What Does A Paraplanner Do To Support A Financial Advisor?

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#OfficeHours with @MichaelKitces Video Transcript

Welcome, everyone! Welcome to Office Hours with Michael Kitces!

In this week's episode, I want to talk about paraplanners, the entry-level role that new financial planners seek out as they're coming into the financial services industry.

Today I'm not going to talk today about paraplanners from the perspective of the person seeking the job, though, but from the firm owner's perspective. When you're a financial advisor, when would you hire a paraplanner? What do they do for you? How do you find one?

This week's specific question came in from Eric, who asked:

"I started out as a financial advisor six years ago, after getting downsized out of my prior industry in the recession. I've had a pretty good run. I'm now over 60 clients and about $250,000 in revenue. I'm realizing I'm probably at a stage where I should hire someone, and was going to send out a job listing for an admin support person, when a colleague told me I should hire a paraplanner instead. But I'm not clear what the difference is. What does a paraplanner do to support a financial advisor, and how is that different from hiring admin support?"

Great question, Eric. First of all, though, I want to congratulate you on making this successful career changer transition into financial planning, and getting up to 60 clients and $250,000 in 6 years. That is a solid success. Lots of advisors come in and do not reach that level of success as quickly as you have. So kudos, particularly since it sounds like you'd done it without any admin support at all so far, since you've raised this as a question of hiring your first person!

Though with that many clients, I can imagine you're starting to feel like you're hitting a real wall now, and the need to start delegating tasks, when you've got work to do for that many clients. And so you have to hire, to get over the wall and be able to grow again. Or maybe you just want a better work-life balance.

What Does A Paraplanner Do? [Time - 2:17]

So let's tackle this question of what a paraplanner actually does.

I think the first thing actually is to recognize what a paraplanner does not do.

The role of a paraplanner is not to manage client relationships. It's not for you to hand clients off to them. And the role of a paraplanner is not to bring in new clients. This isn't like the bullpen at an insurance firm or a wirehouse, where you give him a phone book and a phone and say, "Go get some business." That's a sales associate. It's not a paraplanner.

So the role of a paraplanner is not managing client relationships and bringing in new clients - because that's your job as the lead financial advisor. The primary thing a paraplanner should be doing is freeing up your time, so that you can do those things to continue building the business.

In fact, another way to look at this is to price the value of your own time. Think as an advisor about what do you want to earn in a year. Whatever that number is? $100,000? $200,000? $300,000? Some advisors aim higher than that! In any event, take that number, and divide that by 2,000. That is your targeted hourly rate. So if you want to make $200,000 net, divide by 2,000, the value of your time is $100 an hour. So anything that you do with your time that is not worth $100 an hour, because it could be delegated to someone else for less than that, you should be hiring and delegating. Early on, you may just do everything in the business, because you have the time. But as soon as you hit the wall where you don't have enough time to just do everything in the business because you've got too many clients, that's when you start delegating.

So if you think about it in terms of your own business, Eric, where are your bottlenecks as an advisor that a paraplanner in particular can help out with?

Here are some of the common areas where I usually paraplanners helping out.

Constructing Financial Plans

The number one job duty of a paraplanner is that they should be doing the bulk of the work in actually constructing financial plans. That includes managing the financial planning software, inputting the details of the data gathering form, running the various scenarios, printing the reports, collating into a financial plan deliverable for the client... all of that stuff would get done primarily by the paraplanner.

Of course, you will still supervise it. You should look at the final plan before it goes out. You may suggest some alternative scenarios to test. But the bulk of that plan construction work itself gets done by the paraplanner. You, as the financial advisor lead, should not be doing data entry and scenarios in your own financial planning software when you're hitting that growth wall!

Financial Plan Updates

The next thing your paraplanner should do is all the financial plan updates. So if clients have new information and you need to do an updated projection, that should be done by the paraplanner. In fact, anything really that you produce as a deliverable for your annual reviews with clients, should get done by the paraplanner.

Researching Financial Planning Questions

In addition, your paraplanner should help to research all those one-off questions...when clients ask unusual questions where you don't know the answer offhand, you have to go get the answer, but it shouldn't actually be you getting the answer. That should be your paraplanner getting the answer, bringing it to you so you can review it, and then you can bring the answer back to the client as the joint answer from your team. But your paraplanner does the bulk of the research work, not you.

