Getting Started as a Financial Planner, 2nd, Revised and Updated Edition E-Book

Jeffrey H. Rattiner

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Bloomberg
• Sprache: Englisch

Seitenzahl: 433

Veröffentlichungsjahr: 2010

Beschreibung

There has never been more opportunity for financial planners--or more reasons for financial professionals to consider switching the direction of their careers into this lucrative field. Today's planners will cash in on the huge surge of baby boomers preparing for retirement in the decades ahead. And as the number and complexity of investments rises, more individuals will look to financial advisers to help manage their money. In the new paperback edition of this guide, Jeffrey H. Rattiner, a practicing financial planner and educator, provides a complete, systematic, turnkey framework for the aspiring planner to follow. Starting from the key question, "Why do you want to be a financial planner?" the author guides you through the development of an effective infrastructure and client management system for your practice. The many essential concepts are clearly illustrated with examples from practicing professionals. Throughout this handbook, Rattiner provides personal insights on how and why a planner must develop a solid understanding of client needs before building a comprehensive financial plan. Getting Started as a Financial Planner has everything one needs to know--from how to set up a practice and communicate with clients to how to manage investments and market services--in order to launch a career in financial planning and to attain success in this high-growth profession.

Leseprobe

Table of Contents

Praise

ALSO AVAILABLE FROM BLOOMBERG PRESS

Title Page

Copyright Page

Dedication

PREFACE

Acknowledgements

CHAPTER 1 - THE WORLD OF FINANCIAL PLANNING

The Trend toward Specialization

What Sources Generate Income for Financial Planners?

Emerging Market Opportunities in Financial Planning

Issues Consumers Consider When Selecting Financial Planners

CHAPTER 2 - FOUNDATIONS OF A FINANCIAL PLANNING CAREER

“Ten Must-Do’s” for Developing a Financial Planning Practice

Selecting a Legal Business Structure

Finding a Mentor

Getting the Credentials

Licensing Requirements for Insurance and Investment Advisory Practitioners

CHAPTER 3 - DEVELOPING A CLIENT MANAGEMENT SYSTEM

The PIPRIM Client Management System—Six Steps to Successful Client Management

Step 1: - Preliminary Meeting with the Client

Step 2: - Integrated Goal Setting and Data Gathering

Step 3: - Putting It All Together

Step 4: - Recommending Solutions

Step 5: - Implementing the Plan

Step 6: - Monitoring the Plan

Elements of a Personal Financial Plan

CHAPTER 4 - THE SPECTRUM OF FINANCIAL PLANNING

PERSONAL FINANCIAL PLANNING DEFINED

WHY CLIENTS DO NOT PLAN

WHY YOUR CLIENT NEEDS YOUR HELP

CORE DISCIPLINES OF PERSONAL FINANCIAL PLANNING

YOUR ROLE IN CASH FLOW MANAGEMENT

BUDGETING AND BUDGET ANALYSIS

CASH FLOW PLANNING

DETERMINING NET WORTH

LIFE INSURANCE

DISABILITY INSURANCE

PROPERTY AND CASUALTY INSURANCE

DEFINING INVESTMENT PARAMETERS

MANAGING CLIENT EXPECTATIONS

SELECTING APPROPRIATE INVESTMENT VEHICLES

INVESTMENT TYPES

EQUITY INVESTMENTS

MUTUAL FUNDS

INSURANCE INVESTMENTS

SELECTING A BROKER-DEALER

TECHNIQUES FOR ACCELERATING EXPENSES AT YEAR-END

TECHNIQUES FOR DEFERRING INCOME AT YEAR-END

OTHER TAX-PLANNING MOVES

DETERMINING CLIENT NEEDS

VESTING

CATEGORIZING QUALIFIED PLANS

DEFINED CONTRIBUTION PLANS

TYPES OF IRAS

DEFINED BENEFIT PLANS

LUMP-SUM DISTRIBUTION

TRANSFERRING PROPERTY DURING LIFE

TRANSFERRING PROPERTY AT DEATH

CHAPTER 5 - COMPLIANCE AND LEGAL ISSUES

Complying with the Law

Registration Procedures

State Securities Regulations

Protecting Yourself against Liability

CHAPTER 6 - BUILDING THE PRACTICE INFRASTRUCTURE

The Business Plan

Building Your Infrastructure

Interdependence of the Business Plan and Business Infrastructure

CHAPTER 7 - MARKETING YOUR PRACTICE

The Nature of Marketing and Sales

What Is a Marketing Plan?

Elements of a Marketing Plan

Executive Summary

Market Analysis and Objectives

What About the Competition?

Marketing Objectives

Developing Marketing Targets

Developing Marketing Tactics: Understanding the Four Ps

Creating Strategic Alliances

The Marketing Budget

The Action Plan

Auditing the Results

CHAPTER 8 - THE ART OF CLIENT COMMUNICATION

The Financial Planner Plays Many Roles

Information Processing

How Do People Communicate?

Structuring Communication

Presenting Financial Plans and Reports to Your Clients

CHAPTER 9 - RUNNING AN INTEGRATED PRACTICE

Case 1: Mary Leonard-Recently Widowed

Case 2: Ben and Kate Wilson—Professional Young Couple with Children

Case 3: Ed and Tami Johnson—Wealthy Married Couple Nearing Retirement

CHAPTER 10 - RESOURCES AND TRAINING

Joining a Professional Group

Tools for Your Practice

Turnkey Programs

Selecting a Software Program

Contacting the Vendors

Technology Central

Financial Planning Books

Personal Financial Planning Periodicals

APPENDIX A - CODE OF ETHICS AND PROFESSIONAL RESPONSIBILITY: SECTION I

APPENDIX B - TRENDS IT STAFFING AND COMPENSATION

Continuing-Education Exam

INDEX

About Bloomberg

About the Author

“When asked to recommend books for new advisers, we often suggest Getting Started as a Financial Planner.”

