Kitces & Carl Ep 135: Do Experienced Financial Planners Have A Professional Obligation To Create Job Opportunities For The Next Generation?

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.

Show Notes

• Creating A Financial Planning Residency Program To Develop The Next Generation Of Advisors, by Carolyn McClanahan and Joey Loss
• #FASuccess Ep 085: Boosting Firm Productivity With A Financial Planning Resident Program With Elissa Buie
• The Financial Advisor Industry Has a Headcount Problem
• CFP Board Center for Financial Planning
• Cornerstone Wealth Advisors: Residency in Financial Planning

Kitces & Carl Podcast Transcript

Michael: Well hello, Carl.

Carl: Michael Kitces, how's it going?

Michael: I'm doing well, I'm doing well. I feel like the year is just flying by. I'm a little thrown. It doesn't feel like it was that long ago that we turned the leaf into 2024 and now here we are well into the year.

Carl: I know it's crazy. I'm having such a good time skiing in the backcountry this year that I'm like, "Oh, no. We've only got a month and a half left." My wife, of course, is like, "When is spring here?" But I'm really enjoying it, but it's going so fast.

What Obligations Do Financial Planners Have To The Future Generations Of Planners? [01:38]

Michael: Very cool, very cool. I wanted to jump into an interesting topic today that came into us from Daniel who asked, I thought it was just like a really good provocative question. I don't actually know whether we're going to be on different sides of the fence of this or not. So we'll find out for anyone who's listening. We really don't rehearse these answers or anything. We just kind of lob stuff out there. 

So here is the question that Daniel asked. "What obligation do financial planners have to open opportunities for others to become planners, giving the like industry's looming retirement cliff? What is your best case for against doing so?" 

And I've seen this cropping up from a number of folks lately. Some advisors have said, like, "Look, I've gotten to a good place in my firm. I'm happy to create an opportunity for someone else to follow in my footsteps. Maybe it's a future successor, maybe I don't even need that. It's just something I want to do to kind of pay it forward to the industry." And then I've seen another version of this that's like, "Hey, you profitable advisor, if you're not hiring an associate advisor and bringing a young person into the industry to advance us forward, you're not carrying your obligations to the profession to create opportunities and career tracks in the future." 

And I think that's more the direction where Daniel is coming from on this. Do advisors have an obligation to create positions and/or full-on career tracks for associate advisors to give more opportunities for advisors because otherwise we may or may not have a shortage of them with the big old, Cerulli says like 30% or 40% of us are going to retire in the next 10 years, which is a lot. So how do you think about this? Do professionals have an obligation to create career opportunities in their firms for the next generation of advisors?

Carl: Yeah. It's so interesting that I'm getting hung up on the word obligation. You know, my sense is obligation... embedded in the word is that there's some expectation others can expect you to do that because it's part of, like you have an obligation so I'm going to expect it. And therefore, if you don't, I am disappointed in you. And I actually have a valid reason for saying, you know, you didn't do part of your professional obligation. And I don't like that. That feels that feels like I don't know that I signed up for that. I mean, I want to be clear at its heart, well, do I want to leave the industry better? Do I want to open up as many chances for as many different kinds, and especially for diverse voices to enter? Of course. And I sure hope all of us do. And I'm actually really gratified and optimistic about the degree to which people are doing this. And it's beautiful and lovely. That feels light and awesome. And then as soon as you throw in obligation, I'm like, no, I don't think so. I don't think advisors have an obligation. That was an option, right?

Michael: I'll agree obligation is a pretty loaded word, but I do think that's the point of the question. And I have heard this crop up from more than a few advisors over the past few years of using words like obligation that I think are very, very intentionally meant in the way that you framed the loading of the word obligation of, yeah, if this is a profession and we are trying to make this a profession and see this profession live, part of making sure it lives is that there's people who can come in to sustain it after we're gone. So, you know, if I feel an obligation to leave the planet in a better place than it was when I left, before I left, do I have some similar obligation to my profession to say, I gotta move it along so it's better when I leave than when I found it?

