Michael Kitces will be presenting a ‘Super Session’ at the IMCA National Conference in Boston on Monday, May 5, on tax planning.
In the early days of financial planning, most “advisors” were insurance or investment salespeople who evolved their skills and practices over time to become financial planners. Accordingly, the education of financial planners was focused on adult education certificate programs: “learning” financial planning was about how to transition clients—and potentially the business model itself—from being focused on products to advice instead.
As financial planning education began to shift to colleges and universities in the 1980s and 1990s, culminating in an explosion of degree-based financial planning programs in the early 2000s, this process of how a financial planner is trained began to change. While the first generation of financial planners were salespeople who became financial planners, this next generation of financial planners are entering the workplace and are trained as planners from the start.
This transition is presenting new challenges for firms aiming to train and develop financial planners. While the historical process was to train experienced salespeople who already had clients to become financial planners, the new model looks more like the traditional one for professionals, starting with formal education, then transitioning to an apprenticeship-style period of gaining experience and honing skills, and only then—for the subset who wish to do so—going out to start a practice, and cultivating a skillset as a “salesperson” doing business development.
In other words, we used to train salespeople to be financial planners, and now the challenge is training financial planners to be effective salespeople! Ultimately, this will require new models of developing financial planners, as the required investment to train them are more significant than ever, in terms of both time and resources, forcing firms to figure out along the way how best to make the process of creating new financial planners successful for both the new advisor and the firm as well.
Turning Salespeople Into Advisors
The emergence of financial planning is still a relatively new phenomenon. The first graduating class of CFP certificants was just over 40 years ago, and many of the early graduates have only recently begun to retire.
Yet over those decades, financial planning was rarely sold as financial planning or was only sold for a nominal fee. For the most part, financial planning was a means of doing needs-based analyses to determine what products should be implemented, and was compensated by commissions for the sales of those products.
Accordingly, through most of the early years of financial planning it served as an enhancement to the sale of products that were needed at the end of the financial plan. In turn, CFP certification programs were primarily adult education certificate programs, designed to train experienced salespeople with an existing client base to be comprehensive financial planners. Then, with the ability to better understand and identify client needs, they could more effectively implement financial services products and perhaps find opportunities, or additional products that clients didn’t already have.
Over time, many advisors who trained in financial planning ultimately evolved their practice towards providing ongoing, relationship-based financial planning, adjusting their business model to align with a relationship-based service (i.e., transitioning from commission-based product sales to an ongoing AUM or retainer model).
Training Advisors to Be Advisors From the Start
In the mid-1980s, the CFP Board was spun out from the College for Financial Planning (which was originally both the ‘keeper of the mark’ and the primary educational institution for the CFP certification), and in 1987 the first 20 universities teaching financial planning were recognized by the CFP Board. However, it was only in the past 15 years that financial planning saw a significant adoption in undergraduate- and graduate-degree-based college and university programs and the rise of financial planning academia.
The distinction of this emergence of college-degree-based financial planning is that for the first time, people began to enter the financial services world already trained in the knowledge of financial planning and were now looking to become financial planners. By contrast, for most of the history of financial planning, ‘new’ financial planners were not actually new to financial services; they were existing, experienced practitioners (generally, financial services product salespeople in insurance or investments) who were transitioning themselves and their businesses to financial planning. As a result, even though the first CFP certificants have been around for more than 40 years, the potential of graduating a significant number of people with a financial planning degree to immediately enter as a new financial planner is actually a relatively new phenomenon of the past decade or so.
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.