—INVESTMENT ADVISOR MAGAZINE

There has never been more opportunity for financial planners—or more reasons for financial professionals to consider switching the direction of their careers into this lucrative field. Today’s planners will cash in on the huge surge of baby boomers preparing for retirement in the decades ahead. And as the number and complexity of investments rise, more individuals will look to financial advisers to help manage their money.

In this updated guide, Jeffrey H. Rattiner, a practicing financial planner and educator, provides a complete, systematic, turnkey framework for the aspiring planner to follow. Starting from the key question, “Why do you want to be a financial planner?” the author guides you through the development of an effective infrastructure and client management system for your practice. The many essential concepts are clearly illustrated with examples from practicing professionals. Throughout this handbook, Rattiner provides personal insights on how and why you must develop a solid understanding of client needs before you can build a comprehensive financial plan.

Getting Started as a Financial Planner has everything you need to know—from how to set up a practice and communicate with clients to how to manage investments and market your services—in order to launch your career in financial planning and to guide you to success in this high-growth profession.

PRAISE FOR THE NEW EDITION OFGetting Started as a Financial Planner

by Jeffrey H. Rattiner

“Jeff Rattiner has been intimately involved with the development of the financial planning profession for nearly twenty years as a planner, teacher, author, and educational innovator. For anyone who is serious about entering financial planning as a first or new career, Getting Started as a Financial Planner provides great insight from someone who can really say he’s been there and done that. It’s a must-read.”

MARVIN W. TUTTLE, JR., CAE Executive Director/CEO Financial Planning Association

“Getting Started as a Financial Planner is a must-read for any professional interested in a career in financial planning. As one of the industry’s most respected teachers and practitioners, Jeffs book is packed with useful insights that every newcomer needs to be successful.”

JOHN WHELAN Vice President, Group Publisher WICKS Business Information

PRAISE FOR THE FIRST EDITION

“Wen asked to recommend books for new advisers, we often suggest Getting Started as a Financial Planner.”

Investment Advisor

“A must-read for emerging financial planners.”

Advisor Today

“For anyone entering the profession or transitioning to financial planning from a related field, Getting Started as a Financial Planner is well worth reading. Experienced planners who never seem to find the time to do practice planning should also benefit.”

HORSESMOUTH.COM

“Right now, many people want to get into the field of financial planning but may not know how. Jeff’s easy-to-read, comprehensive primer is an excellent tool for those looking to get started in the profession and highlights the client-centered approach that is crucial to the success of any financial planning practice.”

ROBERT P. GOSS, J.D., PH.D., CFP Former President and CEO Certified Financial Planner Board of Standards

“Thinking of becoming a financial planner or adding the planning discipline to your current professional practice? Jeff Rattiner has written the perfect cookbook for those who want to enter the financial planning profession. His book is chockful of winning recipes that will undoubtedly help newcomers create truly successful financial planning practices.”

DEENA KATZ, CFP President, Evensky & Katz Author of Deena Katz’s Complete Guide to Practice Management

“If you truly want to serve your clients successfully, then you owe it to yourself and your clients to read this book. It’s a step-by-step guide that will help your clients achieve their financial dreams.”

JOHN BOWEN Founder and CEO CEG Worldwide

“I wish this book had been available when I started in financial planning. The book manages to integrate how to be a financial planner with the academics of financial planning. The step-by-step, programmed approach can serve as a daily guide. Mr. Rattiner’s extensive experience as a teacher, resource person, and planner gives a perspective lacking in today’s curriculum.”

STEVEN I. LEVEY, CPA / PFS Managing Director GHP Horwath, P.C.

“Jeff Rattiner has done outstanding work with this new book. Practitioners, both new and veteran, can now have a terrific road map to use to chart their success in the financial planning business.”

JIM CANNON Former President AIG Financial Advisors

“I’m impressed. Jeff has done it! This book gives hands-on advice in a logical fashion on creating, marketing, and managing a financial planning firm.”

PHYLLIS BERNSTEIN, CPA / PFS Former Director, Personal Financial Planning Division, AICPA Author of Financial Planning for CPAs

ALSO AVAILABLE FROM BLOOMBERG PRESS

Deena Katz’s Complete Guide to Practice Management:Tips, Tools, and Templates for the Financial Adviserby Deena B. Katz

Family Wealth—Keeping It in the Family:How Family Members and Their Advisers Preserve Human, Intellectual,and Financial Assets for Generationsby James E. Hughes Jr.

The Financial Services Marketing Handbook:Tactics and Techniques That Produce Resultsby Evelyn Ehrlich and Duke Fanelli

How to Value, Buy, or Sell a Financial-Advisory Practice:A Manual on Mergers, Acquisitions, and Transition Planningby Mark C. Tibergien and Owen Dahl

The New Fiduciary Standard:The 27 Prudent Investment Practices for Financial Advisers,Trustees, and Plan Sponsorsby Tim Hatton, CFP, CIMA, AIF

Practice Made Perfect:The Discipline of Business Management for Financial Advisersby Mark C. Tibergien and Rebecca Pomering

Tax-Aware Investment Management:The Essential Guideby Douglas S. Rogers, CFA

A complete list of our titles is available at www.bloomberg.com/books

ATTENTION CORPORATIONS

THIS BOOK IS AVAILABLE for bulk purchase at special discount. Special editions or chapter reprints can also be customized to specifications. For information, please e-mail Bloomberg Press, [email protected], Attention: Director of Special Markets, or phone [phone].