Carl: Yeah, I just don't love... You sort of see this crop up all the time, like you mentioned, like in different ways. And I don't love other people... I don't think I have a right to decide what other people's obligations are. And I've seen this happen recently, maybe the last 2 or 3 years, where somebody has said like, "You're not doing a thing about this thing." And I happen to know the person that they're pointing fingers at. I happen to know that person is quietly doing 10 or 100x in some other area. And so I'm always like, "Man, I don't know that it's fair to impose..." Just like with clients, we better keep our values off clients' plans. I think this feels similar. And I think hopefully everybody listening knows how I feel about it. Like of course. Do we want to leave the profession better? But does a doctor, as a professional obligation, have a requirement to bring more doctors into the profession as an obligation? Is it embedded in the idea? Of course. But is it an obligation? I think the doctor has an obligation to be a really, really good doctor. And I think a financial planner has an obligation to serve clients and all the fiduciary stuff and be trustworthy and honest. And I would hope that we all want to leave the industry better. Is that okay or am I missing the point?

How Imposing An Obligation On Firm Owners To Hire And Train New Advisors Could Backfire [07:57]

Michael: That's it. No, well, I think it's okay. Ironically, I think I'm actually more negative on this obligation than you are. I guess for maybe slightly different reasoning, there is a part of me, I'm like, I live in independent worlds, I'm very independent-minded. So the moment you tell me I have an obligation to do anything my hackles go up a little bit. But that aside, that's like me being snarky independent. The most fundamental concern that I have when I look at something like this is there's sort of an implication that the people we're saying this to are people who would not otherwise be making the hires. Because look, there's some firms that just, they're hiring because they're growing. They're hiring because they're trying to create career tracks because they want to serve 3x, 5x, 10x the clients in the future. And the only way you're going to do that is to add more advisors to your firm. And if you don't want to go hire experienced folks, you bring young people in and you train and develop them. So there's a version of this where like, I'm growing and I need more advisor talent. So cool, go and get it and we'll create opportunities for young people to come into the profession. But the implication to me here is that we must be speaking to people who weren't otherwise going to be hiring.

And so when you get there, I started having problems with this for a couple of reasons. The first is if this is someone who A) was not looking to grow so much that they needed more advisors, and B) was not someone that was just so naturally wired to say, "Even though I don't need a person, I'm just going to hire a person because I so want to like hire and train and develop people just because," you're basically talking about someone who does not have a primary interest in bringing in young people and teaching them how to be a financial advisor. Which means if you force them to do that, I think it's going to end up being a pretty crappy job for the person who comes into that firm with a firm owner that kind of implicitly clearly didn't really want them to be there. Like this is not a welcome environment for nurturing the next generation of the profession to force people who don't have an interest in training and developing other advisors to say you have to train and develop the other advisor. Oh, and you have to do it entirely on your own dime and their salary expectations are $55,000 to $75,000 maybe give or take a little depending on geography and cost of living in the area. That's a lot, I mean, just like from a day to day, like what are you making this firm owner do? That's a lot to ask someone to do both financially and time-wise for someone that probably does not have a natural inclination that way because if they did, they likely would have already done it by now. There are many people I know who do these hires and will outright say, "I don't really need this person for the future. I just want to create opportunities." Some of them have even made residency programs that by definition will have you leave after a few years and bring a new person in because they're not trying to grow a 10-year successor. They're just trying to create opportunities because they want to. So more power to you if you want to do this and this is how you want to contribute to and advanced the profession. I think it's a wonderful thing for the people that do it.

But I not only have a problem about it suggesting that it's an obligation, because I just don't love the obligation word, Carl, for all the reasons that you said, to me there's sort of this assumption of, well, if we could just force more advisors that didn't want to hire people to hire people that young people would get great jobs, I don't think it's going to be a great job.

Carl: Yeah.

Michael: I don't think it's going to be a positive learning environment. If anything, I would actually worry that we increase the churn rate of the profession and we bring in promising people and churn them out because their first job was in a firm that didn't really actually want them to have to be there and kind of resented the obligation to teach and train them. And so sure enough, they move on after a year or two because it's not a particularly positive experience.

Is Getting Into The Profession A Challenge Right Now? [12:23]

Carl: Yeah. Is this a problem right now? Do people, is it... How is it? I'm just disconnected from this enough to not know. Like if you want to get into the profession right now, you've just finished up at UVU, you want to be a financial planner. My understanding is it has gotten a lot easier to find your way in versus some of the circuitous, circuitous, did I just...I did, I think I just used that word, routes that we had to take.

