Next Generation Planner: December 2022
Daniel M. Yerger, CFP®, ChFC, AIF, CDFA, is the owner of MY Wealth Planners, a fee-only financial planning firm in Longmont, CO, the author of Getting in the Door: Starting a Financial Planning Career, and a personal financial planning Ph.D. student at Kansas State University who studies financial planner compensation.
If you’ve joined the financial planning profession, how did you join it? Were you invited by a family friend to come try out being a financial adviser? Did you meet a charming recruiter at your college’s career fair? Did you like your financial adviser so much that you asked how to become one? However you came in the door, you’re here now, reading this, and congratulations on being in a profession that has some of the highest career satisfaction rankings out of all professions, but also one that tends to pay well. Yet, today there seems to be two mutually exclusive claims in our profession: “We’re having a hard time finding talent” and “I’m having a hard time finding a job!” How can these statements coexist? Well, it turns out we have a mixture of expectations, and one that requires some introspection and consideration on our part.
The ‘Never Again’ Hiring Cycle
Let’s talk about the small and mid-size firm hiring cycle: A small but growing firm will say, “We need to hire a new planner!” The firm puts out the bat signal and is pleased to receive dozens if not hundreds of applications from students and career changers from all over. They take their pick and make a modest but fair offer of wages and benefits, perhaps $50,000 a year plus insurance and retirement plan, and are doubly pleased when that new planner accepts. For the next two or three years, the firm enjoys a honeymoon with their new planner. As that planner crosses the 4,000- or 6,000-hour threshold to become a CFP® professional, they ask for a raise (because who wouldn’t?). The firm gives them a nice bump, maybe 20 percent. A few weeks later, the firm is gobsmacked when the planner drops their two weeks’ notice on the desk. “Sorry, Charlie, but the firm up the road made me an offer of $100,000!” Wounded and hurt, the firm vows never to be so foolish as to hire an entry-level planner again. No, they’re going to hire someone for experience; someone who’s productive on day one! So, they roll out the bat signal again, this time looking to hire a planner with three to five years of experience. Yet, no one applies, or at least no one qualified. They ramp up the wages and the offer and finally start getting some applicants around $90,000 a year, but no one they’re immediately in love with. “Boy, these junior CFP® professionals do have high expectations,” they gripe as they finally get a decent candidate who negotiates $110,000 a year plus benefits.
So what happened? The firm hired a new planner, spent all the time and energy training them up, was shocked to see them go, and is potentially overpaying for their next planner. How did that happen? Well, the firm that poached their last planner was probably just six months ahead of our heroes, or perhaps they’d been around the entry-level planner merry-go-round in the past and decided against trying it in the future. Regardless, both the poaching and hiring firm have found themselves paying far more than they really think is reasonable, all to avoid the risk that their new hires will run out the door. This creates what I call the “pine tree problem” in financial planning.
The Pine Tree Problem
Imagine the hierarchy of most big companies or even entire industries. A veritable army of junior staff fill out the bottom. As they ascend the career ladder in time, experience, and expertise, the group gets smaller, beginning to fill in a pyramid shape, wide at the bottom and tapering off. The taper is happening because people are choosing other paths. Maybe they have life changes, career changes, or other things that lead them away from the profession. But this is normal, as all industries and professions have people who move between or leave the workforce. Yet, in financial planning, we don’t have a clean pyramidal shape. Rather, we have a pine tree. Our entry-level ranks are razor thin: a small, short “pole” beneath the more experienced professionals. How is this possible? Invisibly supporting the structure are people coming into financial planning laterally from other areas within finance. These are often people who started in customer service call centers or as back-office support staff who eventually get licensed and transition into being financial planners. There are plenty of these people, and they fill out the ranks nicely, but they often come into the profession awkwardly, as they didn’t train to be financial planners but simply have complementary résumés for financial planning roles. As a result, those who managed to fit into the small batch of entry-level financial planners often command significant compensation premiums as they pass into their third year and beyond; those who can’t afford to compete for this talent or don’t manage to retain home-grown talent tend to hire people who aren’t really qualified as financial planners as their junior planners, providing that small entry-point into the profession, but with the added step of having had to work in tangential spaces for years before making the leap.
If you don’t believe that there’s a pine tree problem, consider this: among the five largest job boards in our profession, CFP Board, FPA, NAPFA, New Planner Recruiting, and Simply Paraplanner, there are currently 18 entry level positions (fewer than two years), 51 experienced positions (2–5 years), 47 advanced positions (5–10 years), and 13 executive positions (10 years or more) posted at the time of writing.
