Michael Angell, CFP®, EA, is an associate professor at the College for Financial Planning. He began his financial services career over 20 years ago. With both independent, boutique-style firms and large corporations, he has served clients in various capacities.
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One of the most successful business stories in U.S. history is that of McDonald’s. In many ways, McDonald’s epitomizes the American business model of fast, friendly service. This mega-chain started simply when two brothers, Richard and Maurice McDonald, decided to open a humble hamburger stand in 1940. By 2019, McDonald’s system-wide sales exceeded $100 billion.1 As a matter of public record, the company’s market cap hovers around $160 billion.
The McDonald brothers worked very hard to be successful, but after opening a second location they hit a wall. They simply did not have time to manage more than two locations. Business was booming, but they were unable to expand any further. A milkshake salesman named Ray Kroc came along. To paraphrase, he told the two brothers, “Hey, you guys really need to learn how to delegate. Train some employees to do what you are doing. Your number one job should be to open new locations.” The key business lesson he taught them was that the highest and best use of their time was to get more customers.
Similar to how the McDonald brothers reached their crossroad, there comes a point in every successful financial planner’s life when they realize they cannot grow their client base if they keep doing what they are doing. There are simply not enough hours in the day. Where is the breaking point? It varies. For some financial planners, it is 50 clients. For others it is 100. For some younger folks with lots of energy, it may even be 200 or 300. Regardless, everyone has their own personal limit. One day, the stress of running a practice starts to wear on the solo practitioner. It is at that point they admit it is time to make a change. This is a difficult step because independent planners are often do-it-yourselfers to the core. It is hard to admit “I need help to grow.” That is where a paraplanner comes in.
What Is a Paraplanner?
Trained paraplanners can be identified by the FPQP™ designation, which stands for Financial Paraplanner Qualified Professional™. Paraplanners are specifically educated to help financial planners. Their ongoing service to financial planners is comparable to the manner in which paralegals help lawyers. The paraplanner’s areas of expertise mirror the financial planner’s: investments, insurance, retirement, and estate planning. In fact, some more experienced paraplanners may know a few administrative tricks of the trade that some financial planners do not know.
The key word in the relationship is “delegate.” After a week of long meetings, a financial planner will want to simply hand a client file to their associate and say, “Take care of this for me. I’m beat. I’m going out for a glass of wine. See you on Monday.” The best part is, they will take care of it for you. Paraplanners are the folks who pack your proverbial parachute while you sleep.
Why Do You Need a Paraplanner?
If you have hit the wall and your practice has stopped growing, you need help. More than that, you need competent help. You now need someone who can do more than greet clients and take messages. You need someone who can pull statements and run investment reports. You need someone to call the attorney and ask where those estate documents are. You need someone to call the CPA and ask where the previous two years of tax returns are. You need someone to politely explain to the insurance company that they sent the wrong illustration. You need someone who will not give you a deer-in-the-headlights look when you ask them to calculate the client’s investment returns before a meeting.
Ask yourself this: Did you really go into this business because you like to do paperwork? Do you enjoy spending more time processing forms than meeting with clients? If the answer is “no,” then you need to hire a paraplanner.
Increase and Retain Revenue
The first question most financial planners will ask is, “How is hiring a paraplanner going to help my business? What is really in it for me?” If you are an independent financial planner, you want to know what the ROI is. The primary benefit of hiring a paraplanner is you are going to free up your own time. Why is that important? Because the highest and best use of your time is getting new clients. New clients pay fees and increase assets under management, and that makes you more money. Hiring a paraplanner will expand your own capacity.
Hiring a paraplanner can also help increase client retention by providing service after the sale. For example, it is not uncommon to find a superstar closer who has a lot of clients but also feels out of control of their practice. Why? Usually the reason is a lot of the administrative work is not getting done. When the work goes undone, clients notice. This is a dangerous state of affairs because an unhappy client is your competitor’s top prospect. Paraplanners provide the indispensable link between sales and service. Between giving you more time to get new clients and helping you retain your existing clients, paraplanners practically pay for themselves.
Additionally, another possible benefit of hiring a paraplanner is the Qualified Business Income (QBI) tax deduction. Financial planners, along with doctors and lawyers, are what the Tax Cuts and Jobs Act refers to as Specified Service Businesses. By design, it is difficult for solo practitioners to qualify for the QBI deduction unless they create jobs. Presumably, this is to stimulate the economy. The QBI calculation is very complex, but the underlying message is that S corporations may be able to exclude up to 20 percent of their income from taxation. In other words, if you created a job, Congress wants to reward you for that with a tax incentive.