© 2005, 2000 by Jeffrey H. Rattiner. All rights reserved. Protected under the Berne Convention. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher except in the case of brief quotations embodied in critical articles and reviews. For information, please write: Permissions Department, Bloomberg Press, 731 Lexington Avenue, New York, NY 10022.

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This publication contains the author’s opinions and is designed to provide accurate and authoritative information. It is sold with the understanding that the author, publisher, and Bloomberg L.P. are not engaged in rendering legal, accounting, investment-planning, or other professional advice. The reader should seek the services of a qualified professional for such advice; the author, publisher, and Bloomberg L.P. cannot be held responsible for any loss incurred as a result of specific investments or planning decisions made by the reader.

CFP® and CERTIFIED FINANCIAL PLANNER™ are certification marks owned by Certified Financial Planner Board of Standards Inc.

ISBN-13: 978-1-57660-357-4 (paperback edition)

The Library of Congress has cataloged the earlier printing as follows:

Rattiner, Jeffrey H.

Getting started as a financial planner /Jeffrey H. Rattiner.--Rev. and updated ed.

p. cm.

Summary: “A guide for financial planners, includes: business plan development, client management, certification, legal compliance, client communication, and marketing strategies”-Provided by publisher.

Includes index.

1. Financial planners—United States. 2. Investment advisors—United States. I. Title.

HG181.R278 2005

332.6’2—dc22

2005007057

To all the inspiring financial planners who crave to be the best they can be, and to those students in my Financial Planning Fast Track classes who’ve incorporated these principles into their daily practices and are now running them the way they have always envisioned.

To my family, who have provided me with my greatest inspiration.

PREFACE

SINCE THE FIRST EDITION of Getting Started as a Financial Planner was published, much has changed in our profession: Fee-based financial planning is on the rise. Commissions are being commoditized. And there is now a profusion of financial planning courses and training programs. The profession continues to grow rapidly. In fact, the U.S. Department of Labor expects the number of individuals employed as personal financial planners “to grow faster than the average for all occupations through the year 2012.” This is because “as the number and complexity of investments rises, more individuals will look to financial advisers to help manage their money.”

Advising the public on financial planning issues continues to be one of the most profitable areas of personal consulting. Financial planners need to keep their clients focused so they will continue accumulating sufficient assets to accomplish their personal goals. Americans desire to get ahead and will need effective strategies to pass the approximately $6 trillion of intergenerational wealth to succeeding generations. These growth opportunities in the marketplace and continued federal deregulation of the financial services industry gave me reasons to update this book.

My experiences have shown that individuals aspiring to be professional financial planners want what is best for their clients. These forward-looking planners have migrated to a comprehensive needs approach to help their clients achieve financial objectives, rather than continuing to employ a purely transactional approach, which has long been the dominant theme of traditional financial planners. Historically, the main goal of this latter group has been selling “product” rather than establishing a long-term relationship. I became determined to help new financial planners evolve their view of the planning process by providing a logical, easy-to-digest, and automatic system that can help them provide comprehensive financial planning services. The result was the development of a turnkey approach to personal financial planning, which is the essence of this book.

I decided to blend my own experiences with those of very successful and well-known financial planners, including prominent members of the Financial Planning Association, the California CPA Education Foundation, the American Institute of Certified Public Accountants, members of the governing board of the Certified Financial Planner Board of Standards, and various university colleagues. I asked my associates if they were to start all over again, would they approach financial planning the same way? What would they do differently? What have they learned to become successful financial planners? Where do they see their practice and the profession headed? What does the competition look like? Most of all, what advice can they give financial planners first entering the profession? All the responses pointed primarily to one fundamental need—that entry-level financial planners have a business plan to guide them on starting a business. This action plan, they advised new financial planners, must include all the important infrastructure decisions that need to be in place before taking on the first client (as opposed to the trial-and-error approach many planners tried when they entered the profession). Much of this invaluable information was incorporated into this book in order to provide the reader with a clear, detailed, and practical approach to practicing personal financial planning across the spectrum from entry to mastering the profession.

Getting Started as a Financial Planner is written for stockbrokers, insurance agents, CPAs, attorneys, bankers, credit union reps, trust officers, wealth managers, and others who want to graduate from the transactional selling approach to the client management approach, which requires true understanding of clients’ needs, capabilities, and resources. The book provides financial service professionals and non—financially trained individuals first entering the field with a method to graduate from a transaction-oriented business model to one involving a step-by-step process. This book helps explain that by using a comprehensive “client first” approach, planners can uncover more of what their clients are looking for, thus putting themselves in a better position to prepare a competent plan. This change in direction ends up providing clients with an understanding of previously unrecognized concerns and therefore with better service, ultimately making more money for both the client and the planner. This introductory book provides the basics that the narrow-based financial planner can use to create the infrastructure of a broad-based financial planning service. I decided to write this book to help make this transition successful for evolving planning advisers.

Getting Started as a Financial Planner is organized in a logical business-cycle approach. It tackles critical issues every new financial planner needs to address, from how to set up a practice through writing the business plan, marketing it, and managing clients.

The book begins by providing an overview of the profession. Chapter 1 describes who is attracted to the field, identifies the trends in the industry that will create business opportunities in the next decade, and takes the reader through the origins of financial planning to what it has become today. Chapter 2 provides the reader with the “Ten Must-Do’s” for establishing the successful business infrastructure, from selecting the right business legal entity to finding a mentor and picking a specialty.

