From the January 2012 issue of Investment Advisor • Subscribe!

Rising Tides

A wave of new advisors will soon break over the financial planning industry, but the infrastructure needed to support them is sadly inadequate

As with the rest of the country, the financial planning profession is graying, and the entrance of 20- and 30-something young professionals is causing a substantial shift in the makeup of the work force. Some 300 financial planning programs (some degree and many certificate) are producing hundreds of new planners every year.

Considering that the majority of today’s planners are, on average, age 50 or older, these are encouraging numbers for the profession. The U.S. Social Security Administration notes that the “normal” retirement age in the country has been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959. This later retirement trend is especially evident with financial planners, and because the profession is relatively new, the first wave of significant retirements will occur at a time when entry points into the work force are not clearly established.

There are plenty of qualified individuals to fill the void that retiring planners will leave. The challenge lies in the reality that the profession doesn’t currently have the infrastructure to support those new planners. There is a persistent need to find a place in the profession for all qualified graduates to reside.

According to the Financial Planning Association’s “2010–2011 Financial Planning Salary Survey,” students anticipate graduating from a financial planning degree or certification program between 2010 and 2013. Upon graduation, 87% will hold a bachelor’s degree and 61% will hold Certified Financial Planner certification.

“Many of these graduates are well-trained aspiring CFP professionals entering the work force who don’t know where to go to get their three years of experience,” said Caleb Brown, MBA and partner at New Planner Recruiting, Tallahassee, Fla.

According to the FPA survey, many individuals just entering the financial planning profession expect to start in a junior financial planner or paraplanner position. This is a significant challenge for a profession where the majority of firms are still less than five people.

Top students entering the work force are faced with a dilemma. They have been trained to favor independent fee-only/fee-based type firms, which can dissuade recent graduates from working at large firms on the sales distribution side, even though they have the capacity to bring on multiple new hires and offer extensive recruiting programs to attract new planners.

On the small firm side, employers who have a need for entry-level staff struggle with deciding where a new employee will fit in. “There’s somewhat of a mismatch between the education and training applicants receive in school, which tend to focus on holistic financial planning, while many entry-level jobs are still focused on selling products,” said Mary Bell, financial planning doctoral student at Kansas State University in Manhattan, Kan.

For many students, the jobs that are available do not always resemble the jobs they hoped to obtain.

To add to the confusion, there are different compensation and career paths. “Candidates will contact various planners across the country and hear different definitions of what financial planning is, what a planner does, compensation and benefit offerings, and what the internal career track looks like,” Brown said. “It’s very frustrating for candidates that there is not more consistency and that every firm seems wildly different.”

Those who can’t find work as financial planners must seek work in other areas like banking, insurance and sales. After gaining experience, those professionals must re-enter the independent firm market, and a lot of times they just don’t come back.

While students are coming out of programs with the technical skills they need, many planners agree that new graduates still have a lot to learn before they are truly able to sit down individually with clients.

“One of the underdeveloped skills of recent graduates is how to think. They’re taught to crunch numbers and perform the tasks of the job but there is a substantial difference between doing financial planning and being a financial planner,” said Joe Pitzl, principal at Intelligent Financial Strategies. “Financial planners must have confidence in the advice they give clients, but must also learn how to communicate that advice in a way the client can understand. The mental process of understanding what it’s like to be in the client’s shoes is best learned through observing experienced professionals over time.”

Brown agrees that new planners need to spend a significant amount of time working with experienced planners before they should be allowed to meet with clients, and those new to the profession may need to readjust their expectations as they start out.

As employers begin to recruit new employees, it’s important to be cognizant of generational differences. The next generation is enthusiastic about financial planning and they want to help people. “It’s important to recognize that this generation learns through experience. It’s not that we don’t believe the facts that you tell us, it’s just that we still wonder what would happen if we looked at something differently,” said Pitzl, who is active in the young planner community with his local FPA chapter.

Potential employees are drawn to positions that align with their personal values, lifestyles and beliefs. Employers should ensure that they have a thorough hiring process that includes tests, interviews and multiple meetings to determine that they not only have the skills needed, but will also be a good cultural fit. Employers should refrain from portraying themselves, the company, the position and career path as something other than its true form. “I get calls from a lot of people who feel they were misled,” said Brown.

With a potential new fiduciary standard frequenting headlines, clients will continue to demand to work with financial planners whom they trust. Tomorrow’s financial planners will not only be judged on investment returns, but how they conduct business and if they always put client interests first. The planner of today, and of the future, is required to wear many hats and master many skills, including technical competence, client understanding and communication.

Preparing new hires for success requires employers to embrace roles that include mentor and manager. This is often difficult because most small firms don’t have dedicated human resources staff to assist them. Employers must be committed to not just hire a person to fill a vacancy, but to grow them and help them learn. Firm owners should strive to support and mentor the new planner, and as their skills develop, give them opportunities to show what they can do, advises Brown.

“Managers should develop a clearly defined career path that works for both the firm and the new planner,” Bell said. “The new employee shouldn’t have to ask what his or her career path is, it should already be defined.”

Clear communication will help diminish this disconnect between employers and new planners. According to the FPA survey, the majority of respondents expect to have ownership options in the practice they work for at some point. This bodes well for older planners beginning to think about succession planning and selling their practice. If they hire the right person for the job, and nurture that person and his or her needs, the new hires have the potential to stay on with the firm long term.

The FPA survey found that the majority of students felt the ability to help people is a top driver of satisfaction in financial planning jobs. As more Americans understand the need for financial planning, opportunities will emerge.

“This could be the generation of financial planners that figures out how to provide financial planning to the masses profitably,” said Brown. “New Web-based models already being tested provide services to clients from all socioeconomic backgrounds. Once it is proven effective, other firms will surely follow, creating a great niche for new planners to fill.”

And, new planners have other opportunities available to them to increase their chances of achieving career satisfaction. Even if planners are working in jobs that don’t fit their ideal vision, they can still grow and learn, which will set them up for success down the line.

Pitzl advises seeking out a mentor to talk about a new planner’s vision for their career and how the mentor can support the planner’s efforts. “This generation has the opportunity to learn through many different channels,” he said. “I find great value in talking with really smart professionals and learning from their experience and insight.”

Mentor/mentee relationships can take on many forms. Pitzl’s relationship with his mentor developed years ago through his local FPA chapter. From there it has become a long-lasting relationship that often feels like “two friends getting together to chat” regularly. He has had other mentors in the past and anticipates having more in the future as he continues to develop as a financial planner. He encourages young planners to seek out mentors that have some value and personality alignment, rather than a specific area of expertise.

Another way for planners to achieve career growth is through professional associations. “Attending conferences, local meetings and educational opportunities is essential to growing your personal network and developing as a professional,” said Bell, 2011 president of FPA NexGen, the member community for young planners at the Financial Planning Association. “You should consider it your duty to get connected with the community and profession. It will encourage leadership and confidence in you as a professional.”

Brown, who led his local chapter’s career development efforts for years, agrees. “Through a professional association you gain access to internships, networking opportunities, career programs, study groups and jobs,” he said. “Organizations are now asking young professionals to step up and lead. Ten years ago we hardly had a seat at the table; now we have a seat and are being asked to help shape the profession.”

While there are still challenges for young planners in the financial planning profession, progress is being made. Because this is still a new profession, people are concerned about the career path of the next generation, comments Brown. “We’re in a moment in time where we have the ability to provide direct input and impact the future of the profession. How lucky are we to be in a profession where this is possible versus one that has been around for centuries and everything is already set?”

This article is part of Investment Advisor's 2012 Career Guide. Click below for more articles:

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