Michael: Is that like a problem word for you?

Carl: No, it's like, it's impressive. Carl Sketch Guy just used the word "circuitous".

Michael: Okay, so like we're over your typical...

Carl: We're way over. Way over. If my wife was around, she'd just be like, "Whoa, brother, that was good." That's what would happen. So all I'm saying is we used to come from all these different routes. And now it seems like it's gotten much easier. Is it still really hard for somebody to find a job in the industry?

Michael: It's still pretty hard. It's still pretty hard for new people coming in. And I think indirectly speaking to the problem that Daniel is highlighting, there's a lot of demand for advisors with 7 to 15 years of experience. Maybe down to 3 to 5 if you're like a really strong up-and-comer. Not a lot of firms want to hire people and develop them in the first 3 years, except some very, very large firms into what still often turn out to be mostly sales jobs because it's very lucrative for them even if you leave because they keep your trails. So I do think this is a challenge right now, but it's a challenge in large part because I certainly think on the independent channel like most that would have the control decision to do this like... Most of us want to hang our shingle because we just wanted to serve clients and give them financial advice and get paid for it. Not to become teachers and trainers and people managers and talent developers. That's not the gig we signed up for, which I think is why what you're seeing is a lot of independent firms that really struggle to hire young people because no one in the firm knows how to train and develop someone. No, I'm not trying to knock them, just this is showing up pretty clear across a lot of the industry. We don't have systems to train young people in the average small to mid-size independent firm. We don't have the size, we don't have the staff resources. We don't have the tools and templates. We don't have the time, we don't have the scale. And I think it's challenging because I think those are the exact firms that Daniel's talking to here and raising the obligation question. And again, I look at it and I'm like, or maybe the reason they're not doing it is because they know they don't have the time nor capacity nor resources. And they're just saving someone the trouble of not having a crappy job with undertraining and insufficient resources that they're just going to leave in a year or two with a bitter taste in their mouths about the industry.

How Can The Financial Planning Industry Create More Opportunities For New Advisors? [15:36]

Carl: Mm-hmm. Yeah. How do we, just to turn this on its head a little bit, how do we... What have you seen in terms of the most successful initiatives to try and create these opportunities? Not out of obligation. I mean, there's just been so many that I've heard about. I'm just like, man, that's awesome, that we can support.

Michael: When I think about this in numbers, it's like the numbers that it needs. I think the Cerulli number is something like 30% or 40% of advisors supposed to retire in the next 10 years. It's literally something like 100,000 advisors. I don't think we can create that many jobs in the independent channel. Like there aren't that many of us to hire that many of them at a couple of years each to train and develop them. If you look at how this happens in other professions like law and accounting, the bulk of the entry-level jobs are created by the mega firms that have entry-level, kind of grindy, not so glorious, but you learn your freaking trade, jobs, and you go do that for 3 to 5 years and you learn your profession and they know how to do it in volume because they hire them in batches and they train them in batches and they put them through in cohorts and they've figured out the tasks that can be delegated down that still make it economical for the firm to do this and get some ROI. And then after you do that for 3 to 5 years, you go decide what you actually want to do with your career. And some of them stay there and like climb the ladder in big firms, cause that's their thing. And others go to a regional and others hang their shingle. And like you decide what the future of your career is going to be. And so first and foremost, I feel like that's most likely the model for us, which means my expectations, it's more like the Schwabs and Fidelities and Vanguards of the world that hire like a thousand at a time that solve this, than one solo RIA at a time who doesn't have enough growth that they need to hire, but takes on an associate advisor just because.

Like I think this gets solved more in large firms than in small to mid-sized firms, except all those firms that are just so on a growth track that they literally need to hire and do this because they need the talent pipeline for their own future client support needs. So I think part of it comes from large firms and the other, I think it comes from our industry organizations. I mean, it's the NAPFAs and FPAs of the world that try to create these systems and training programs to make it easier for young people to come in. Or it's CFP Board that, to their credit, is already doing some of this through their Center for Financial Planning to try to create some of those systems and structures and show both small and large firms how you start building career tracks to create these opportunities.

Carl: Yeah, I love that.