Once the business is formatted, the planner needs a proven process that will facilitate a comprehensive financial planning program. Chapter 3 describes such a process, called PIPRIM, a client management system that will help planners approach client consulting in a complete manner and create client loyalty to the process of long-term investing to accomplish financial objectives. Chapter 4 provides the reader with an overview of the many disciplines in financial planning and elaborates the concerns clients will have in each area and strategies the planner can use to satisfy these concerns. The chapter identifies the dilemmas clients will most likely encounter, explains how the planner should interpret client issues, and provides strategies for overcoming client blind spots. Chapter 5 tells the planner how to comply with the many stringent laws affecting financial services.

Chapter 6 takes the reader through all the appropriate steps for developing a business plan and offers a thorough sample business plan. It also discusses how to develop the needed business infrastructure, including establishing a compensation model that represents the planner’s practice philosophy. Chapter 7 turns to marketing a financial planning practice and provides many useful strategies to help the entrepreneur become recognized and well known. Chapter 8 provides techniques and insights for maximizing dealings with clients through effective planner-client communication strategies. Understanding clients’ wants and needs enables the planner to design a strategy to make clients feel comfortable and involved during this process, and enables the consultant to provide the best type of service. Chapter 10 provides additional resources that can be instrumental in establishing a practice and gaining the expertise needed in a variety of subject areas. And a new chapter in this second edition, Chapter 9, integrates the principles discussed throughout the book by presenting three common client scenarios and applying the best methods to address each of their specific concerns.

Implementing the tools and techniques discussed in the book will guide the planner through all the stages of becoming a better financial planner. Planners can assess where they are now and where they need to be in order to satisfy their financial objectives.

Please let me know how Getting Started as a Financial Planner helps you start, fine-tune, or expand your financial planning practice. I invite you to contact me at [email protected] or visit my website at www.financialplanningfasttrack.com.

ACKNOWLEDGMENTS

This book would not have been possible without the contributions of many generous people. The practitioners whom I have come to know well throughout my travels have provided me with the realities of the twenty-first-century financial planner. I want to thank at Bloomberg Press editor Tracy Tait; also Jacqueline Murphy, who initiated this project; Kathleen Peterson; Maris Williams; and Ingrid Meyer. These dedicated people provided me with the opportunity to help serious financial planners succeed in this wonderful business. A special thanks to Sheryl Garrett, of Garrett Financial Planning in Overland Park, Kansas, who acted as a sounding board and provided valuable insight into the premise for the book and who generously provided me with forms and checklists that planners can readily use in their practices, and to Ed Morrow and the staff at Text Library Support of Middletown, Ohio, and Bill Porter at Lumen Systems, Inc., of San Jose, California, who provided me with materials for inclusion in the book.

JEFFREY H. RATTINER, CPA, CFP, M.B.A.

CHAPTER 1

THE WORLD OF FINANCIAL PLANNING

Evolution of the Profession

FINANCIAL PLANNING is a relatively new profession. It represents the first broad-scope service profession to emerge in recent years. Its development can be traced back to late 1969, when a small group of financial services professionals met at a hotel near Chicago’s O’Hare Airport to discuss the inadequacy they saw in the state of financial services at that time. They voiced their frustrations and searched for ways to introduce a new degree of client orientation and professionalism into a field that was neither well known nor well defined.

As a result of this meeting, a trade association was formed in 1970 to give voice to the concerns of the new group. This association, initially called the International Association of Financial Planners, later changed its name to the International Association for Financial Planning (IAFP). The early mission of this organization was to provide an open forum, bringing together people representing a variety of specialized areas within financial services. The integration of these approaches eventually led to the emergence of financial planning as a profession in its own right.

To help educate this growing constituency, the IAFP created the College for Financial Planning in 1971, which gave rise to the Certified Financial Planner (CFP) designation. The first graduating class in 1973 consisted of forty-two CFP licensees. A close-knit bunch, the graduates displayed the professionalism indicated by the new certification, and thirty-six members of this group decided to form a new association specifically for holders of the CFP designation, which they named the Institute of Certified Financial Planners (ICFP). In 1985, the administration of the CFP designation was transferred from the College to an independent body that eventually changed its name to the Certified Financial Planner Board of Standards (CFP Board).

The planning pioneers who founded this profession led a movement to provide clients with better and more targeted service. They looked forward to the time when comprehensive financial planning would become an accepted and integrated means for providing service and product delivery to consumers. In doing so, they revolutionized their business, creating a new way for individuals to manage their personal finances. The pioneers’ approach was to focus on the clients’ needs and objectives by putting their clients’ interests first and foremost, above personal gain.

The efforts toward targeted client service led to the development of two principal types of financial plans, segmented and comprehensive. Segmented plans enable practitioners to review one aspect of a client’s life, such as insurance, investments, or retirement. Comprehensive plans provide a more detailed and complete approach by factoring in all of the financial concerns affecting the client’s life, such as cash flow, education, insurance, investments, income tax, retirement, and estate issues. (Detailed coverage of these topics appears in Chapter 4.) These revolutionary changes in approach paved the way for a new profession: financial planning.

The next step for these innovators was to educate the public about their new service profession. They wanted to show the public how they differed from their predecessors and why it would be worthwhile to use their services.

Sellers of insurance and investment products at this time were viewed by many consumers as aggressive, pushy salesmen only concerned about maximizing their personal wealth. Skepticism and mistrust were creating a wedge between these individuals and their clients. Stockbrokers, insurance agents, and limited-partnership salespeople were seen in an unfavorable light within the financial services industry to a large extent because of the financial products they were pushing. Limited-partnership opportunities in real estate, oil, and cable entered the investment scene, some of which became a fiasco for participating holders when the tax laws relating to these structures were overhauled in 1986. Because many clients were losing money and the public was getting angry, Washington began to focus on increased regulation of professional investment activity.

