The stories I read about our industry sometimes makes me shake my head. A capable and promising graduate student recently wrote that she can't find a decent job. It seems she-and hundreds of other soon-to-be graduates-are looking to make a substantial contribution to any firm that will give them a shot, but few are willing to hire her to take advantage of her skills and energy. Other writers echo her concern by saying planning firms need to hire these folks.

Then I read how planners should maximize technology to minimize their time doing repetitive or boring tasks, thereby saving on labor (read: hire less folks). Finally, I read how senior planners need to focus their time on their best and highest use, delegating everything else to others at a lower pay rate with presumably fewer skills than the experienced planners (read: hire more folks).

Has anybody in the business connected the dots to see where the industry is really going profitably? I'm not certain, but I'll explore the idea in these next two columns. It might help many of us figure out the answer to a tough question: If I want a job (or I want to hire someone) in the financial planning industry, what should I do?



Nearly a decade ago, Mark Hurley, then principal of Undiscovered Managers, predicted our industry would undergo a classic economic maturation through consolidation of volume and profits into a few large firms: the classic Pareto principle in which 80% of revenues are generated by 20% of the firms. Like it or not, Hurley, now president and CEO of Fiduciary Network, was right, and his most recent research, Creating, Measuring and Unlocking Enterprise Value in a Wealth Manager, published last June, has reinforced the earlier prediction.

Here are some rough numbers I've compiled from Hurley as well as Mark Tibergien of Pershing Advisor Solutions, Bernie Clark of Schwab Institutional and Tom Bradley of TD Ameritrade Institutional. Last year, there were 60,000 financial planners nationwide; the majority work for themselves.

There were 17,000 independent RIAs, but only 1,200 to 1,400 firms with annual revenues topping $1 million. There were 200 to 400 firms with revenues of more than $4 million, which translates into more than $500 million in assets under management. There were about 100 firms wth more than $1 billion in managed assets, and maybe a dozen with assets topping $5 billion (excluding the wirehouses).

Let's put these numbers in perspective. In my experience, managing a business with $100 million in assets takes three to five people, including one or two relationship managers. Managing $1 billion to $3 billion takes 20 to 40 people, including seven to 15 experienced relationship managers. Organizational growth is not linear, so when the size of the industry doubles, it doesn't mean there will be twice as many jobs.

Well, what about overall growth? Please grab your calculator and do the numbers yourself. All the solo planners will probably hire only a handful of kids out of college/grad school.

Firms that have more than 10 employees might hire one junior planner a year, with some of them coming from brokerage firms, trust companies or banks. I'd guess there are less than 200 openings a year for new graduates at firms with complex client needs, meaning there's a slim chance new hires can get into planning right away. Why is that?



I'm writing some of this at 37,000 feet in a Boeing 737. Boeing and Airbus are the two commercial manufacturers left in the world producing very large planes. (Russia and China have nationalized facilities, but none of their models are competitively efficient or used worldwide.)

This is a classic example of industry maturation, with only two firms on the planet able to profitably build such a complex machine at a competitive price. In most Boeing cockpits sit two seasoned professionals with a combined 30 to 50 years of flight experience, managing a bunch of computers running complex systems.

A few decades ago, this size aircraft didn't exist. Back then, there were a half-dozen different manufacturers with different ideas of what was important in the cockpit. The largest airliners required three to five people up front because there were no computers or satellites, and aircraft systems required much more human intervention. Today, most general aviation four-seat aircraft have better technology than the largest airliners of yesteryear, allowing pilots to travel more safely and efficiently.

What does this have to do with the planning industry, you ask? Our industry is undergoing technology and labor efficiency changes like those that happened in aviation, which means a study of those trends can lead to insights about where we are going.

What about technology? While no firm has yet offered the Holy Grail of planning software, some large firms are developing complex systems that efficiently merge client and portfolio management and financial planning software. Development has been spearheaded by wirehouses, custodians and a handful of large private firms.

The result is that many larger firms are trying to put an experienced "pilot crew" in a "cockpit" with technology, support teams of planners, investment managers and client service administrators. This leaves relationship managers to their highest and best use: solving complex issues, convincing and motivating the clients, and developing additional business. Until integrated systems prices fall, most small firms will resort to using disparate programs and technology to develop their own "cockpit controls."

This trend, coupled with the widening size gap between solo practitioners and very large firms, has created a labor/professional development conundrum. On one hand, large firms will continue to have college graduate opportunities, but few are the "front office/pilot crew" type. Those positions reasonably take years to get to-in aviation or financial planning. I estimate there might be a few hundred full-time relationship management jobs each year. Why is this?

Because the reality for growing firms now trying to increase labor efficiency means experienced advisors must be freed to interact with clients, bring in more prospects and produce more revenue. That means a limited number of folks in the "cockpit" and more support jobs in client service, administrative and analysis.

In the past, support personnel have had limited client advisory interaction. Look at the airlines again. The majors have hundreds of folks working to support each plane. Very few of them need to be in the cockpit. You need to hire a lot of support folks before you need two pilots.



So what are the choices for prospective employees (and employers thinking about their organizational models)? The few successful business models in our industry mean the highly motivated and educated kids getting out of school in the financial planning industry will have limited choices.

One highly profitable business model in the financial services industry is the product sales business model. Starting jobs include bringing in business or selling products. Selling leads to immediate client interaction. However, few colleges train students to sell. Since most college graduates have no training, skills or inclination in these areas, for new hires this is often scary and leads to a less-than-positive experience.

The non-sales/advisory model means working in seemingly non-meaningful jobs, waiting in the wings to take on an advisory capacity, akin to a ballplayer who never gets off the bench and into the game. A third model is working for a trust company, bank or other large non-planning firm, leading to client interaction on a limited basis, but no selling (whew!).

Luckily, there is a fourth option. It provides a clearly delineated career track with a team-training approach and increasing client exposure. Firms that use this model define the path to the position of client relationship manager. I'll discuss exactly how we're doing this at our firm in my next column. Until then, fly safe!


Glenn G. Kautt, MBA, CFP, EA, AIFA, is chairman of The Monitor Group in McLean, Va. You can reach him at

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