Michael: And don't make me hire a $70,000 person I didn't need. Like maybe appeal to me to pay for a membership association I may or may not have been paying for in order to contribute back to my profession. We can do membership drives a little more effectively than you have to hire and full-time manage a person that you didn't even want in your firm.

Carl: Yeah. It is interesting to think about the big firms and other... They literally, like you literally go through in a batch. There's no hiding it at all. My daughter's in private equity and distressed private equity. And yeah, there's no, you know. She happens to also be in one of the most male-dominated sections of finance and it's a grind. It's a grind, right? And she's putting in her time and she's learning a ton.

Michael: And that's what you do when you're learning. Look, if you want to go all the way back to the old days, like the apprentice job for the blacksmith or whatever it was, like that was not a glamour job. That was carrying lots of heavy and hot and unpleasant things for a lot of hours. But you get to learn and you get the experience, you get your proverbial Malcolm Gladwell 10,000 hours as quickly as you can. And then you figure out what your future is actually going to be.

How Smaller Firms Are Helping Attract And Train New Advisors [20:19]

Carl: Yeah. Who have you seen, not necessarily who, but what does it look like on a smaller scale? So those firms or small organizations that are trying to do their part because they feel not an obligation, but they feel a desire to do their part, what does it look like?

Michael: So I think the best model of what this looks like, I'll give a full shout out for Carolyn McClanahan, who has championed this for a number of years.

Carl: Yep.

Michael: She advocates for what effectively would be the financial advisor equivalent of a residency program.

Carl: Yeah, love it.

Michael: Where you come in, in a somewhat supervised environment and do a set list of things that support senior advisors, senior doctors that have actual patient/client experience and interactions. And if you Google "financial planning residency, Carol McClanahan", we have a whole article on kitces.com that she wrote for us about what this looks like. The key takeaways to it to me are... So the biggest takeaway to me of it is most of us who hire a younger advisor do it for some version of succession plan, take my clients in the future. And I think one of the challenges that comes from that is we make it really fricking high stakes. It basically means if you don't stay with my firm for like 10 to 15 years and take all these clients and eventually buy me out at the end, this was a failure. And, A) that's really high stakes. B) at best, it's kind of a crap shoot about whether the person that you're hiring today even actually really likes and wants to do that in 10 to 15 years when it's time. And C) it's even less likely when you're hiring a new person of the profession in their early 20s because very few of us in our 20s actually have any idea what we want to do when we grow up. I'm in my 40s and I'm not sure what I want to do when I grow up. So I change in a few years.

Carl: I'm in my 50s.

Michael: So the idea that you can magically pluck out the 23-year-old straight out of school who's going to be the one that stays with you 10 to 15 years and takes over your client base is barely better than throwing darts blindly to hope that something works out. And like that's fine for those that want to try and pursue that path. But the challenge to me is we created this binary scenario where if the person doesn't stay forever, it wasn't a good deal and it wasn't a good hire. And to me, one of the powerful things that comes from the residency style models is you're not taking this person on so that maybe 7 years from now they'll be productive and 10 to 15 years from now they'll buy you out. You take this person on because the goal is in less than 3 to 6 months, they're doing useful, meaningful things that help the business today. 

Now, maybe not the level of like take on a bunch of my clients and give me capacity, but help me with my meeting notes, help me with my plan preparation, help me do these analyses, help me prep these reviews, help me report out these meeting notes, help me set up these agendas. Things that save meaningful time immediately are somewhat tasky, which means the person's not going to want to do it forever, which is fine because they're not supposed to stay there forever. You finish a residency after 2 or 3 years and you leave and a new person comes in.

Carl: Right.

