Buried In The Newly Released 2011 Survey Of Trends In The Financial Planning Industry: Serious Challenges To The CFP Profession

Friday, April 01, 2011 17:00
Buried In The Newly Released 2011 Survey Of Trends In The Financial Planning Industry: Serious Challenges To The CFP Profession

Tags: business planning | CFP Board | financial planning | NAPFA | registered investment advisors

For about 15 years, the College for Financial Planning annually released its “Trends In The Financial Planning Industry,” a comprehensive report on broad industry developments. Only in 2010 did it miss a year. (A spokesman could not respond in time for this post to a question about why the College missed 2010.)

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 2011 Survey Of Trends In The Financial Planning Industry
The College study is based on data from 283 CFP practitioners. A comprehensive questionnaire must be filled in by respondents, which undoubtedly makes it difficult to get a larger group to respond. Though the small sample size opens the survey data to being skewed toward one group of planners (fee-only, brokerage affiliated) or another, answers the 283 respondents certainly provides insight into broad trends. 
Of course, the official College interpretation of the trends in the industry is rosy. The callout box in the press release highlights the following quote in the College’s analysis:
“On the heels of one of the worst recessions in U.S. history, salaries for personal financial advisors are not at historical levels, certainly, but what data continues to show is tremendous job satisfaction, the unparalleled importance of the human component in advisors’ careers, and the value advisors place on education.”
Buried in the survey data is a statistic that does not bode well for the financial planning profession: 50% if the CFP practitioners don’t prepare comprehensive financial plans or don’t charge for them.
What is supposed to be the major work product offered to consumers by CFPs, their raison d'ĂȘtre—comprehensive financial plans—is not offered by 13% of CFPs surveyed and another 37% provide comprehensive plans for free. Typical Fees Charged For Comprehensive Financial Plans(In a story in the April 2011 issue of Financial Advisor, I report on related crosscurrents rocking the financial advisory business.) 
Moreover, among CFPs that charge for creating comprehensive financial plans, only a third charge more than $1,000; the fees CFPs are charging bare little relationship to the amount of work that goes into creating a comprehensive plan. 
My point is that the financial planning “profession” has a serious problem. The main product of a financial planning business—comprehensive planning—is not the way planners make money. Single-focus plans show the same pattern, according to the survey data.
Writing financial plans is not the way planners with 10 to 14 years in the business make their mean gross earnings annually of $239,405. They’re making money on asset management, not planning.
After writing about financial planning for 28 years, it recently dawned on me that people who have the money to pay for a financial plan are often so wealthy they don’t need a plan, and the people who do need a financial plan often can’t afford one.
These practical business issues need to be addressed by financial planners if they are serious about wanting to become a profession.



Comments (7)

Unfortunately, these findings don't surprise me at all. Most planners haven't developed a reliable model for charging fees for their services. They have relied first on commissions and, lately on assets under management to earn their income. The public doesn't view most financial professionals as they do accountants or attorneys and until someone figures out how to get paid for all that work, it's not going to change. RAF
randyafox , March 31, 2011
Very well put by Andy and the CFP. Chip Roame, CEO of Tiburon Strategic Advisors, took this point one step further at his presentation to the San Francisco FPA meeting back in November last year. Given the momentum underway of individual investors moving toward a DIY /passive ETF model, the opportunity exists for advisors to sell their planning skills. I don't intend on doing a comprehensive plan for less than $3.5K.
ashleysmurphy , April 01, 2011
This is insightful and important. Too few advisors have ever really gotten the fee-for-service idea, and commissions and AUM pricing have provided too convenient cover for actually dealing with these business issues.

This is especially frustrating in light of Julie Litlechild's research showing that taking a more comprehensive approach is one of the three components to driving referrals. Not only is it limiting our ability to become a real profession, it is limiting our ability to grow our businesses!
stephenw585 , April 01, 2011
Goes to show that a lot of people get the CFP mark for marketing purposes only. Pretty sad. Perhaps a requirement to maintain the designation should include the submission of at least one case study each year. Good info Andy.
mcolgan , April 01, 2011
I agree that there is a real need for financial planning services for the " not so wealthy.". The issue is - how to deliver high quality service that is affordable for the consumer and profitable to the planner? I'm hopeful that the market will create opportunities for firms offering services of this calibre - without a reliance on asset management fees. As consumers become more aware of the need for unbiased planning advice, the demand will increase, resulting in an opportunity for some entrepreneurial planners to develop a niche.
SherylCPA , April 02, 2011
Cheryl Holland
I think the challenge is for planners to paint a picture for potential clients that helps them understand the value of not only a comprehensive plan but ongoing comprehensively planning services. If the profession can better articulate the value of comprehensive planning, we will more likely receive a fee for our planning services. Our minimum fee for a plan is $6,000 and our average fee for a new plan is $10,000.
Cheryl Holland , April 02, 2011
The problem is that the calculations in planning are flawed. Instead of being diagnostic, they are designed to be illustrated to 'get the account transferred.'

The plan (goal) needs to set the agenda, not the market.
brentb843 , April 04, 2011

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