The New Challenge for the Next Generation of Financial Planners

In turn, this has put unique new challenges on financial advisory firms. It requires firms to create a path—and be able to derive value – from ‘trainee’ financial planners, who do not have an existing client base on which to practice and train themselves as occurred in the past. Instead, the firm itself must provide clients for ‘practice’ and a training ground with resources for advisors, developing them into financial planning professionals while still attempting to derive enough value from them to be viable as a business model in the first place.

Fortunately, such tracks and opportunities have continued to grow as advisory firms transition into more relationship-based models—e.g., the AUM model—that are growing larger and larger, which in turn allows the financial advisory firm to separate out the expensive process of finding potential clients (prospecting) and ‘binding’ them (getting them to sign up for services), from the relatively less expensive tasks of grinding financial plans and minding client relationships (as there is a significant premium to the “cost” of a financial planner with strong business development skills).

This has led to ‘team’ models emerging, as the tasks of finding and binding (i.e., business development) have been separated from minding and grinding (i.e., delivering ongoing financial planning services to existing clients).

Nonetheless, as firms are discovering, the process of training and developing a financial planning professional is significantly more difficult and complex than raining and developing a financial services salesperson (who may or may not become a financial planner later). While developing successful salespeopleis difficult for the simple reason that most of us are just not naturally inclined towards the ongoing rejection inherent in a sales career, it is at least relatively straightforward from the training perspective. ‘Advisors’ could be trained in a limited number of products and how to sell them, and then sent forth to sell; those who failed would move on, and those who succeeded (and generated revenue and profits for the firm) could be reinvested into with additional training and development (culminating in becoming a financial planner).

By contrast, training a financial planning professional from the start requires an understanding of not only the wide base of technical knowledge in which the advisor must be competent, but also the client communication skills to build a planning relationship, establish rapport, and eventually deliver planning recommendations that clients will actually act upon. This requires significantly more time, more training support, and a client base upon which these skills can be ‘practiced’ and cultivated through experience.

The need for a longer and deeper training process also raises the stakes for the firm doing the training; if a salesperson doesn’t work out, the firm invests relatively little up front, and has the ‘luxury’ of seeing who succeeds and deciding after the fact who should be receive the investment of additional training.

By contrast, when a new financial planner is being trained, there is far more investment of time and dollars and firm resources, with what often is little indication in the early years of who will ultimately be successful in the end. There isn’t much evidence yet that those who enter to be trained as financial planners will have a better survival rate than those who enter as salespeople (though many studies suggest that CFP certificants who do survive generate more income than non-CFPs), yet the cost of turnover for planners who don’t make it is dramatically higher for the firm because of the training investment in the first place.

Turning Advisors Into Salespeople?

Of course, even for financial planners who train as financial planners from the start, for many of them the end point is eventually to learn to become salespeople not necessarily to sell financial services products, but rather to sell themselves and their ongoing financial planning services. Arguably, all financial planning includes at least some aspect of sales. 

The emerging next frontier is about how to convert the process of training salespeople into financial planners, to instead figure out how to train financial planners into salespeople, and in a world where so many of today’s new financial planners do not want ‘sales jobs’). To some extent, the solution to this emerges in the career track of the firm, which start in grinder positions, then minder positions, and for those who aspire to continue to climb the career track ladder, can develop their finder/binder business development skillsets.

Nonetheless, given that many firms are too small to sustain such career tracks in the first place, this challenge is significant; and even for firms that are large enough, the relative cost of turnover of financial planning trainees is still significantly greater (than it was for financial services salespeople), due to the higher investment into those people in the first place.

While this kind of track has emerged in other professions—for doctors, it’s a standard that professionals learn their technical knowledge first (in school), then practice and hone the application of their skills (residency), and only then emerge as full professionals and decide where to direct their career. A similar path exists for lawyers and accountants, and many other professionals, where there is a career path of education, then an apprenticeship and finally a practicing professional that may have to go out and ‘get’ clients. Even in most of those professions, though, the fact that their services are generally bought and not sold means the stakes remain higher for training financial planning professionals than others, though the ‘apprenticeship’ track is slowly emerging in financial planning as well.

The bottom line, though, is that we are now in the midst of creating a new path for training and developing financial planners. The experience of this generation of planners, who increasingly are entering financial services already having started their education and training as planners, will be substantively different than the generation that preceded them. This may be the second generation of financial planners, but it will be the first generation trained as such from the start. This will ultimately require us to develop new training models, and even new business models, to accommodate a training/career track. The firms who figure out how to do this effectively—and garner value from their ‘financial planning apprentices’ as they learn their craft—will be best positioned for long-term success!