Michael: Now, most of us don't want to do that because I don't get the value until 5 to 7 years out, so it would be a catastrophe if they left in 2 or 3 years. But I think that's like an artificial construct constraint we've kind of created for ourselves. I think if we can shift the model to say, yes, there is a version of I'm going to get the young person and hope they stay with me forever. And if you could find your person more power to you. I've seen a lot of failure stories and some really cool success stories. So awesome. But if you are one of these like... You want to answer Daniel's obligatory call or you're not treating it as an obligation, you're actually excited to take the call and do this. I think the more meaningful opportunity is to stop trying to make these 7 to 15-year long-term advisor programs and just say, "How do I create a meaningful opportunity where the firm gets value in three to six months and the person is done in two to three years?" And then as a firm, I just go get the next one, which is not a big deal on turnover because I can make them valuable in a few months and then get a few years of meaningful value out of them. And frankly, if that's my model, it means I can bring three to four young people into the profession over the next decade, not just one. So we literally help more people. It's more economically beneficial for the firm. I think it takes pressure off the firm owner that like you don't have to find the magic person who's going to be your mini me for the next decade. Like just find someone that can do this list of job responsibilities that would take some work off your plate. You can be upfront with them. This is a residency program. It will end in two or three years. When you're done, you're going to go find a job that's not with me. So just setting it up now. I will write you really nice letters of recommendation if you're helpful. You'll have your CFP marks cause you'll get your two-year apprenticeship or three-year experience work done. So you'll be much better positioned to get that job. And I'm simply here to be a great first step stepping stone in your journey.

Carl: Yeah. Yeah, I love that just simply because the main thing, this has been a problem for so long of like, bring the person on, and then do I have to keep them forever and then they're going to take all my clients and it's going to be, they're going to want to get paid. Like all of those stories that you hear and I love the idea of setting it up from the beginning of like, "Hey, maybe you want to start your own firm." Like the goal is you're leaving.

Michael: Yeah. You are going to leave. It's nothing negative for you.

Carl: Like we're just a launching pad. We're a launching pad.

Michael: I don't have a seat for you in the long term. I don't want to create a seat for you in the long term. But I've got meaningful work that needs to be done today. You will get bonafide experience doing it. It's not that complex, which means you can learn it quickly and you'll be gone before it gets all that boring. Everybody wins. I mean like that just even for the firms or especially for the firms that do want to do this. To me, that's kind of the biggest opportunity. I'll just call it the like, we need to maybe take it down a notch that not every hire has to be your career-long successor. They could just be a good young person who does some helpful work for a few years and moves on. And it's okay to even set that expectation upfront.

Carl: Yeah. Yeah. And I would imagine like Carolyn probably has gotten really good at matching. You know what I mean? Like those people coming out of a program, a residency program like that are now three years with all the things and the experience. Like it's not, I would imagine that you can get pretty good at placing those people, even though you haven't taken on that obligation. It's very, very cool.

Michael: And so I've seen smaller solo-style practices do this. John Guyton in Minneapolis did this for many years. I've seen it in some larger firms as well. Elissa Buie and Dave Yeske at Yeske Buie do a version of this. They're a bit larger. Like it's become a bit of a career track for them. They get to see a lot of talent that comes through the residency program and either they help them move on or if they have grown to the point where they need to hire their next person, someone might get a job offer to stay after all. And at worst from the firm, like you train and develop people, you get meaningful value from them with the time that's there and you get like 2 to 3 years to figure out who you might really want to try to keep on the bus for the longer term without any obligation to do so.

Carl: Yeah. That's amazing. That feels, see, I think what is nice is we get to the same spot with a much different feeling. And we don't need to run around clamoring about obligation, obligation, obligation, but we can say, look how, okay, let's think about some ways to make the industry better. And we all are going to do this in different ways. And one of them could be a residency program, right?

Michael: And maybe I still don't love the obligation angle literally, but maybe if we get to the point where we're more comfortable with residency-style models that aren't a long-term obligation, it's just, look, get some meaningful work from someone who just literally leverages you a little more and gets you to delegate some tasks that you probably shouldn't be doing as the founder firm owner solo advisor anyways. Maybe there's a few people that weren't interested in hiring that don't necessarily want Daniel's proverbial obligation. Now we're like impressing it upon him. I don't know that he's literally advocating it. But maybe that don't want Daniel's obligation, but would consider I can do a thing that I get value in a few months and then they move on after a few years. Like that's just literally good for the business if you delegate enough things that either you can grow a little more, expand your personal capacity, or maybe just get a little bit more vacation because you delegated some more stuff.

Carl: Yeah, and I think it's important to tell Daniel that we love him.

Michael: And we love you, Daniel.

Carl: Thank you. We ended up using you almost as a metaphorical meme, so we know what you're asking. Thanks for the question.

Michael: Yes. Thank you, Daniel. And thank you, Carl.

Carl: Yeah, thanks, Michael.