To counteract negative perceptions, a number of financial service professionals began pursuing a different way of helping their clients. They strove expressly to adopt a logical and consistent format in providing good financial advice not just in one specialized area but in every aspect of clients’ financial lives. Furthermore, they wanted their clients to know that they were trained specialists in their areas of practice.

The Trend toward Specialization

VIEWED AS A WHOLE, financial planning still has a close connection with stock brokerage and insurance. Close to 70 percent of all CFP licensees also hold securities and/or insurance licenses. Today’s planners are primarily midcareer people looking for a change. They receive their training from any of the three-hundred-plus registered educational program providers that offer the CFP or similar financial planning programs. However, an increasing number of college students now major or minor in personal financial planning.

To pursue their business model of fee-based financial planning, planners increasingly have begun gaining the knowledge necessary to operate in a specialty. Accordingly, growing numbers of planners are obtaining certification as a Certified Financial Planner, Personal Financial Specialist, or Chartered Financial Consultant. These designations have increased in popularity and have gained national prominence especially since the mid-1990s.

The goal of individuals practicing under these designations is to adhere to the high standards that have been created in order to protect the public. Of course, there are many other financial planners as well who, although not holding such titles, still maintain extremely high standards. However, financial planning certification holders generally have found it easier to attract clients because of their technical knowledge and the perception of many clients that certified experts are probably more knowledgeable and more professional than other practitioners. While obtaining a specialty designation may not be viewed universally as a prerequisite for success, anything a planner can do to gain the competitive edge is likely to be worthwhile. Competition is growing quickly—whereas only 42 CFPs were licensed in 1973, by the year 2004 that number had grown to 44,888.

WHO ARE TODAY’S FINANCIAL PLANNERS?

Financial planners have come from a variety of fields and hold many licenses and designations. As noted previously, many today are midcareer professionals who have retired from their first field, have grown bored with it, or wanted to branch out into something new that involves helping others. For example, many are CPAs with twenty or more years of experience who have found that their clients specifically ask for such services; if they fail to provide financial planning, they run the risk of losing clients to other CPAs who do.

Similarly, many representatives, brokers, and related employees at major brokerage firms and insurance companies find it difficult to compete solely by selling products; financial planning offers a more flexible and comprehensive approach to satisfying their clients’ needs. Likewise, bankers more and more are finding that they cannot effectively compete in the service marketplace without taking an overall view of financial planning for their clientele. The banks have finally recognized that financial planning in its own right can be a very profitable revenue center.

So what does all this mean? For many financial service professionals, the days of pushing a product-centered transaction with little or no concern for client needs and objectives are gone. That approach is being replaced by the services offered by more sophisticated and better-trained financial planners who want to understand their clients in order to make the most appropriate choices for them.

The table on the demographics of CFP practitioners on the following page provides a breakdown of the industries in which CFP licensees originally practiced and the other licenses and/or designations they currently hold.

HOW WELL DO FINANCIAL PLANNERS GET PAID?

Firsthand knowledge and appreciation of the profession are the best platform from which to accurately assess the financial incentives of financial planning. Financial planners can tailor their practice and income to lifestyle goals. In essence, because this is a profession in which the practitioner designs a “product line,” earnings potential is truly unlimited. Financial planners are fast-moving entrepreneurs. Practice growth and earnings are limited only by personal initiative, salesmanship, ability, and tenacity.

What Sources Generate Income for Financial Planners?

IN THE PAST, planners were primarily paid by commission on clients’ portfolio growth. They believed that compensation should reflect the economic value of the products they sold, which yielded expanding value to their clients over time. However, in recent years a shift has occurred in the relationship between planner and client. Gradually and quietly a revolution began, shifting the basis of compensation from higher-risk commissions to flat fees. This trend grew from the belief that planners should and could become more independent and objective if planning services were associated with financial strategy rather than recommendations for specific financial products or companies.

Composition of Certified Financial Planner Licensees: Practitioner Demographics, 2004

TYPE OF BUSINESS OF PRESENT CFP LICENSEESTOTAL PERCENTPersonal financial planning31%Securities11%Accounting5%Tax preparation3%Insurance5%Banking3%Education1%Law1%All other3%Not specified38%OTHER LICENSES HELDTOTAL PERCENTSecurities68%Insurance69%CPA16%Investment advisor reps (IAR)34%Real estate4%Attorney3%No other licenses held11%AGETOTAL PERCENT20-293%30-3919%40-4934%50-5931%60-6911%70-792%80+0%GENDERTOTAL PERCENTMale76%Female24%HIGHEST DEGREES EARNEDTOTAL PERCENTAssociate3%Bachelor’s56%Bachelor’s, and J.D.2%Master’s29%Master’s, and J.D.1%Ph.D.2%None7%

Planners, striving to increase their professionalism, wanted to demonstrate that client needs were paramount over agent sales. Planners could still expect substantial income opportunity, but now it was in a manner that would no longer link personal gain to commercial products. The emerging professional planner sought the neutral position held by other service professionals such as CPAs and attorneys.

Many financial planners completed this about-face on compensation in a relatively short time, giving up the appearance of possible conflict of interest. More and more, planners have abandoned fixed commissions for hourly fees or project contracts.

This change in thinking has had multiple benefits. First, trained planners feel less pressure to sell products or “ends” and can turn their attention to “means.” Clients clearly have responded more favorably to the purchase of a financial planning process than to a recommendation to buy. The latter function was in fact already available from the client’s stockbroker. Financial planners thus have differentiated themselves from securities traders. Planners have begun to thrive on their enhanced image as the adviser, not the salesperson.

