Kitces: Can becoming a CFP boost income?
Driven by consumers’ rising demand for financial planning advice, the number of CFP certificants recently crossed 75,000 — more than doubling since 2000 — even as the total number of financial advisers has declined over that time period. Indeed, the desire for advisers who can provide financial advice beyond just picking products or portfolios is so strong, that getting the CFP mark is starting to pay real dividends.
According to a recent study by Aite Group, the average solo CFP certificant is generating 40% more revenue than a financial adviser without; the average experienced solo CFP certificant generating 80% more revenue; and adviser teams are generating 44% more revenue when they include at least one CFP professional. Overall, even after controlling for years of experience, the average CFP professional generates 14% to 33% more income than non-CFP advisers.
Notably, though, the Aite Group study’s authors also find that while CFP certification is associated with higher income, it’s not simply because consumers seek to hire advisers with the CFP marks. Instead, the positive impact derives primarily from enhanced overall credibility, improved technical expertise and knowledge — which also leads to higher self-confidence — and greater client satisfaction with the adviser’s more comprehensive financial planning acumen.
And given some of the fastest-growing channels for CFP certification are now employee-adviser roles at either independent RIAs or “online” brokerage/investment firms with retail advisers (i.e., Schwab, Fidelity and TD Ameritrade, and now Vanguard), it appears that obtaining the CFP marks is becoming a key step to climbing up the adviser ladder.
For professionals who choose to pursue the CFP marks, the potential for a 14% to 33% increase in lifetime earnings handily justifies the $3,000 to $10,000 upfront investment into a CFP educational program.
IMPACT ON INCOME
The Aite Group study, “Building a Wealth Management Practice: Measuring CFP Professionals’ Contribution,” was commissioned by the CFP Board. The study’s authors sought to gauge the differences in business metrics between advisers and advisory teams that included CFP professionals, versus those that did not.
The results were striking. When measuring the median revenue of non-CFP professionals against that of CFP professionals, the study’s authors found that those who earned CFP certification generated substantially higher revenue in their businesses. The results held among both solo advisers (CFP vs. not) and team practices (that either included a CFP professional on the team or not).
Notably, the results were not merely driven by the fact that CFPs may be more experienced, given the time required to earn the certification itself. When looking at the subset of more experienced advisers — defined as those with at least 12 years of experience — the solo CFP professional displayed an even bigger jump in median revenue compared to experienced non-CFP advisers.
Revenue generated by CFP professionals does not necessarily mirror those professionals’ personal income, however. Whether this is due to their operating under a broker-dealer — where only a percentage of gross dealer concession revenue is actually paid to the adviser — or in an RIA where the advisory firm owner has his/her own expenses, or even in a large financial services firm that has its own salary-plus-bonus structure, revenue does not necessarily correlate to adviser compensation.
Nonetheless, when surveyed about their actual take-home compensation, the study still found that CFP certificants enjoyed a significantly higher average compensation, even after controlling for years of experience.
When delving deeper to determine how CFP professionals generate greater revenue and income, the researchers found that the results were driven not by CFP certificants serving significantly more clients. Rather, certificants grew income by generating more revenue per client.
This outcome doesn’t simply result from engaging the client more holistically; that is, generating more revenue by providing a wider range of products and services — though CFP professionals do appear generate revenue from a wider range of sources. Instead, it’s a result of CFP certification enabling professionals to work with more affluent clients.
Aite found that in the average CFP practice, 41% of clients are considered high-net-worth, with more than $1 million of investable assets, or ultrahigh-net-worth, with investable assets in excess of $10 million. High- and ultrahigh-net-worth clients, meanwhile, comprise just 27% of the client mix in non-CFP practices.
It appears that obtaining the CFP marks is becoming a key step to climbing up the adviser ladder.
While the Aite study’s results show that CFP certificants generate more total revenue, more revenue per client and more personal income based on that revenue, and do so by working more often with an affluent clientele, the question still arises as to how, exactly, a CFP professional achieves these results. Do affluent clients simply register the CFP professional’s marks and, on that basis, decide to do business, or is there something more nuanced at work?
When adviserss were asked about the impact of CFP certification on their careers, the researchers found that the top self-reported benefit was the enhanced credibility and trustworthiness that came with the CFP marks.
However, this was followed closely by the adviser’s self-confidence in working with clients, and the actual technical expertise and knowledge conveyed by going through a CFP educational program, along with the greater client satisfaction that resulted from those more advanced services.
In other words, while the CFP Board’s public awareness campaign does appear to be moving the needle on the perceptions of the affluent, and CFP professionals do report an improvement in credibility with clients, the benefits of CFP certification ultimately are internal as much as external — expressed in factors such as the actual increase in technical competency and expertise of the adviser, and the self-confidence that comes with really knowing your craft.
Accordingly, when Aite Group examined the compensation of advisers who had obtained their CFP certification in the past five years against the compensation of those who didn’t hold the marks, they found that recent CFP certificants had experienced significantly more recent income growth than non-CFPs: a 33% increase vs. just a 12% increase from 2009 to 2014.
There is perhaps no better expression of the positive impact of CFP certification than the sheer growth in the adoption of the CFP marks themselves.
The study’s authors found that those who earned CFP certification generated substantially higher revenue in their businesses.
Despite the overall number of advisers declining about 10% since 2004, from nearly 340,000 down to barely 300,000, the number of CFP certificants is up over 60%, from 45,000 to more than 75,000. And given the number of CFP professionals is rising even as the total headcount of advisers is in decline, the percentage of advisers who are CFP certificants is rising even faster, from just 13% in 2004 to over 24% today.
Even more remarkable, though, are the trends in adoption of CFP certification across various adviser channels. As the Aite study results reveal, the most rapid adoption of CFP certification is occurring in large “online” brokerage firms with retail branches — i.e., the retail divisions of Schwab, Fidelity and TD Ameritrade — followed by the independent RIA community, and then advisers at various independent or captive broker-dealer firms.
The relative trend of where CFP marks are being adopted is notable, as the highest share of CFP certificants is now found in channels most likely to operate with salary-based employee advisers rather than eat-what-you-kill brokerage salespeople.
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This latter point suggests that the nature of CFP certification may be shifting from a sales-oriented job to a salaried-employee-based professional career, for which earning CFP certification would be a key step up the career ladder. And notably, the study does not appear to include Vanguard’s Personal Advisor Services, which would fall into a similar category of employee advisers, and is a rapidly growing segment of CFP certificants, given Vanguard’s immense size and scale.
Regardless of the channel, however, the study shows that CFP certification appears to be associated with significantly higher income for advisers — upwards of 30% higher compensation — both in the short term after earning the CFP marks and in the long run. And the trend appears to be holding even as the adoption of CFP certification grows, and it shifts from a sales-oriented job to a more common employee-adviser role.
This all suggests that going through a CFP educational program, which may cost anywhere from $3,000 to nearly $10,000, still provides an incredible return on self-investment.