Some advisers are finding that offering full financial plans casts a halo effect on their businesses, even if most clients don't get one.
What's more, financial planning is an advisory approach to investments. It elevates what has traditionally been a basic, commission-based service into a wealth management offering, and because a full financial plan broaches multiple product areas, including savings, loans, college, estate and retirement planning, it increases opportunities for advisers to cross-sell their services. Yet not all clients want or should have a plan, and it hardly seems economical to offer full-blown plans for every soul who enters a bank.
A majority (62%) of 278 bank-based advisers who responded to a survey by Bank Investment Consultant magazine report that having a certified financial planner designation is either very or somewhat important and 39% of those say that a CFP designation is reassuring to clients and sets an adviser apart in the bank channel.
Not all advisers said they feel that they need to have a CFP, and certainly plenty of financial consultants write financial plans without one. In the survey, 39% didn't think a CFP was necessary, and 10% said that their "series licenses provided all they needed to be an excellent planner."
The CFP designation, conferred by the College for Financial Planning in Denver, requires three years' experience as an adviser and a clean record before candidates can even start the coursework, which isn't easy. The exam has only a 50% pass rate and the CFP board issues about 2,000 new designations per year. The training can cost from $5,000 to $10,000, depending on location. (Fortunately, many firms cover these costs.)
However, advisers who are CFPs say the training is well worth it. "Having a CFP is like having a Good Housekeeping Seal of Approval," said Larry DiPietro, an Invest rep at Capital City Bank in Tallahassee, Fla. When DiPietro joined the bank in 2005, he was the only CFP. Now the program has 16 advisers, five of whom are CFPs. The designation makes a difference for clients in the know, he said. "There is a subset of people who do their homework very well."
All advisers responding to the survey said that financial planning helps them increase business: 88% see financial planning as somewhat, if not very, important in expanding their businesses; only 3% say it has no significant bearing on the growth of their practices. Moreover, 91% report that financial planning, along with continuing communication leads to deeper client relationships.
For one, financial planning can help uncover hidden assets, DiPietro said. "One of my first clients was a $3,000 account referred to me by a senior banker," he said. "Through the planning process, I found out he had an additional $25,000 in stocks. Then I found out he had a $300,000 IRA and a circle of friends in similar circumstances." Through that one $3,000 referral, DiPietro wound up bringing in over $1 million in new business. "You become hardwired to recognize opportunities that would get past you otherwise," he said.
And as an advisory approach gains traction over a transactional one, financial planning opens the door to a broader range of product solutions and a more sophisticated client base. Louis Hughes, an ICA rep and CFP at City National Bank in Taylor, Texas, has remade his business over the past 10 years from all commission-based to 75% fee-based. "Our business is now a lot less transactional," he said. "I felt that a CFP is something you've got to have as a minimum standard."
Hughes, who manages $100 million for 400 clients with the help of a junior rep, wanted his practice to be more personal and relationship based. "I've tried to shrink the number of clients and dig deeper into client relationships, and a planning strategy drives that," he said. It "allows you to identify more issues, which is No. 1. No. 2 is that if you don't have a CFP, your competitors might know something you don't."
Probably no more than 10% of his clients seek out his services because he is a CFP, Hughes said, but those who do "tend to have much higher assets and go quickly from prospects to clients. There's definitely a segment of people for whom the CFP resonates, and they tend to be high net worth."
Kristi Frates, a CFP and Invest rep at Gorham Savings Bank in Maine, agreed. "The benefit is that you can go after bigger fish," she said. "High-net-worth individuals want knowledge and experience, and a CFP is the best way to get a seat at the table." Both of Gorham's advisers hold CFPs. Frates, who has been with the bank since its program started in 2001, got enough queries about whether she had a CFP to spur her to get one. "It enhances advisers' images overall and shows they take their jobs seriously," Frates said.
Internally, Gorham regularly promotes its advisers' CFP status to private bankers and commercial lenders and the depth of planning helps them solidify relationships with local lawyers and certified public accountants.