Attending Client Meetings

Your paraplanner should also be all your client meetings. With client meetings, there a couple of key items that the paraplanner can do. First, the paraplanner should capture all the notes of the meeting... which, frankly, lets you focus more on the client anyways, when you don't have to worry about scribbling down notes because someone else is taking the notes, capturing the action items and takeaways, etc. Similarly, the paraplanner should capture everything that needs to be a follow-up for the client afterwards. And then actually being responsible for following up on them.

Your paraplanner can then take all those notes and action items, and put them into the CRM, and assign all the follow-up tasks and supporting workflows.

Paraplanners As A First Point Of Client Contact

Eventually, you should find that your paraplanner becomes the initial point of contact for the client, and helps to screen calls and emails for you.

Now, you could have admin staff do that, too. But the point of the paraplanner is that easy financial planning questions that come in might actually just get answered by the paraplanner. That phone call, "Hey, it's January. We haven't actually done our IRA contribution yet. Can we still do it for last year because it's January?" That question doesn't really need to come to you. That's a fairly straightforward, factual answer. Your paraplanner can answer, "Yes, actually you have until tax deadline of April 15 to make that contribution."

Of course, the hard stuff still gets passed to you. But some of the easier financial planning questions can get answered on the spot, and screened from you needing to field them directly.

The Difference Between A Paraplanner And Admin Support [Time - 6:24]

Now, there's still this question: what's the distinction between a paraplanner, and admin staff support?

The key difference is the depth of the financial planning work being done. Your admin staff can help with raw paperwork, do account opening forms, ACATs, insurance and annuity applications, managing your calendar, scheduling appointments, and other duties that don't actually require financial planning knowledge.

But your admin staff can't answer financial planning questions. Your admin staff probably cannot actually build financial plans, doing the projections, crafting reports with action items and recommendations, because they don't have the financial planning expertise. They haven't been through the financial planning coursework. That's the difference between pure admin duties, and what a paraplanner does.

Notably, that also means that if your paraplanner's only doing admin duties like that, you're underutilizing your paraplanner. They should be doing more advanced financial planning work!

When Should You Hire A Paraplanner? [Time - 7:17]

Now, when would you hire a paraplanner?

The reality in the long run is that as a successful advisor, eventually you'll probably end up with both a paraplanner and admin staff support. As the business grows more and more, eventually there's so much stuff going on that you need an admin person just to do all the admin paperwork, and you need a paraplanner to do all of the planning work as well. The more growth that happens, the more support structure you're going to build around you.

So when do you hire? The answer is when you hit capacity. Capacity is when you find you've got almost no time for finding new clients and growing the business, because you just have all that service work for existing clients. Or it might not be a growth wall... it may be because you're not happy with the work-life balance you're facing, again because you've got all those existing service demands from clients.

Some advisors I've seen really get themselves into trouble with this, not hiring until they're far past capacity, and they actually start self-sabotaging their own growth. It's subconscious, but it happens. If you've ever had that feeling where you're thinking about a new client, or you've got a good new lead, but all you can think is, "Oh, my God. I don't know when I'm gonna find the time to do their plan for a new client on top of all the other clients that I've got and the stuff that I'm working on," then you have already passed the danger point. You are now undermining your new client process, because you're afraid of getting new clients, because you're already at capacity! That's a problem. If you're afraid to get the next new client, you will, consciously or subconsciously, find a way to not get them. And now you're not growing.

In practice, I find some advisors start hitting this bottleneck as early as about 30 clients. Most I find hit it somewhere around 50 to 70 clients. The faster you grow, the more rapidly you tend to hit the wall, because the biggest amount of work for clients tends to happen with new clients that are coming on board, both administratively with all the paperwork for new accounts and transfers and advisory agreements, as well as all the financial planning work that may come up at the beginning.

So, Eric said he's at 60 clients after 6 years, which means he's averaging about 1 new client a month. That's probably been manageable enough for a while. But I'm not surprised that you're just starting to feel the pain now. If you were growing at two a month, you'd frankly probably have been suffering earlier. If you're growing really rapidly and you're bringing on a new client a week - which would be very fast for what most firms would do - you'd probably be buried at this point.

