Executive Summary
Most young planners have heard the stories about how difficult it was in the past to start a financial planning firm. The business was all about products, and sales. It was an "eat what you kill" world - and if you couldn't hunt effectively for business, you didn't survive long. Yet the reality is that as the financial planning world changes and evolves, it is actually getting even harder to start a firm now than it was in the past. Because while it may have been difficult to sell products as a 20-something-year-old "kid" in order to survive a decade or two ago, that's nothing compared to the challenge of trying to be a 20-something-year-old comprehensive financial planning expert who can build a deep advisory relationship with a stranger!
The inspiration for today's blog post comes from an article published in Financial Advisor magazine called "Opening the Doors" about the opportunities for young planners in today's marketplace. In the article, Bing Waldert from Cerulli Associates makes an interesting point - that the increasing sophistication of financial advice in the financial planning world actually means it's harder than ever for "newbies" to hang their shingle. An intriguing contrast from the traditional perspective of how starting in financial planning was so much more in the difficult in the past, where to survive you had to sell and sell. Uphill. In the snow. Both ways.
In all seriousness - and not to belittle the real challenges that the first generation of financial planners faced - but I think the Cerulli perspective is absolutely correct. In point of fact, having significant barriers to entry - such as a rigorous education, exam, and experience requirement - is actually one of defining characteristics of a bona fide profession. After all, if it can be done by "just anyone", it's not really a profession, is it?
I know that my business partner Caleb Brown certainly sees this expressed when placing prospective job candidates in firms for New Planner Recruiting. While it is certainly difficult to be successful at sales in the traditional track, the demands of today's firm can be even more extraordinary. Prospective financial planners must demonstrate extensive technical competency in a variety of areas. And be able to pass the CFP exam (and other regulatory exams). And they must have people and communication skills to relate to clients. And prospecting and sales skills if they wish to build their own client base. And if they want to start their own firm, they must also have the entrepreneurial drive to struggle as a start-up, the organizational skills to manage extensive compliance and regulatory requirements while getting the firm up and running, and further down the road the practice management skillset to execute a plan for growth. By comparison, a world where it was "just" about sales, and competency extended only as far as knowing the product(s) in your quiver, seems not so bad after all.
Of course, part of the difference in the financial planning world is that practitioners are actually expected to have these skills and being to survive on their own in the early years of their careers. This is rather unlike most other professions, which have a much more clearly established path of apprenticeship that follows on the heels of an extensive multi-year rigorous educational process, where the various knowledge and skillsets that must be developed can be learned and trained over a series of years. Only in the financial planning world - where there is a notable dearth of clear career tracks for developing a bona fide professional - do we even imagine in the first place that the recent graduate might be able to fly immediately upon leaving the nest. No wonder so much talent doesn't survive the initial leap.
If financial planning wants to be known as a profession, though, the key isn't figuring out how to make the initial challenges easier, per se. It's developing the career tracks so that new professionals who enter the business have a clear path to proceed from recent graduate to - many years later - the status of being a fully trained and knowledgeable professional.
In the meantime, though, expect the process of starting up in financial planning to get harder, not easier. It's a difficult reality we must face to become a profession. But I sincerely hope we - in the aggregate - can figure out how to navigate it effectively.
So what do you think? Is starting a financial planning firm easier or harder today than it was in the past? How has the landscape changed? Is this a positive trend, or a negative one?
Michael, I beleive that as long as this “profession” is mostly about what product you can sell, it will fail to be so. I hope to see it move more towards law and possibly the CPA professions, where there is a track to follow to build one’s abilities and experience. To then eventually have the portfolio that will allow one to offer advice and for there to be clients who want to pay for it.
This is an interesting complement to a conversation I’ve been involved in on the CFA Institute’s LinkedIn group. We’ve been talking about the need to “build a book of business” in addition to using technical skills.
I think the barrier to entry is good. too many charlatans out there. now the CFP board needs to capitalize on the extra money they are extracting from us.