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 advisors 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 advisors who responded to BIC's survey report that having a certified financial planner (CFP) designation is either very or somewhat important and 39% of those say that a CFP designation is reassuring to clients and sets an advisor apart in the bank channel (See "Advisors Weigh in on Financial Planning," on pages 27 and 28.)
Not all advisors feel they need to have a CFP, and certainly plenty of FCs write financial plans without one. In our 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 advisor 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 only about 2,000 new designations per year. The training can cost from $5,000 to $10,000, depending on where you take it. (Fortunately, many firms cover these costs.)
A SEAT AT THE TABLE
However, advisors who are CFPs say the training is well worth it. "Having a CFP is like having a Good Housekeeping Seal of Approval," says 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 advisors, five of whom are CFPs. The designation makes a difference for clients in the know, he says. "There is a subset of people who do their homework very well."
All advisors responding to our survey, however, said that financial planning helps them increase business: 88% see financial planning as somewhat, if not very, important in growing their businesses-only 3% say it has no significant bearing on the growth of their practices. Moreover, 91% report that financial planning, along with ongoing communication leads to deeper client relationships.
For one, financial planning can help uncover hidden assets, says DiPietro. "One of my first clients was a $3,000 account referred to me by a senior banker," he says. "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 says.
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 says. "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 says. 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, says Hughes, 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 Gorham, Maine, agrees. "The benefit is that you can go after bigger fish," she says. "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 Bank's advisors 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 advisors' images overall and shows they take their jobs seriously," she says.
Internally, Gorham Bank regularly promotes its advisors' CFP status to private bankers and commercial lenders and the depth of planning helps them solidify relationships with local lawyers and CPAs.
In addition, saysJoe Bradaseric, a CFP with Harris Bank in Burridge, Il., 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 says, adding that his planning approach leads to many client referrals.
Even if reps don't have a CFP, program managers should, says Stan Smith, a CFP and producing manager of Raymond James' eight-strong program at NewBridge Bank in Kernersville, N.C. "They can provide their advisors with a broad array of planning options that might not occur to an advisor who hasn't gone through the CFP training," he says. "I'm a strong believer in that."He also encourages the reps who work for him to get the designation.
The College for Financial Planning maintains that advisors who get a CFP can expect to enhance their production by 30%, says Smith. That's a good guesstimate, although overall, the results can be hard to quantify. "It's difficult to tie a specific economic impact of offering plans," says Michael Morabelli, president and COO 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 advisors adopting fee-based business than before."
While Harris has offered compre-hensive financial planning to its private banking clients for over a decade, about four years ago it decided to make planning a core element for mass-affluent clients as well. (Ten of its 65 advisors are CFPs and 10 more are in the process of getting certified. Harris picks up costs for the training and study support.)
Karen Kruse, senior vice president of wealth management at First Tennessee Bank, 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 says. "And we decided to make it a complimentary service for every client who wanted it." She reports that clients with financial plans also hold about 30% more assets with the bank than those who don't. But she warns that planning alone won't grow 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 salespeople.
Advisors 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," says Harris' Bradaseric. "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 BIC survey respondents say their clients were calmed by having financial plans during the 2008 meltdown.
GETTING SELECTIVE
Clearly financial planning promotes a client-centric environment in a transaction-based business. But advisors and reps agree that it also involves more work and therefore isn't always economical. About half (54%) of BIC's 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," says Heywood Sloane, managing director of the Bank Insurance and Securities Association. "Some programs have discovered that they had to take care in terms of what segment of customers they're doing that for."
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 number of dedicated CFPs from 50 to 11. "We've had to be more judicious," says Kruse. 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 says. However, the bank 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 footprint and "they're busy," Kruse says. 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 says.
Gorham's Frates has become more selective about who rates a plan as well. "They're very time intensive and they don't always bring in more assets," she says. "My dollar cutoff is based on how much I think they have. I'm also honest: I'll do a plan if they bring in all of their assets. But generally, the cutoff is now hundreds of thousands where it once was $50,000." She'll do one-off modules, like college planning, for clients with $50,000, but reserves full plans for clients with $250,000 more. "It's a lot of hassle," she says. "If I had an assistant to do data entry, I'd do a lot more of them."
NewBridge's Smith notes that only 5% of his clients have opted for a full plan and his team requires a minimum of assets for the privilege. "It depends on the person, but generally you'd need at least $250,000 or more or to be some kind of professional," he says.
PARTIAL PLANS
Planners in our survey are split over whether "modular" planning-creating a partial plan for a specific problem such as college planning or retirement income-honors the spirit of the CFP.
Tony Oommen, a CFP and commercial partnership manager at Fifth Third in Cincinnati swears by full financial plans. "It's hard to give advice in one area without looking at the whole picture," he says. "It's almost malpractice." For example, one client wanted to retire from a business he owned with a partner. The buy/sell agreement was 20 years old and contained a significant pitfall: The formula used to value the business was based on agreed value instead of fair value, and the agreed value was twice what the business was actually worth. This could have led to a huge legal fight had the client insisted on "his stake." He had to put off retiring, but Oommen was able to get him working with the his partner to take their business to the next level, while helping him growing his assets outside the partnership.
"There's a whole lot more to it than whether you'll have enough to live on in retirement," says Doug Edwards, a planner at First Tennessee. "We take a look at your entire life from 30,000 feet." Adds Brian Kuefler, First Tennessee's most productive planner, "Folks who aren't qualified probably have software that can do a little 15-minute plan, something we call a 'quick and dirty' plan. But that's nowhere near the depth of planning people need."