Of course, the second constraint is that you just have to be able to afford to hire the paraplanner. At best, hiring professional staff is taking one step backwards to take two steps forward. But candidly, you should be fine at $250,000 of revenue to hire this staff member. Relative to typical advisory firm benchmarking metrics, that's a healthy point to hire.

In fact, I know firms that hire a paraplanner as early as about the $150,000 of revenue. Most commonly about $200,000 to $400,000 of revenue is where I see this hiring happen.

Notably, though, the hiring decision is actually driven more by the number of clients, than total revenue. If you had $400,000 of revenue because you had 20 multimillionaires, you might be fine. But at $250,000 of revenue at 60 clients, as you said, you're already feeling the pinch.

What Does It Cost? Average Paraplanner Salary [Time - 10:16]

Now, in terms of what it costs to get a paraplanner, so we have a couple of industry benchmarking studies that look at average compensation.

FA Insight does a very good one. Their last People and Pay study showed that the average paraplanner earns $52,000 salary plus a couple of thousand dollars a year in benefits. So they might be at $55k-ish or so. Obviously, as a firm owner, you're going to be out of pocket closer to $60,ooo, because you're going to have to pay employment taxes on top of that.

Last year's InvestmentNews' Compensation and Staffing Study was a little bit higher. They put median paraplanner compensation at about $60,000.

Ultimately, there are a bunch of industry benchmarking studies, but they all come to a similar number. Mid-to-high $50s for total compensation seems to be about where the typical paraplanner is. Some studies will call them support advisors or associate advisors. Others call them paraplanners.

Now, it's worth noting there's definitely some regional variation. If you're out in the Midwest where the cost of living is lower, you might find that typical paraplanner salaries are more like high 40's. If you get out to the coast and expensive cost of living areas cities, you might find you've got to go low, mid, or even high 60's in order to get good talent. Sometimes areas with a lot of paraplanner talent are a bit lower, while areas with few schools to feed new advisors are higher as well. There's also a little bit of a trend in the industry that smaller firms tend to pay a little bit below average. Larger firms tend to pay a little bit above average as well.

To contrast that with admin staff... again, this varies a little by where you are regionally, but you're probably looking at the mid-30's to upper 40's in salary. So you're going to pay maybe a $10,000 to $15,000 salary premium to hire a paraplanner over admin staff.

Now, typically, in terms of what you'll "get" for your investment, your paraplanner should at least working on their CFP education. They may have actually completed the exam and have a year or two of experience. Typically, the paraplanner will not have their CFP marks done yet, if only because they're waiting for the experience requirement. Notably, at the point they've got the experience requirement, and they actually have the CFP marks, they tend to be at the higher end of the salary range, and/or are at least expecting to move up more quickly. They're not going to stay long in that paraplanner job, if they've already got three or four years of experience and the CFP marks.

Paraplanner Licensing Requirements [Time - 12:25]

Doc [from Periscope] had asked the question earlier about licensing as well. So this will vary a bit by what advisory environment you're in. Eric was from an RIA. So on the RIA side, your paraplanner may need a Series 65. At the moment you're going to have your paraplanner actually answer any kind of question from clients, realistically, you should have them get a Series 65 and list them as an IAR for your RIA.

If the paraplanner's purely internal and there's no client-facing interaction, you can probably get away with not registering them and not having them take the 65. But frankly, if your candidate can pass the CFP exam, which is what most firms are looking for, the Series 65 should not be a big deal. And many of them will have waived out of the exam if they've already got their CFP exam. If not, they'll waive out of it as soon as they complete the experience requirement and actually get their CFP marks.

So if you're uncertain, someone who passed the CFP exam should be able to pass the Series 65 at that point without too much difficulty... so spend the $150 to get them licensed, just so you don't have to worry about it. But ultimately, it comes down to whether they're client-facing, or could be giving any form of advice to clients, or soliciting clients, that truly triggers the registration requirement.

Paraplanner Career Track And Promotion Opportunities [Time - 13:25]

Now, the other thing that's important to recognize when you talk about your paraplanner, is that you're not just hiring the slightly more advanced skill set. It's not just about saying "Hey, I'm going to pay a $10,000 to $15,000 premium as a firm owner hiring staff, because I want someone that I can delegate financial planning work to, and not just delegate paperwork."