In addition, said Joe Bradaseric, a CFP with Harris Bank in Burr Ridge, Ill., knowing all the parts of the CFP course, including employee benefits, taxes and estate planning gave him a much larger and more detailed knowledge base about when to bring in a CPA or an estate planner. "You can work with the other professionals much better," Bradaseric said, adding that his planning approach leads to many client referrals.
Even if reps don't have a CFP, program managers should, said Stan Smith, a CFP and producing manager of Raymond James' eight-strong program at NewBridge Bank in Kernersville, N.C. "They can provide their advisers with a broad array of planning options that might not occur to an adviser who hasn't gone through the CFP training," he said. "I'm a strong believer in that." Smith also encourages the reps who work for him to get the designation.
The College for Financial Planning maintains that advisers who get a CFP can expect to enhance their production by 30%, Smith said. That's a good estimate, although overall, the results can be hard to quantify. "It's difficult to tie a specific economic impact of offering plans," said Michael Miroballi, the president and chief operating officer of Harris Investment Services. "But we're bringing in about 30% more in fee-based business than we did at the peak in 2006 and think it's due in large part to financial planning. The average account size is bigger, and we're seeing more of our advisers adopting fee-based business than before."
While Harris has offered comprehensive financial planning to its private banking clients for more than a decade, about four years ago it decided to make planning a core element for mass-affluent clients as well. (Ten of its 65 advisers are CFPs and 10 more are in the process of getting certified. Harris picks up the costs for the training and study support.)
Karen Kruse, senior vice president of wealth management at First Tennessee Bank in Memphis, helped develop the financial planning platform in 1998, after much research, focus groups with the bank's clients and talking with banks that already had financial planners. "We decided that all planners would be CFPs," Kruse said. "And we decided to make it a complimentary service for every client who wanted it." She reported that clients with financial plans also hold about 30% more assets with the bank than those who don't. But Kruse warned that planning alone won't expand your business. She had a few planners go to the sales side to try to make more money, but they didn't because they weren't particularly good sales representatives.
Advisers also report that the trust that develops through a planning relationship helps keep clients calmer and focused during troubling markets and economic turmoil. "My business weathered the crash very well," Bradaseric said. "Planning prepared us with sizable emerging funds and well-thought-out paths for the future. That gave clients a sense of comfort at a time when comfort was hard to find." Seventy-six percent of the survey's respondents say their clients were calmed by having financial plans during the 2008 meltdown.
Clearly, financial planning promotes a client-centric environment in a transaction-based business. But advisers and reps agree that it also involves more work and therefore isn't always economical.
About half (54%) of the survey respondents say the planning process takes at least three client meetings, although 46% say they can get the job done in one exploratory meeting and a follow-up. "It's fairly labor intensive," said Heywood Sloane, managing director of the Bank Insurance and Securities Association.
Survey respondents agree. One-third says clients need at least $100,000 in assets to make a financial plan worthwhile, another third requires $250,000 or more and 18% says plans should be reserved for clients with $500,000 or more to invest.
First Tennessee, which started out offering plans to all comers, wound up limiting the service to private banking clients with at least $500,000 in assets. It also decreased its dedicated CFPs from 50 to 11. "We've had to be more judicious," Kruse said. The complimentary plans were a huge hit with customers, led to a greater share of recipients' wallets and remains the bank's most popular service, she said.
However, it found that most clients didn't need more than basic budgeting because they had more debt than assets.
Still, the program has two planners in each major metropolitan center across its area of operations and "they're busy," Kruse said. Each planner writes about 60 plans a year and does annual follow-up reviews with each client.
Planners contribute to revenue across the bank's product spectrum when they recommend courses of action. They earn bonuses based on their effectiveness, measured by whether they regularly schedule annual reviews and how much additional revenue their planning clients bring to the bank. This is credited to a normalized grid, which is product neutral so it doesn't matter to the planner whether a client opens a fee account or takes out a loan. "Whatever planners feel the biggest need is, that's what they'll emphasize in the presentation," Kruse said.