This change came as something of a shock for some practitioners and as an easy transition for others. Some planners could not make the complete transition and went to so-called fee-based financial planning, which combines commissions and fees. The remainder went cold turkey and became fee-only financial planners. (See Chapter 6 for additional discussion of revenue generation.)

As financial planning continues to gain prominence as a profession, the future lies in fee-for-service compensation. Planners are proving to be very much worth the investment, and consequently more and more clients are willing to assume the risk of fees for service as they do when they consult a doctor, attorney, or CPA.

CFP Practitioners’ Compensation

Primary Compensation (Total percent*)Fee and commission54%Commission11%Fee only29%Salary4%Other1%*Does not equal 100% due to roundingAverage Fees ChargedHourly$162Single-Focus Plan$894Comprehensive Plan$2,316Planner EarningsGross earnings in year preceding earning CFP Certification$54,000Gross earnings in year after earning CFP Certification$72,000Current average annual gross earnings$219,000Current average annual net earnings$142,000

Financial planner compensation is subject to the same market pressures as the pricing of other professional services. The more unique (in range and quality) the service offered, the greater the differentiation and the greater the compensation. Careful competitive analysis, product development, and documentation of client performance directly affect earning power and sustainability. As in any business, value-added service affects pricing in financial planning. Astute financial planners lessen their risk of swings in competitive pressures and other factors such as stock market volatility by blending compensation schemes.

The tables at left show how CFP licensees structure compensation. As noted previously, the predominant model is now a combination of fees and commissions: the former ensures steady income flow, and the latter rewards planners for exceptional performance on the client’s behalf. For additional information, see Appendix B: Trends in Staffing and Compensation.

Emerging Market Opportunities in Financial Planning

THE ROAD AHEAD in financial planning is leading to many new opportunities previously unavailable to financial planners. Practitioners focused on expanding their product portfolio and customer base need to be aware of these opportunities and react quickly to beat the competition.

The significant trends include the following:

• Increasing attractiveness of financial planning as a career

• Shifting demographics and corresponding wealth

• Increasing parity in two-income families

• A volatile American economy

• Online access to financial information ◆ Consumer need for financial planning services

• Increasing competition from full-service financial institutions

FINANCIAL PLANNING AS A NEW GROWTH INDUSTRY

According to various surveys, CFP licensees ranked the following reasons for high career satisfaction:

• Positive impact on client quality of life

• Opportunity for entrepreneurship

• High interpersonal job content

• Application of technical tools to solve client problems

• Competitive nature of the business

• Unlimited income growth

• Challenge of new business development

• Low business risk

It is interesting to note that business risk (professional liability) was the last concern of financial planners. Interviews with planners conducted by the author on why they chose to enter the financial planning field overwhelmingly revealed a motivation to help people. Planners want to see clients become financially informed and prepared for the future. This humanitarian drive in many ways rationalizes the financial return planners themselves enjoy.

The essence of a career in financial planning is a challenge—a challenge to solve quality-of-life problems in an environment limited only by the practitioner’s will and creativity.

SHIFTING DEMOGRAPHICS AND CORRESPONDING WEALTH

Financial planning is headed into a major transition, propelled by changing demographics. The retirement of 40 million baby boomers is imminent. This population has new views about retirement. It is something to look forward to; it is a time to continue intellectual challenge and growth; it is a time to enjoy.

A significant opportunity exists for this baby boom generation, which stands to inherit some $6 trillion over the next decade. Furthermore, from mid-1982 through the year 2000 the stock market created record highs on a fairly consistent basis (excluding occasional market downturns). Then the market tumbled from 2001 through 2003. It is now more imperative than ever to be responsive to client demands, because it’s not a sure thing that the market increases each year. More consumers than ever need good, solid financial advice.

The definition of retirement continues to change. No longer do people retire from something, such as a job. Now they are retiring to something, actively pursuing the dreams and goals they planned for during their working years. The next generation of retirees will face the inevitable decline of government assistance and shrinking retirement plans in the workplace. People will find themselves forced to take on more responsibility for financial security. Luckily, emerging service industry segments—in particular, information technology—will offer enormous opportunity for many people but greater financial risk for those who miss the information revolution. In the center is an enormous population of middle-income Americans, who today are discovering economical investing online and through discount brokers.

Financial Planning magazine states that 250,000 people are self-proclaimed financial planners. Yet only about 60,000, or about 25 percent, have qualified for certification or formal recognition as a financial planner. Clearly, this supply is not enough to deal with the demand from baby boomers and young Americans striving to save early for educational financing and retirement. This situation of demand exceeding supply for financial services will lead to much specialization in retirement planning.

INCREASING PARITY IN TWO-INCOME FAMILIES

Another important market opportunity is earnings parity in two-income families. Women are not only entering the workforce at a higher rate, but their income growth is closing the gap with men’s salaries, and in particular that of their husbands. Higher joint incomes will lead to greater disposable income, higher tax liabilities with a demand for reducing taxes, and more latitude to save. On the other hand, many two-income families will give in to the desire to spend, leaving little for the future. Both scenarios create candidates for the financial planner. As time continues to be the most scarce and valuable resource to dual-income families and to the busy single person of the twenty-first century, professional help with financial planning will become increasingly necessary. Time saved by shifting the task of financial planning to a professional is time available for personal interests, family, and community.

THE VOLATILE AMERICAN ECONOMY

There are more millionaires per capita today than ever before. Conversely, more people are declaring bankruptcy than ever before. Why the conflicting signs? We are in the midst of a fast-paced and volatile economy. Many “paper” millionaires have money to burn. Other Americans, tempted by easy credit, are more in debt than ever before. More discretionary cash is finding its way into the equity markets with no sign of hesitation, since annual returns in recent years have been significant and steady.

