Are you thinking about a career in financial services? Are you currently in the industry and have questions? After years of recruiting, training, and coaching financial professionals, I have concluded that both inexperienced and experienced advisors want significantly more information on the following: their contract, training, and culture.

Each financial services contract is going to be unique. Contracts can be offered from a variety of institutions ranging from banks to investment firms, to insurance companies. Contracts can be extended from independent shops, career agencies, and/or combinations of the two. Without diving into each contract, there are common key characteristics to familiarize yourself. I recommend that anyone looking at a career in financial services get clarity on the following areas of your contract: compensation, costs, and client data.

COMPENSATION

You hope your compensation is competitive to the rest of your industry but do yourself a favor and double check. Investment firms will sometimes refer to a “grid”. In fee-based advisory, advisors charge a fee, or “wrap fee” to hold someone’s account(s). The fee charged comes out of the client’s account balance, but that fee is not the amount paid to the financial professional. The fee, or the amount taken from the client, hits a “grid”, and the advisor can be paid anywhere from 0-100% of the fee. Some of the bigger firms take a larger portion of the fee. They may start an advisor at 15% and max out their “grid” at 40%. While other firms may start the advisor’s compensation at 50% maxing out at 90% or more. The remaining money, or left-over portion from the “grid”, stays with the firm. Typically, the bigger the company name, the less the advisors are paid.

In the insurance industry, there are two ways to look at compensation: immediate or long term. A contract may result in an insurance professional making more money up front on the sale of a product, with little or no renewals, trials, or residual compensation. Alternatively, an insurance professional can earn less money up front with more residual or renewal compensation long term. The first example could lead to more transactional outcomes and turnover. The second example could lead to more of a long-term relationship between the firm, client, and advisor.

A key factor in compensation is a concept referred to as direct vs indirect compensation. This relates to your money’s journey and the cost of doing business. Compensation from a sale, or “wrap fee”, of an investment or insurance product comes from a financial institution. The compensation is considered direct when the money goes directly from the institution to the financial advisor’s bank account.

By contrast, indirect compensation is when the compensation “stops off” at an intermediary. The intermediary may be the firm or a manager. Often, recruiters fail to explain that costs such as a phone bill, paper copies, rent, parking, and technology, can be subtracted from the advisor’s paycheck. Indirect compensation models are often used to extract these costs. Financial professionals often complain that their compensation was not clearly explained to them or that it is difficult to understand. In these cases, the compensation is often indirect.

COSTS and ALLOWANCES

Costs as a financial professional can be fun, like taking a client to lunch. Other costs are necessary like pens, paper, and rent. Some financial services firms have “allowances,” or compensation mechanisms designed to offset costs to the advisor. For example, when an advisor earns compensation, the manager or the firm may also earn an “expense allowance.” This additional compensation may be paid to the manager to cover the “expense” of pens, paper, and/or rent. Unfortunately, it is common that firms, while receiving an “expense allowance”, continue to pass on costs to the financial professional. The firm or manager may take these costs out of your indirect compensation.

Often, recruiters say things like, you are a business owner; having expenses is a part of being a business owner. However, if you were starting a pizza business, your expenses would buy you things like a pizza oven, furniture, or kitchen utensil. If, in the future, you wanted to sell or leverage those assets - you could. Be leery of financial firms that tell you that their costs are a part of you being a business owner.

CLIENT DATA

What should you be buying, owning, or building in a financial services business? What is the asset? Your clients and client data. Remember, client data and clients can be bought and sold just like anything else. Let’s take a quick look at the status quo. Let’s say you joined a large financial services firm and every day you were told to make hundreds of dials. Let’s also say that you are told when to arrive, when to leave, and how many clients you must source to keep your job. And at all times, you must enter your client’s information into the firm’s database or CRM. Does this scenario sound more like an advisor or an employee? Here is a crucial piece; if you decide to leave, get fired, or retire, what happens to your clients, prospects, and the information you entered into the database? Who owns the data?

Your client data, which is comprised of phone numbers, social security numbers, addresses, emails, and bank account numbers, is the real value of your financial services practice. If you do not have access to it, or own it, are you really a financial professional or are you just an employee?

Understanding your contract is the first step on your way to a healthy financial services career. Remember these three key components, compensation, costs, and client data. Get clear on the basics by asking as many questions as possible. No contract is perfect but do your best to align your contract with your goals.

Best of luck out there.