Nonetheless, not all clients want full-blown plans. "Retirement and college planning remain the majority of what we do, and to me that's still financial planning even if it's not comprehensive," says Keith Weber, a former program manager and CFP who now runs the Weber Consulting Group in Fort Collins, Colo. "You make the determination by going through sufficient fact finding. But there's no point in doing a needs analysis for a 25-year-old with a $2,000 IRA-the projections are just too far out."
In addition, implementing comprehensive plans can be a hassle, says First Tennessee's Kruse. "You'd be surprised how much follow-up it takes. Relationship managers who had the primary contact with the client wouldn't always do the legwork and team meetings didn't work. Clients were often overwhelmed by meeting with several experts at once," and the bank wasn't happy tying up several people in the same client meeting.
First Tennessee's Edwards shoots for 10 new plans per month. Most of the people he writes plans for act on them within a year. After all, they've already gone through the hassle of getting their documents together. "That's probably the biggest hindrance, but they eventually do it because it's important," he says. "People in their forties and fifties are more motivated." Kuefler, on the other hand, has been at the program for years, as opposed to Edwards' months. He has done thousands of financial plans, which he reviews annually, and has an 80% success rate of prospects implementing his plans.
CLIENT RESISTANCE
Clients themselves often don't understand the planning process or why they should do it. The majority of our surveyed planners (60%) said they only do plans for up to 25% of their clients.
"The objection is usually that it's time consuming," says Mike Karbouski, a Sorrento Pacific advisor and CFP who works as an independent basis with his old bank, Securant Bank in Elk Grove, Wisc. "Data-gathering takes a while. The hardest part is getting insurance information and getting back four pages of spending data from the client. I have a dozen floating around out there right now! There's no good answer, you've just got to be persistent without being a pest. It's a struggle because a lot of people don't really understand what a financial plan is, although clients walk away happy at the end." Karbouski currently has 50 clients and a book of $8 million, which he hopes to grow to $30 million in the next two years with the help of financial planning.
DiPietro has faced a similar reluctance from his rural clients, who tend to be conservative and financially unsophisticated. "They don't necessarily understand why the advisor should know how much they earn, what their property is worth and what they're planning to leave to their kids," he says. "It's seen as very intrusive until they understand that I'm like a doctor, who would be negligent to write a prescription without knowing what other medication the patient is on. I need to know what this $100,000 means to their overall circumstances."
Clients may also suspect that planning is a way to sell them products they don't need. In early focus groups, Kruse found that bank customers thought planning was a tactic to sell them life insurance they didn't want.
It can make a difference to keep planners separate from salespeople. Planners who work on a salary don't run into the conflicts of interest that can arise when an advisor is both a planner and a producer. Edwards worked as a planner and producer at Northwestern Mutual Life Assurance before coming to First Tennessee. He regularly faced the "hurdle of doubt." "All of a sudden, you have to take off your hat as a planner and tell the client that you're now talking as a salesman," he says. "Clients tend to focus on that."
At First Tennessee, planners are paid a salary to keep them objective. After Edwards has delivered a plan, he brings in a financial consultant to do the selling. Says Kruse, "We decided that all planners would be salaried so that people wouldn't feel we were cramming products down their throats." Of the 60% of respondents to BIC's survey who deliver written plans, 57% write the plan themselves, 19% turn it over to a dedicated planner and 23% write it with the help of an in-house planner.
Charging for plans is one way to ensure that they generate revenue and that clients want them. However the majority of banks (65%) offer financial plans as a complimentary service, according to our survey; 22% charge a fee for one-off plans as a sideline business; and only 13% always charge for plans. How much they charge varies-65% charge less than $500, while only 5% charge more than $1,500. Fifth Third, where advisors charge from $3,500 to $10,000 for an individual plan and $7,000 to $15,000 for a business plan, is in that minority. "A client who pays for a plan has skin in the game," says Oommen. "They know what they're paying for and how we're compensated."
By contrast, First Tennessee, which has 94 advisors managing $16 billion in assets, offers its plans gratis. "We thought about charging but then we backed off because client feedback was so solid," says Kruse. "We decided to look for other ways to pay for it."
Clearly offering full-fledged financial planning in banks isn't the easiest row to hoe. But among other benefits, in an increasingly fiduciary environment, financial planning positions advisors to be compliant with any new harmonized fiduciary standard that comes out of the Securities and Exchange Commission. Over 70% of BIC's survey respondents say being compliant with the 1940 Investment Advisers Act wouldn't be a stretch for them; 72% said they agreed that advisors in banks should be held to a fiduciary standard.
Ultimately, financial planning-especially with CFP training-seems to be a plus for advisors. It broadens their scope of knowledge, boosts client trust and can bring in more assets. "When you add financial planning to your services you build a much stronger relationship with clients, you add value and you gain trust," Karbouski says. "The value is not the document you hand a client but the discussion around it. The numbers change every year, so the objective is always to look at the bigger picture."
Perhaps more important, as investment services become more commodified, a planning approach will be the primary way for bank brokerages to differentiate themselves.
"Banks have historically been very transactional focused and we're really trying to differentiate ourselves," says Harris' Miroballi. "If your focus is product, you're swimming in a red ocean. You need to be able to offer something more and get out into the blue ocean."
Source Citation
"The Financial Planning Advantage; Some advisors are finding that offering full financial plans casts a halo effect on their businesses, even if most clients don't get one." Bank Investment Consultant 18.10 (2010): 20. General OneFile. Web. 27 Nov. 2010.
Document URL
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