Interest rates have been near historic lows. Inflation is practically nonexistent. Money invested through 401 (k) plans is at an all-time high. However, with more baby boomers approaching retirement, it is becoming more evident that these individuals who have worked so hard may not have the retirement funds they thought they would. Because of this, baby boomers are insecure about their retirement dollars and may have to postpone their retirement date. These people are going to need more help in planning for their available discretionary funds. On the other hand, more people are going to need help managing their cash flow and preventing debt overflow. Planners will have unique opportunities catering to the needs of both populations.

INFORMATION TECHNOLOGY

Easy access to useful information has also created significant opportunities in financial planning. Myriad channels to financial information via the Internet have reached the average investor heretofore dependent on The Wall Street, journal, tips from daily financial columnists, or stockbroker recommendations. These consumers may well bypass financial planners in the same way they are dispensing with old-time brokers. More and more of these independent, take-charge people simply do not have the time to wait for a broker or news flash. Moreover, the Internet is there when the investor needs it. Financial planners will need to learn how to compete by joining the Internet revolution. Rather than viewing it as a threat, astute financial planners will use the Internet as their source of information and as their vehicle to reach new customers. Also, a wealth of new software can greatly assist planners in evaluating risk and return. Planners have a tremendous opportunity to show their skills to a more sophisticated audience.

CONSUMER NEED FOR FINANCIAL CONTROL

Years ago people depended on their local banker to watch the family nest egg. Today people want to control their health, their politics, their privacy, and their money. At the same time, two of the hardest things for people to do are to ration funds to accomplish certain objectives and to set plans to work toward others. Declining dependence on government institutions and traditional financial institutions, such as the community bank, has created a great opportunity for the financial planner to fill the void.

Potential consumers of financial planning services have a broad range of worries, prioritized below:

• ◆ Retirement funding

• Income tax exposure

• Investment and asset growth during the earning years

• Managing cash ◆ Anticipating future health care costs

• Outliving assets

• Estate planning

• Funding education

• Amount of personal debt

• Downsizing and job loss

These worries are not temporary or linear. They occur simultaneously and stretch across social and economic distinctions. For example, funding for education and retirement requires special planning to increase assets with minimal risk.

INCREASING COMPETITION FROM FULL-SERVICE INSTITUTIONS

Consumer choices for financial planning are changing, too. Growing competition may result in an increase or decrease in independent financial planners. As stated previously, technology has influenced practices by creating opportunity that did not even exist just a few years ago. Consider accountants recently forced to redefine their profession. With the advent of tax software available for as little as $40 or bookkeeping software at $100, technology has decreased the need for accountants keeping general ledgers and doing taxes. The ongoing expense associated with bringing in a bookkeeper, accountant, or CPA on a monthly basis has been eliminated by programs performing complex calculations with a few keystrokes. Complicating the business horizon for CPAs are companies such as Vanguard that offer tax preparation software on the Internet for free. This further diminishes the long-term need for accountants. As a result, independent CPAs and larger accounting firms have expanded into a broad range of high-margin consulting areas to make up for erosion in traditional areas.

For their part, stockbrokers have been concerned about the quick development of Internet trading. For as little as 7, a client can conduct a stock trade over the Internet for which a full-service brokerage may have charged $150 in the old days. Why would a customer pay a broker several hundred dollars to execute a trade when the same service is available from an online trading company for $20 or less per trade? Many full-service brokers, such as Merrill Lynch, have radically altered the way they do business by entering the online trading market. Clients may choose to pay an annual retainer to access a brokerage firm’s information products. But why would investors pay that much more money to do what they can do themselves with the same quality research? Few are willing, and many are self-educated. Technology has completely revolutionized the business. What will become of full-service brokers who do not refine their business model for consumers in this century? Seen any dinosaurs lately?

Not everyone will turn to the Internet or other new technologies to avoid traditional channels of financial services. There will always be many high-net-worth individuals and people without time or inclination who want personalized brokerage services. But again, as the changing demographics illustrated above, older individuals and younger people are not afraid to use the computer to find quality financial planning guidance. Financial planners need to find ways to link themselves to online financial information.

Insurance brokers have seen their world turn flat as life insurance sales stagnated over the past decade. Life insurance companies are turning to other products, including mutual funds, variable annuities, and financial planning as a way to make up for the insurance revenue drain. With the repeal of the Glass-Steagall Act, which prohibited insurance companies, investment companies, and banks from owning one another, many of these firms have begun to offer full-service financial products to create one-stop financial shopping. However, the small boutique financial planning firms and solo practitioners who establish their market niches and are technically good at what they do will always find a home catering to the needs of their niche markets.

Financial planners will also come from professions outside the world of finance. Engineers, architects, contractors, salespeople, and other professionals are finding a new career enticing. Some have achieved financial independence and are now motivated to build the skills to help others with what they have accomplished for themselves.

Issues Consumers Consider When Selecting Financial Planners

GIVEN THAT market opportunities argue the need for professional financial planning services, the next logical consideration is “How should consumers select a financial planner?” The consumer will want to consider the following issues:

• Do I need a specialist? This is the same question a patient addresses in selecting a general practitioner or a medical specialist. The general financial planner provides a broad spectrum of services. The specialist provides deep expertise in a specific area. Consumers need to determine where their needs lie, now and in the future.

• Is the planner affiliated with any financial product companies? Affiliation with a financial firm can bias a planner’s answers and/ or recommendations to clients. On the other hand, affiliated planners may be better informed on specific financial product options offered to consumers.

• Does the planner earn significant commissions? A high ratio of commission to total service revenue can be a warning that the financial planner is biased. Consumer confidence is likely to be higher with the more balanced fee-based (i.e., fee plus commission) service provider.