The real opportunity is that a paraplanner who works out well should eventually not only support you on financial planning tasks, but once they demonstrate technical competency and begin to improve their relationship management skills, they should start taking over clients.

Now, the paraplanner will start with smaller clients. But this is where the paraplanner's career track progression comes from. And more importantly as a business owner, this is where the leverage comes from for your advisory business. When you don't just delegate tasks to free up your time, but you can delegate clients to free up your time to grow the business, and to get even bigger clients.

I know a lot of advisors that get hung up on this idea of shifting clients to their paraplanner, as though they're "ditching" the client. But recognize that you're not ditching or dumping your clients when you transition them to your associate planner! What you're doing is simply recognizing that the client is a client of your business, and a client of your business doesn't mean they automatically get you. A client of your business means they get a financial planner who represents your business... which may have started out as you when you were the only person, but now is someone else.

In essence, this actually becomes the true transition from a practice to a business is when the delivery of financial planning services goes beyond just you, to your paraplanner who becomes an associate and then a lead advisor. It's a tremendous opportunity for the business.

Imagine that in a few years, your paraplanner is up to being a lead advisor serving $200,000 of revenue for your "smaller" clients. You're going to pay them $90,000 or $100,000, plus covering some overhead costs. As a business owner, you're still going to make a $50,000 margin on those clients that you brought in, and handed to your paraplanner-now-lead-advisor after several years.

That's the real opportunity for hiring a paraplanner, of taking one step backwards to take two steps forward. It's ultimately not just about your ability to delegate tasks. It's about the opportunity to create a business that's bigger than just your personal capacity to serve clients.

When You Should NOT Hire A Paraplanner [Time - 15:59]

Now, because that's the path, I think it's also worth recognizing when you should not hire a paraplanner.

The fact that the long-term payoff for a paraplanner comes from when they eventually move up, means that if you're inclined to stay small and you don't really want to grow a business that goes beyond you.... hiring a paraplanner is probably not a good idea. Simply hire some admin staff.

Because if you don't plan to develop your paraplanner down the road and shift clients to them, you will hit that capacity wall, at 60 clients or 80 or 100. And maybe if you're really good at leveraging support staff, maybe we'll get to 110 or 120. But everybody tops out. And if you're not looking to grow beyond that, if you're not going to give clients to anyone else, if it's always going to be you... you will reach the point in your business where it just stops growing. Period.

Now, that's okay from the perspective of running a practice. You can make a great income. I know people who have successful solo practices that take home $300,000, $500,000. I've seen people higher than that, it's them and two admin staff, and they're grossing $800,000 in their practice. You could have a fantastically profitable practice by just systematically moving up to more affluent clientele over time.

But those firms tend not to hire paraplanners. Because what's going to happen is if you hire a paraplanner into a company that has no growth and no upside for them, the paraplanner going to leave. It might take them a while to figure it out. They'll stay two or three years before they go elsewhere. But they're going to leave.

Because the end of a paraplanner's career track is beyond just being paraplanner. For many people in admin roles, they may be happy to stay in an admin role. That's their work-life balance decision. And frankly, if you hire an admin person who wants to move up, you're going to get stuck as well. But paraplanners almost certainly want to move up. It's an entry-level position for a long-term career track. And if you're not a growth firm, this isn't going to work.

So the hiring decision isn't just about being at the pain point of capacity. It's also about what you ultimately want to be in the long run. Think of medicine by analogy. If you want a more successful medical practice, you hire more nurses to support you. If you want to make a big medical business, you hire young doctors to grow with you.

So, as an advisor, do you want to just hire more support staff to be a more successful you? Or do you want to build a business where you need to hire young planners who can grow with you in the business?

That's ultimately the distinction, as a couple of comments [from Periscope] were pointing out. Yes, practices have different business ramifications at the end. A practice is not going to sell for as much as what a large business can grow to. Though you may also take home a heck of a lot more income along the way! To each their own. Some of us are hardwired to build businesses. Some of us really do not enjoy that process.

