As more and more financial planning firms are recognising the importance of having an effective paraplanning process in place, Tracey Underwood,PACE Solutions, summarises some of the key differences between using an outsourced paraplanning firm or recruiting an in-house paraplanner
A question I am regularly asked is whether it is best to recruit a paraplanner to work in-house or to use an outsourced paraplanning company. Having personally used both methods in the past, the decision really does depend on your business model and where you are at in the development of your business. Here are some of the factors you might want to consider if you are considering how best to integrate a paraplanning function into your financial planning business.
The outsourced option
Over the last few years, the number of outsourced paraplanning companies operating in the UK has grown significantly. This can range from the freelance paraplanner offering reporting writing services only, right through to the larger firms offering due platform diligence service and production of the firms’ Centralised Investment and Retirement Proposition.
Of course, when it comes to the outputs, the quality of the report writing from such outsourced businesses will depend on whether it operates a templated ‘one fits all’ report writing system or a report specially created for your firm, incorporating values-based advice. In either case, once the firm is in receipt of the report, it is the advisers’ decision to approve and sign off the advice it contains.
Typically, you’ll find that qualifications for those individuals operating within outsourced companies will vary from the Diploma in Financial Planning through to Chartered Financial Planners and Certified Financial Planner professionals.
The cost of services can vary too, from a fixed price per report or a retainer to include several reports, data gathering and lifetime cashflow modelling.
However, the benefits of the outsourced route include not having to consider elements such as the continuing professional development costs for an internal member of staff, problems caused by annual leave or illness, the value of time out doing research and the time (and financial costs) of studying for and achieving professional qualifications. These are areas which can deliver economies of scale and should not to be overlooked. Even if you are using an outsourced solution, it is still important to build strong relationships and channels of communication with the individuals in that business. This ensures that there is a mutual understanding of what needs to be done, by whom and how so that you can work well together and for you to achieve the results you seek.
The recruitment option
Before you decide to recruit a paraplanner to work within your business, you’ll need to spend some time on working out exactly what it is that you want them to do. It sounds pretty obvious but you’d be surprised at how many firms fail at the paraplanner recruitment process (and consequently hamper paraplanner retention in many cases) by focusing on the report writing aspect only. Paraplanners are so much more than simply report writers. Used effectively, a paraplanner should be able to take total ownership of the advice process, doing research an analysis a well as liaising with providers, administrators and professional partners of the client. They may sit in on the client meetings, run the lifetime cashflow analysing the respective returns required v objectives, pull together the tax calculations and formulate the advice for the client. They provide a sounding board for the advice team to bounce ideas off and also ongoing yet invaluable support to clients when the adviser isn’t available.
One suggestion might be to make it a strategic goal of your advice firm to create a ‘team’ around the client with the paraplanner taking ownership of those client queries that do not require the advisers’ input.
Used effectively, the paraplanner should free up the adviser to use their time to focus on the areas where they are most effective – client retention and acquisition. By leading the client relationship and attracting new clients the advisers are playing to their strengths and maximizing efficiency and profitability.
A word of warning
In today’s competitive market place, recruiting a competent, qualified and experienced paraplanner is not easy. Demand far exceeds supply when it comes to paraplanners. Unfortunately, where the industry has come from in terms of product advice, there are many well-qualified paraplanners who struggle to apply their knowledge into values- based advice. Therefore in your search, I would suggest that you do not purely focus on the qualifications of applicants. You’ll need to delve deeper to ensure that the person who joins your team really does have the all-round knowledge, skills and competence to deliver exactly what you require.
At the recruitment stage, it is important that you test whether candidates can apply their technical knowledge appropriately and effectively – ie you need to check that they’ve got the right skill set to deliver. For example you’ll need to see for yourself whether they have experience in lifetime cashflow and whether they can interpret the results to the level you will require.
When it comes to qualifications, good paraplanners should be at least diploma qualified however working towards Chartered or Certified Financial Planner status is something to look out for. You will also need to look at their experience in the role and drill down into how they operate, the standards they seek to achieve and deliver and the scope of the services they can bring to your firm.
As you’d expect, there’s no such thing as a typical paraplanner salary. The salaries you will need to pay for competent paraplanners can vary according to their qualifications, experience and the geographical region in which you’re based.
Weighing up your options
Ultimately, the decision as to whether you outsource or recruit a paraplanner may well come down to your budget and where you are at in your business development.
Think about whether you want to continue to take full ownership for the advice, giving instructions to your team and pulling everything together. If so, then outsourcing will probably work for you.
However, if you want to spend more time in front of clients and let someone else take care of the advice process, pulling the advice together to present to you, then outsourcing may not be for you and you require someone ‘hands on’ within the business.
Whichever route you decide to take, you will need to work at the relationship. Outsourcing certainly does not mean out of sight out of mind. It pays to think of them as an integral part of your team and invest the time and energy in building the appropriate working relationship and processes in order to maximize its return. You need to work incredibly hard to make the outsourced relationship work. This could take several months before the services are akin to that required within the firm but do persevere. There are many firms for whom this flexible yet arm’s length option is the perfect solution. It just takes time – and patience.
The same applies to recruiting a paraplanner. Continual development is required from both parties to ensure they are delivering to the needs of the business and its clients. The good news is that in getting this right you will see significant benefits of increased efficiency and profitability across the business as well as happier clients.
About Tracey Underwood
Tracey is the owner and founder of PACE Solutions. The business provides support for financial planning firms by focusing on operational practices including; recruitment, compliance, processes, client proposition and business strategy. This is achieved not only through a consultancy process but by hands on implementation to ensure that firms achieve effective results that would otherwise not be achieved through consultation only.