• Will the planner provide professional references? Consumers want and expect to hear success stories, especially when they are recent and relevant. Consumers will ask for references, and the astute professional financial planner will view this as an opportunity to shine, not as an inconvenience.

• Can the planner answer technical questions? Consumers of financial services want confidence. Confidence is built when a financial planner has earned or can demonstrate technical depth with language targeted to the consumer. Consumers are wary of too much jargon or too little technical depth.

• What does the planner charge? Potential clients are looking for specific statements of charges for services linked to performance outcomes. A fee structure based on the financial planner’s delivering specified products eases the consumer’s mind and makes a commission arrangement more acceptable.

• What is the planner’s education and experience? In today’s market consumers expect an adviser to have formal training and accreditation or certification. The greater the financial risk taken on by the consumer and planner, the more important the credentials become. Successful planners may create consumer literature to help prospective clients make the right choices, illustrating their expertise and displaying their credentials at the same time.

IN THE PAST, most consumers have failed to recognize the need for professional financial counseling. Many people who recognize the need have failed to act or have made regrettable decisions about financial guidance. When economic times are good, many people have greater discretionary income, and few worry about tomorrow. This exaggerated confidence in the future leads to procrastination. Financial planners need to recognize that people often spend more time planning their vacations than they do planning for financial security. Today’s financial planner needs to be a master at motivating people to take the right actions for the right reasons right now.

CHAPTER 2

FOUNDATIONS OF A FINANCIAL PLANNING CAREER

IN ANY NEW VENTURE there is a strong impulse just to get started. While energy and urgency are fundamental to success in all competitive services industries, goal setting and practice planning are the first considerations for an aspiring financial planner. As with any new business, one must have a clear vision of what one wants to accomplish: what is the goal? The goal must be so fundamental and clear that it can be described in one to three sentences. This high-level concept is the “big picture” or mission that every business needs, whether new or well established.

The goal is not day-by-day results but rather how a professional financial planning practice will look five, ten, or even twenty years in the future. The ultimate description of the practice will address range of services, number of clients, type of clients, range of client outcomes, geographical coverage, revenue, profitability, organization size, and exit strategy. These issues and others that naturally come to mind in the process of forward thinking will help in formulating the goal.

This initial step—setting down your vision of what you want to accomplish—is by far the most important and possibly most difficult task you will encounter on the road to a career in financial planning. If the goal is wrong, all subsequent effort will be wrong. Write the goal, and share it with friends and family. Let it sit and incubate for a week. If it is still thinkable, achievable, and exciting, then it is ready for work.

A good idea for a service business becomes a great idea if a step-by-step implementation plan is crafted. What are the steps necessary to create a new business that will still be on the right track ten or twenty years down the road? Unfortunately, many financial planners have good ideas but fail in their execution. They either never really know what business they want to focus on or they do not fully consider how to differentiate their practice. When a planner’s Personal needs are synchronized with client needs in a well-thought-out practice start-up plan, success is much more likely.

The popular saying “If you build it, they will come” holds true for financial planning. The challenge is how to build it so that it will thrive and endure. This process has two dimensions: (1) the specific issues the planner needs to consider in planning a financial planning practice; and (2) the sequence of issues—deciding what is addressed first.

The planner must carefully design an infrastructure that will support a growing venture. Financial planning is a service business. A service, by definition, consists of intangibles—informal advice, good client relations, and word-of-mouth marketing—and tangibles—formal products, ancillary service alliances with complementary professionals, and value-added financial information tools. Perhaps most important, a service is making clients feel confident that they are being cared for. When these services are performed well at a fair price, clients will stay happy—and enthusiastically recommend their planner to others. This chapter introduces the beginning financial planner to the issues and steps needed to build a service infrastructure.

“Ten Must-Do’s” for Developing a Financial Planning Practice

TEN KEY STEPS or “must-do” practice planning activities are necessary to get the new business launched. Each practice planning must-do is briefly described below in the sequence in which it should be considered. This chapter addresses several of the practice start-up issues in some detail, and subsequent chapters elaborate on the remaining topics.

1Select a practice structure. Financial planning practices can be structured as sole proprietorships, general partnerships, S corporations, C corporations, or limited liability companies. Each structural option has a unique character, set of benefits, and legal limitations. This chapter reviews the differences among structural options and shows how to assess the merits of each, relative to a planner’s goals and needs.

2Prepare a business plan. All new and established businesses need some sort of written business plan. A good business plan starts with the business environment, that is, the market, competition, opportunities, and challenges. The plan describes the objectives, strategies, and specific actions the person or company will follow over time to master the business environment. A good business plan carefully estimates the resources and contingencies necessary to achieve objectives. Where is the business today, where is it heading, and how will it succeed are questions answered in a polished business plan. For a more detailed discussion, see Chapter 6, “Building the Practice Infrastructure.”

3Find a mentor. There is absolutely no substitute for experience. The speed with which new financial planners establish their product portfolio and client following is inversely proportional to the number of mistakes they make along the way. The best proven method to keep practice start-up snafus to a minimum is to find a mentor. To expedite your entry into the marketplace, you should team up with somebody who has been in the business for a while. Get under a mentor’s wing, and you can learn from his or her experience and profit from firm guidance in the right direction. You can find mentor candidates speaking at financial planning society meetings, running seminars at local educational institutions, or through professional forums on the Web. Professional society gatherings and publications normally feature programs that place entry-level practitioners with mentors. Mentorships are often an integral part of the financial planning curriculum offered by graduate learning institutions. Check the business curricula offered by colleges in your area.

4Get the credentials. Financial planning is technical. There is a large body of information a financial planner needs to master in the process of getting started and