From the July 2005 issue of Investment Advisor • Subscribe!

Power Shift

Solving the challenges faced by new planners is essential to the entire profession's future

My articles in the February and March issues of this magazine about the lack of a career path for young planners ("Great Divide") certainly struck a chord with readers, both pro and con. That's why you'll be seeing my byline in Investment Advisor every other month from now on. The editors agree with me that this is one of the most important issues that the profession must address to ensure its long-term viability and continue to attract talented people into its ranks. But not everyone agrees with that thesis. For example, one of the consistent criticisms I got is that the expectations of today's young planners are too high. Well, I can tell you that my 2001 graduating class from Kansas State's CFP-registered program doesn't have high expectations--at least not any more. Out of a class of 14, who just four years ago all planned careers in financial planning, only one obtained the CFP, I'm the only FPA member, and not one of us is practicing as a financial planner.

I would've laughed if you'd predicted that I'd abandon the dream of becoming a financial planner, especially since I was one of the "lucky ones" who found a salaried job with an independent planning firm after graduation. When my contemporaries and I attempted to enter the profession, the job market reflected that the supply of new planners far outstripped the demand. Nearly half my class failed to find a job in the profession, with nearly three-quarters of the jobs being offered to the slightly more than one-third of the class who were men, in this still primarily male-dominated industry.

Sure, that's a small sample on which to draw big conclusions, but even those who found jobs had their dreams quickly crushed by a profession with no clear career track. The cultural differences between new and established planners, combined with jobs that all too often became frustrating dead ends, promised a future without meaningful opportunities.

Consequently, my research shows that like my classmates, in recent years young planners have been leaving the profession in droves--some to take jobs in other financial services outlets such as accounting, insurance, or stock brokerages. Many simply left the field altogether--costing the planning community millions of dollars in recruiting, hiring, training, and high-employee-turnover costs, and clients who followed these new planners into their new homes.

Many industry professionals have told me that the creation of a professional career track is just another "task," as one experienced planner at the FPA Retreat referred to it, that the industry needs to complete to become a viable profession. Others have argued that a career track will "emerge" over time with a few successful firms implementing one that becomes the industry standard. While those scenarios might contain some truth, I argue that it would be more logical to believe that the creation of a viable career track will only be implemented when it becomes an economic necessity to do so.

Supply Is Shrinking as Demand Grows

In my work as a consultant to established planning firms and as an unofficial clearinghouse for new planners, I'm beginning to see signs that the problem may indeed be taking care of itself. Although in some parts of the country we still see young planners struggling to find a job, overall, there's been a radical shift in the supply vs. demand ratio for new planning talent. What's more, this shift from a buyer's market to a seller's market will force established planning firms that want to grow to offer young planners far more attractive packages that will undoubtedly include a clear career path that outlines criteria for making partner in the firm.

On the supply side, even a cursory glance would suggest that the number of young planners should be at an all-time high. The CFP Board has tripled the number of financial planning educational programs at colleges and universities since 1997 to more than 200. Yet it takes a newly registered school two to four years to graduate its first class, which will be small at first as the schools build their programs.

Even worse, the financial support for even the most established programs seems to be drying up. Most college planning programs are expected to be self-supporting, meaning the funding to pay for building the program, increasing enrollments, and hiring professors comes directly from tuitions. But with the dismal placement history of most programs, recruiting is becoming increasingly difficult. In fact, one of the top five planning schools in the country, Virginia Tech, is currently in the process of phasing out enrollments and closing its doors. Every year, there are fewer potential financial planners in the pipeline, and like my classmates, fewer and fewer working at planning firms.

What about the demand for young planning professionals? The solid economy and the growth of client rosters at many firms of all sizes is increasing demand for the next generation of talent. In addition, for a number of years now, many consultants, including Mark Tibergien, have been suggesting that to continue to grow, established planners need to leverage their abilities by adding more professional talent to their firms. The 2004 FPA/Moss Adams Financial Performance Study states baldly that for firms to operate efficiently, they must focus on staffing and "grooming young associates to be partners." Many planners are responding to that advice, and competition for young associates is beginning to heat up.

