Early in the life cycle of a financial planning firm, once it grows beyond a few seasoned principals, comes the day you-perhaps with your partners-hire your first new young associate planner. It's an important step for your firm, and for the profession.
Like the rest of the country, financial planning is graying, just as stiff regulatory and market challenges require that critical wisdom be passed to the next generation. As a firm, you want the best and you want to keep them, whether they are advisors leaving wirehouse and brokerage firms or graduates of financial planning programs. The biggest challenges you face are ensuring that the seasoned veterans joining you bring as many of their clients with them as possible, providing a career development path for young planners and holding on to all the new talent.
MANAGING THE BREAKAWAY
Even the terms associated with independent firms-open architecture, full disclosure and fiduciary standard of care-sound noble, and the independent platform has a huge appeal. Privately, though, planners at wirehouses and brokerage firms are wondering if there will be enough "breakaway clients" for them to serve. Will their clients follow them? Many clients still remember their anxiety when they saw their brokerage accounts lose value during the last downturn. Uprooting their assets to another custodian or broker-dealer may provoke more anxiety.
That anxiety makes planners worry too. "There may be some apprehension from the advisor that the client is doing business with the name on the door, and not with the name on the business card," says Gregg Johnson, senior vice president of branch development, support and training at Securities America in La Vista, Neb. Although advisors who join Securities America from other independent firms capture between 80% to 85% of their trailing 12-month fees and commissions, breakaway advisors bring only 60%, Johnson says.
Still, independent broker-dealers have had their recruiting successes. Securities America currently has 11,214 affiliated independent advisors. From 2008 to 2009, it boosted recruitment among wirehouse and large independent broker-dealer representatives by 35%.
One reason may be its sophisticated coaching program, JumpStart Marketing, which helps advisors learn how to market themselves to clients as independent advisors. The package includes in-person coaching from the Securities America business management team and materials on creating a brand identity, marketing the practice's services and developing welcome kits, surveys and appreciation events.
PASSING THE TORCH
Every year roughly 400 professionals graduate from college and certificate programs and start looking for work as financial planners. Most them come through schools like Texas Tech University and Virginia Tech, or programs like those offered by the College of Financial Planning in Greenwood Village, Colo.
Financial planning firms that are ready to hire a new advisor typically look for a planner with three to five years of experience in the business. Yet how is the new crop supposed to become skilled and effective when firm principals are often unwilling or unable to take on untested talent?
Cornerstone Wealth Advisors, a fee-only wealth management firm in Edina, Minn., has created and filled a three-year financial planning residency to give young planners meaningful professional experience, and help the full-time financial planners manage peripheral advisory duties, according to Jonathan Guyton, the firm's principal.
Previously, Guyton hired college graduates to work as paraplanners and client service specialists. They were groomed to become full-time planners over a three-year process that began right away and included passing the CFP exam.
The residency position is designed to sharpen a recent graduate's skills by applying technical financial planning knowledge that they gained either by graduating from a college program or by passing the CFP exam. The resident will also learn to communicate with clients in a way that inspires trust. "You only get it by working in client situations, whether it is developing plans, updating them, preparing for review meetings and the things you do in the course of serving clients," Guyton says.
Christine Damico, Cornerstone's first financial planning resident, started at the firm in June 2010, shortly after graduating as a finance major with a financial planning concentration from Virginia Tech. Damico, who passed her CFP exam on the first try last fall, participates in at least five client meetings a week. Guyton is gradually expanding Damico's workload so that she will eventually conduct client meetings.
Damico is also involved in creating financial plans. She and Andrea Eaton, CFP, recently developed a college saving and investing plan for a married couple in their forties with two children. After Eaton and Damico finished the spreadsheet, Damico explained it to the client.
"Typically it takes two to three years [before] you are allowed to sit in client meetings and present sections," Damico says. "I had been sitting in on client meetings in my first month. I have friends with whom I graduated, who are still not in client meetings."
In addition, Damico frees up between 600 and 800 work hours for the three financial planners at the firm, Guyton says. A study from Boston-based Aite Group, New Realities in Wealth Management: Update 2010, found that the average RIA firm employs slightly more than three financial advisors. That creates a big workload for a handful of advisors. Guyton says that unless principals run firms with 15 to 20 people, almost everyone there is a hybrid employee, performing relatively clerical tasks along with planning.
"She has probably freed them up to each handle about another 20 clients," Guyton says. "In the long run, a residency buys time for a firm before it has to add another full-time advisor." The residency program also allows the firm to continue servicing lower-net-worth clients, Guyton adds.
Damico has made an early commitment to the profession. She is a member of the FPA, and says the residency has given her a much clearer sense of how her financial planning career could potentially unfold. Years from now, she'll specialize in helping educate women about money, and hopefully give them the confidence they need to be actively involved in important financial decisions.
HAVING THEIR SAY
Recruiting a seasoned financial planner is always a benefit for a firm, as is grooming a young professional to help manage a growing client base. The key to holding on to talented advisors, say some principals, is to give them a clear sense of purpose about the practice and their role in it.
That sounds like a fundamental principle of running a business, but lots of firms overlook it. The independent spirit that inspires planners to run their own firms also works against them when principals allow too many "micro practices" to mushroom under one name.
"It may be perceived as good for the advisor, but it's not good for the client," says Ron Carson, the founder and CEO of Carson Wealth Management Group in Omaha, Neb. Primarily an RIA firm with a hybrid business model, Carson Wealth Management has a working environment that emphasizes the firm rather than individual planners. The advisors share support staff, and client relationships are strongly tied to experts in taxes, estate planning, risk management and operations. Only two advisors have left the firm in its 28-year history, Carson says.
Balasa Inverno Foltz, a Chicago-based wealth management firm, keeps advisors, especially younger financial planners, by showing concern for their future at the firm from day one. New recruits are provided with a career track schedule that delineates in two-year increments the kind of planning and wealth management work that professional should be managing after as many as 10 years at the firm.
Younger advisors like this approach and usually ask a lot of questions about why they will be asked to tackle certain tasks. Balasa also responds to input from younger planners: About four years ago, for instance, that input led the firm to update its portfolio allocations to include more emerging-market investments. It also put into place smoother client relationship management operations. Younger advisors "want to participate. They want to be heard," says Armand J. Dinverno, president and co-CEO. "They wanted to have an impact on their own career path."
New planners will be loyal, says Scott Slater, managing director of business consulting for Schwab Advisor Services, if the principals "create an environment in which people feel they are building their careers." And the chances are young planners will bring you new clients the longer they stay.