A paraplanner can, and should, be the financial planner’s number one fan. Have you ever noticed people act differently when they know they are being watched? Suddenly, they are on their best behavior. The mere presence of an associate of yours in the office tips the scales of psychology slightly in your favor. You may notice clients behaving more politely.
If you have a good relationship with your paraplanner, they will tell all your clients how wonderful you are. Let there be no doubt in your mind, when you leave the room, that is exactly what the clients are going to ask. To break the ice, clients will often ask, “So, what is it like working for Brad?” or “Do you like working for Denise?” An enthusiastic employee is a ringing and sincere endorsement of your skills, which in turn enhances your reputation among clients.
Paraplanners offer intangible benefits as well. First, in addition to increasing your capacity, there is something else a paraplanner can do for you: increase your time off! You can finally take that vacation. There is finally someone else back at the office making sure things don’t go haywire while you are out enjoying yourself for a change. Having a paraplanner onboard thus reduces stress and increases peace of mind.
Second, a paraplanner can serve as a second set of eyes. Two heads are better than one. As smart as you are, we are all only human. Everyone has blind spots. A good paraplanner will remind you of key points you may have forgotten: “The Johnsons have not rolled over that $500,000 annuity yet,” for example.
Third, paraplanners offer a comparative element of security. For instance, when the practice starts to get too big, some planners have attempted to hire a junior financial adviser to help them manage their book. Unfortunately, history has proven that is a great way to lose half your clients. Without a proper non-compete agreement that has been preapproved by an attorney, that situation has been known to deteriorate quickly. In contrast, a paraplanner is in a service role, not a sales role. A paraplanner is not a competitive threat to your client base. They are content to help you grow your book. Again, this brings peace of mind.
How Much Does a Paraplanner Cost?
Paraplanning is becoming a profession in its own right. Paraplanners are in demand because their supply is limited. There is a sweet spot when acquiring quality associates. No one wants to overpay the help. On the other hand, it is unwise to underpay them, lest they look for greener pastures. Be prepared to spend $40,000 to $60,000 to hire a capable paraplanner, depending upon their experience.2
Be prepared to also offer your new associate employee benefits. Any paraplanner worth their salt knows how benefits work, so it would also be a good idea to offer your paraplanner health insurance and a retirement package. The benefit to the employer is that fringe benefits are a great retention tool. Employees realize that if they leave, they may have to wait up to a year to qualify for these same benefits with a different employer. They are therefore more likely to stay, which helps stabilize your practice.
When should you hire a paraplanner? The choice is yours. Every practice is unique. If you are the type of planner who is leasing office space and charging a 1 percent fee for assets under management (AUM), you should probably get very serious about hiring a paraplanner when your AUM reaches $25 million to $30 million.
When looking for a paraplanner, look for one who holds the FPQP™ designation. This stands for Financial Paraplanner Qualified Professional™, which was previously offered as the Registered Paraplanner™ mark. This will ensure you have applicants who have passed a rigorous and lengthy academic program. In a word, FPQP™ designees are top quality candidates with superior training.
Every successful planner will eventually “hit the wall.” It becomes increasingly difficult to acquire new clients because the planner is simply too busy servicing their existing clients. Growth stagnates. Stress increases. It becomes harrowing to take a vacation or even a day off. Remember, the highest and best use of your time as a financial planner is to acquire new clients.
Paraplanners free up your time. They speak your language. They do the grunt work. They confirm your appointments. They open the brokerage accounts once the client has signed the requisite documents. They pull account statements, analyze the current positions, and even seek out new assets. They have a working knowledge of everything you do—retirement planning, investments, insurance, and estate planning. Paraplanners, by their very presence, immediately send the message to clients that you are successful. Once you have found one that you have good chemistry with, you will ask yourself, “How did I ever get along without this person? In fact, who wouldn’t want a paraplanner?”
- See “McDonald’s Reports Fourth Quarter And Full Year 2019 Results And Quarterly Cash Dividend.” https://corporate.mcdonalds.com/corpmcd/en-us/our-stories/article/ourstories.q4-and-2019-results.html.
- See “Average Paraplanner Salary” at www.payscale.com/research/US/Job=Paraplanner/Salary; and “Registered Paraplanner” at www.salary.com/research/salary/posting/registered-paraplanner-salary.