I make no judgments about whether you want to build a business or a practice, but recognize which one you're working towards. Because if you're building a practice, paraplanners are almost certainly going to leave. That's just the reality of it. They're going figure out in a couple of years there's no upside to proceed down their own career track.

How Do You Find A Good Paraplanner? [19:06]

Now, this still leaves the last key question: how you find a good paraplanner in the first place?

There are a couple of ways to do this. I know some people that simply do it through networking. You can look at your personal and professional network.

You can also try to reach out and network with some of the financial planning programs. If you've got one in your area, you can form a relationship with the professors there. You can also go to some of the popular schools, like Texas Tech and Virginia Tech. Though I'd caution that the really good students at those schools likely already got job offers by the summer of their junior year, because large firms are in there recruiting aggressively already. So realistically, I would look to local and some "lesser-known" programs. Because there are upwards of 200 registered programs now with the CFP, and over a hundred degree-granting institutions. There are a whole lot more than the few that you tend to read about in the magazines. You can look them up on CFP Board's website. So you might go to some of those schools.

There are also several job listing sites for paraplanners. CFP Board has a Career Center. And NAPFA has job listings. Also, FPA National has a Jobs Board. A couple of FPA chapters have local jobs boards, too.

Now, I'm a bit biased here, but I really have to point out that we also have a business that does this, called New Planner Recruiting. We maintain a job board for candidates who are looking for job opportunities. And for firms that want to hire, we run the hiring process for you.

Because the reality is that finding a good paraplanner, particularly when you're a solo advisor or hiring your first professional staff member, will vary depending on your own work style.

Most advisors do this wrong. They try to do what I call "hiring the mini me". They try to hire another person, just like them, to do the same things they do. But the problem is that your business is probably bottlenecking because you already do what you do really well. You're just out of time. And what you really need is someone to do all the other stuff that you don't like doing.

So if you're a great big picture person, you need to hire a details and follow-through person. If you're more slow and methodical, but struggle to adopt things quickly and you're lagging on technology because of it, you need to hire a quickstart who likes to drive new projects. So actually a huge part of our process in New Planner Recruiting is putting existing advisors through a personality profile of what their own work style is, and then we screen candidates based on that personality and work style assessment to make sure there's a complementary fit. In addition to just screening for sheer technical competency.

But the big thing to remember is that a paraplanner isn't a business developer hire. And I find a lot of advisors, particularly who've been in this business for a long time, when everybody started out with a cubicle and a phone and a phone book, that there's this mentality that everybody you hire should be hitting the phones or hitting the streets and try to bring in clients. That is not a paraplanner. That's a salesperson. And frankly, I don't think you'll have a lot of luck if you hire a 22-year-old salesperson in this environment. If you want do try, that's your prerogative. But if you're hiring a paraplanner, it's about hiring someone to do that financial planning work, so that you, as the business owner, can go out there and do business development and get more clients. Because frankly, you own the firm. You have the primary incentive anyways. You get efficiency and improvement in margins by hiring, but you're not hiring these people to get the clients for you. That's your job.

So getting back to Eric's original question, where he's trying to make a call between the admin staff and paraplanner... the first thing I'd actually put back as the question to Eric is: what are you actually trying to do in the long run? Are you trying to build a business? Then you probably want a paraplanner. If you're trying to build a stable income-producing practice, you'd probably want to hire admin support that's more likely to stick with you for the long run.

Now, the fact that you've gotten this far already without hiring someone means you're probably pretty good at adopting technology. And frankly, I think that further emphasizes why, if you have any inclination towards growth, you'll probably want a paraplanner. Because I suspect the reason you haven't hired admin staff already is you've gotten efficient with technology so that you don't need that admin staff, so the paraplanner will probably add more value. But don't do it until and unless you're ready to grow, or you're really just hiring a person who's going to leave you in a couple of years.

So I hope that helps a little in kind of understanding the landscape of paraplanners, what they do, and how they add value to a financial planning business. This is Office Hours with Michael Kitces, 1 p.m. East Coast time on Tuesdays. Thanks for joining everyone, and have a great day!

So what do you think? Have you hired a paraplanner? What did you have them do that was valuable for the business? If you're a current or former paraplanner, what did you do that added the most value to the business? Please share your thoughts in the comments below!