What's more, as the trend toward planned business transitions continues, increasing numbers of advisors are looking to groom their successors internally. According to Bill Grable of FP Transitions in Portland, Oregon, in 2001 virtually all of FP's clients were selling their advisory practices to outside buyers. Four years later, roughly 25% of FP's business is facilitating internal succession strategies. It is becoming increasingly important to find, hire, and retain the next generation to carry out these plans and grow these firms.

For these reasons--more clients and assets to handle, the need for greater leverage in practices, the desire to groom successors--the demand for younger planners is snowballing. Ironically, the talent most in demand today is also in the shortest supply: planners with CFPs and five to seven years of experience.

The result? Today's established planners are not finding a pool of talent big enough to fulfill their plans. Two years ago, when I opened my consulting business, I was overwhelmed by the number of people contacting me for advice on finding a job. These days, I have more planning firms looking for help recruiting talent than I have "colleagues" and students to fill them. At the FPA Retreat in Tampa in May, one speaker was touting the need for every planning firm owner to help with career development by either hiring an intern, becoming a mentor to a new planner, or creating an entry-level job for the next generation. One brave planner in the audience stood up and said, "I've done my part. I've had an entry-level job position open for nine months. Where do you propose I find these people?"

Of course, this shift in the supply/demand equation is a boon for those new planners who are entering the industry with high cultural and salary expectations. Their ability to negotiate higher salaries, clear career tracks, partnership deals, and better incentives has never been stronger. I have watched new planners in this May's graduating class negotiate jobs with salaries starting over $55,000 plus bonus, using job offers in other industries as bargaining tools to get what they want from the firms that they most wanted to work for.

But is this good for the profession? With the bargaining power shifting to the younger planners, perhaps the industry cannot afford to "wait until a few firms emerge with a successful career track" or the industry puts career development at the very top of its priority list. Until there is a clear, viable career track to manage these expectations, the new planners are going to use their economic advantage to their personal advantage.

To preclude stunted growth at planning firms, direct hits to the bottom line, a decrease in owners' income, and falling practice values, the profession and its organizations are going to have to step up and establish some rules to the game, and do it fast. Here are a few suggestions to get the ball rolling:

Industry organizations must start focusing more on rolling out proven programs, publications, and conferences about how to successfully manage planning businesses--including how to hire, recruit, and retain qualified professional staff by building career tracks toward partnership.

Focus less on seniority and more on productivity. Start implementing solid on-the-job training programs to recruit, attract, and retain talent to be better, more productive financial planners. This requires established planners to let go of the belief that the next generation must walk a mile to school, pay their dues, and wait 10 years to get where those established planners are today. If you are established, you don't have enough time to wait for the new planners to "pay their dues." You need to find and groom talent as fast as you can, before it gets harder to find new planners or before your current employee leaves due to lack of motivation and frustration at being held back, or is simply recruited away to a competing firm.

Start building 10- to 15-year succession plans, rather than waiting five years to think about ways of turning over your practice.

Hire a consultant. While I am a bit biased in recommending that you hire a consultant, since that's my line of work, you cannot afford to approach building your business through the "trial-and-error" method you've used in the past. The economics of building a financial planning business are rapidly changing and it is a full-time job to stay abreast. Unless you have a full-time manager or human resources person on staff who is always on the lookout for new talent to hire and incorporate into your business, you probably need help to do it for you.

Provide financial support, offer to teach a planning class, or contribute in some way to your local CFP program to ensure that new talent continues to be well-educated and motivated.

In the months to come, I'll address these issues and others. I encourage you to send me your thoughts on how to keep our profession healthy by e-mailing me. I promise to listen, since we're all in this together.

Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at angieherbers@cox.net.

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