending time with people you enjoy and doing things you like can lead to a more enriching and successful wealth management career.