The Large Institutions
Note that large institutional firms don’t have much trouble filling their candidate class. Why is that? Well, likely for one of two reasons. First, many large institutions offer competitive and robust salaries to their entry level teams, but further, despite the somewhat muted call center experience that comes with these positions, they don’t see the same urgent outflow. Second, others who start on the sales path may not hit their numbers, but they often turn into those candidates competing for the post-entry-level positions with decent salaries or fold into teams of other advisers within the firms. The lesson herein is clear: these firms are either comfortable with repeat failure (and many have observed that those failures-to-launch are simply a “marketing cost”) or they have paths for their new hires to follow from the outset that don’t involve becoming lead planners.
Trying to Deal with Home Bias
Another issue our profession deals with is that, as many have wryly noted, we are quite stale, pale, and male (said the stale, pale, and male author of this article). This is often perpetuated by a home bias in hiring. Rather than paying to post our jobs on the various boards of the profession or even going outside to sites such as Indeed or ZipRecruiter, we often network our new hires. We put out a post on our personal social media pages or invite a student we met at the last FPA meeting to apply, or even hire friends and family members. Without besmirching the good intentions of those who are hiring, our friends and family members quite often resemble us. Even when we do hire from the larger public, we have a tendency to hire people who resemble us, which has been well documented in studies going back decades.
So how do we overcome the home bias issue? A few immediate suggestions come to mind. First, job postings must be made open to the public. Much as you might like to just hire someone based on your relationship with them, doing so perpetuates the possibility that you’re depriving equal or even better candidates an opportunity to show their qualifications. Second, job postings need to provide valuable information for the job seeker; not just the job responsibilities and requirements for the position, but also clear information on the compensation for the role. Many decry this as somehow robbing the business of an advantage in negotiating compensation, but this is farcical. Job seekers have finite time and resources with which to apply for positions; it saves the employer and the job seeker from embarrassment at the end of the application process when the role is not paying well enough to be accepted. Publishing compensation information not only provides job seekers with valuable information in screening for jobs that meet their needs, but helps employers eliminate candidates who were never going to be good fits in the first place. For a large-scale example of this at work, the State of Colorado has legally mandated that companies share compensation information since 2021, and there has been little fuss on the issue.
The Brass Tacks for Firms
As financial planners, we talk to people about money. If a client came to us and said they felt underpaid, we’d tell them to find a new job. If we evaluated a client’s budget and found that a large portion of their income went to pay for health insurance or other necessary benefits, we’d tell them to ask their boss for better benefits or to look for a new job. If we calculated that a client without a retirement plan at work was not able to save enough to retire solely with IRA contributions, we would, say it with me: tell them to look for a new job.
So now look at how we are hiring new financial planners. We fill positions from our trusted personal networks. We undercompensate for the role because we have difficulty envisioning how this new person will pay for themselves, particularly if we don’t place them in sales roles, but generously place them in support roles where they won’t have to eat what they kill. Yet, as these professionals develop, we often expect patience and gratitude regarding their compensation, even as their skills quickly develop in a direction that qualifies them to receive much higher pay from firms that aren’t home growing their talent. So how do we get ahead of this?
As discussed earlier, we need to open up positions to all candidates for entry-level positions and be willing to hire outside of our personal networks. Further, we need to post job descriptions that allow candidates to evaluate whether the position can meet their needs, so that they’re enthusiastic about applying to work with us if the position is a good fit. When we do hire a candidate, we need to be cognizant that even if they aren’t paying for themselves with new clients or new business, they are contributing to the bottom line by freeing us up to provide services to more people or better services to those we work with. When their skills do naturally expand and they become CFP® professionals or attain other qualifications, we need to reset our compensation expectations in alignment with the market and pay our staff what they are worth. Otherwise, we will continue to perpetuate the cycle of both denying new entrants opportunities in the profession and denying ourselves the boon of their talents as they develop into professionals qualified for higher and greater purpose within our teams.
Being Competitive as a Candidate
Keeping in mind the guidance we’ve provided for firms, candidates can arm themselves with a few tools as they compete for scarce high-quality financial planning roles. First, they need to insist on an understanding of the career path within a firm. Is this a single-point position that has no growth path or is this the start of a multi-step career track? Candidates need to have a clear understanding of the opportunities ahead, or accept and acknowledge that there might not be any. Second, understanding the firm’s compensation philosophy, and how that ties to advancement, development as a professional, or business development is critical. A common reason that candidates move from one firm to another is a mismatch of compensation expectations; expecting to be paid more when they reach milestones they believe relevant, while not meeting complementary firm expectations. Finally, candidates should do their best to increase visibility to potential employers. Not all firms are going to post their positions publicly and attempt to recruit from beyond their network. Being known as a career changer, job seeker, or up-and-coming financial planner might help you get a request to apply from a firm or a suggestion that your name be put in the roster for interviews.