TodaysAdvisor.com

(Editor's Note: Finally, a group of enterprising young financial professionals realize that the Baby Boomers who will be retiring over the next decade will include the first generation of financial planners, the same ones who gave birth to the industry, and therefore, the next generation needs to be in place and ready to assume the mantle and take financial advice and planning, firmly, into the 21st Century. We salute them. JM)

When Aaron Coates was in his mid-20s and beginning his career as a financial planner in the late 1990s, peers were few and far between. “At conferences, you don’t go around asking people’s ages. The only way I could get an estimate was to go to the back of room and look how many people had hair,” Coates says.

There are more heads with hair than ever before, says Coates, now 33, although the increase has been gradual. The number of Certified Financial Planning designees today backs up his observation. The Financial Planner Board of Standards, Inc., records 20.3% of its 54,631 certificates held by financial planners between the ages of 30 and 39, but only 3.12% are between 20 and 29. That’s more twenty-somethings than 10 years ago, when only 1.5% of designees were in that age group, but back then the percentage of 30-year-olds was closer to 25%.

Younger financial planners are still very much a minority. And they continue to face hurdles brought on by the intrinsic nature of a new and emerging industry. Unlike more established professions such as law, accounting and medicine, where practitioners can refer to communal experience dating back hundreds—even thousands—of years, most financial planning firms are small and the industry’s founders are still alive and kicking, giving financial advice. Consequently, the principals of financial planning firms have tended to focus on meeting their clients’ planning needs, and not necessarily on training successors and creating succession plans, although that’s changing.

Young financial planners also face the perception issue—are you going to trust a 30-year-old with your life savings, or someone who has been through at least a couple of market downturns?

“There’s distinct bias toward mature planners. In our program, most of the people are changing careers, so they’re mid-career professionals,” says Dr. Somnath Basu, a professor of finance at California Lutheran University and the head of the schools MBA program in financial planning, which started up eight years ago.

In addition, members of the younger generation simply have a different mindset than their older colleagues, who moved into financial planning from related fields. The younger crop, often having studied for the profession at school, tend to be more technically oriented across financial planning’s wide array of disciplines. And many of them are technology wizzes, intimately familiar with the data and software available to support the business.

The vast majority of older, more experienced planners—45% of CFPs are above the age of 50 and another 30% are between 40 and 49—instead often focus on what they learned prior to entering the financial planning business, whether investment or insurance sales, or even accounting or legal strategies. This combination of factors has created a gap between the generations that younger members have at times found difficult to cross. In fact, young graduates with degrees in financial planning often have to seek employment outside the field, at least at first.

That disparity creates a quandary, because the bulk of financial planners today will be retiring along with their fellow baby boomers. So who will manage the finances of their clients and everyone else seeking professional advice in an ever more complicated financial world?

Fortunately, the financial planning industry is showing signs of evolving and finding ways to replenish its ranks. Beyond the increasing number of schools educating students in the discipline—20 years ago it was only 10, maybe fewer, says Tom L. Potts, professor of finance and director of the financial services and planning program at Baylor University in Waco, TX—younger financial planners are seeking out one another and networking to find solutions to overcome their hurdles.

Organizations such as NexGen, a group co-founded by Coates and Michael Kitces, are at the forefront of the effort, and Coates says the three-year-old initiative has taken on a life of its own. “Local groups are forming and calling themselves NexGen and they’re doing professional study groups, addressing work- and client-related issues,” Coates says.

Michael Kitces

The original NexGen now has about 140 members, and a hundred or so actively discuss issues and solutions over the group’s Yahoo! chat board. It plans to have its own website active soon. But for now, the group has received plenty of support from the Financial Planning Association, the main trade group servicing financial planners. In fact, the FPA has established a service to match up young financial planners with “coaches” who mentor young professionals and help them through issues they face.

That service originates from a less formal group of experienced financial planners that emerged in 2004, when the FPA first opened up its Conference of Advanced Planners to everyone. Coates, who attended that conference, earned a financed-focused degree in business and worked at Merrill Lynch for a year, earning a Series 7 license, before starting at Compass Wealth Advisors in 1996, where he now acts as chief investment, information and compliance officer. At the conference, he found only one other person under 40. “It was somewhat discouraging from that point of view because it was an amazing experience,” Coates says.

Coates says the roster of people speaking and attending the conference, and the ability to interact with them, was what impressed him. One speaker was Paul Fain, son of P. Kemp Fain, the first person to enroll in the Certified Financial Planners certification program, receiving his designation in 1973, and founder of the International Association for Financial Planning. Coates says Fain spoke about the struggles he faced taking over his father’s practice and how he relied on advice from his father’s peers, “The rats in the barn because they know where the cheese is.”

One of those elder planners, Ben Coombs, heard the speech, and it prompted him to start up the Rat Pack, an informal group of experienced planners committed to doing five acts of mentoring a year. At the next conference, Coates noticed more youngsters attending, and that’s when the idea for NexGen crystallized. He gathered up the younger crowd to meet with Coombs, who Coates has used as a mentor since then. “I said, ‘What about an idea similar to what the Rap Pack is doing, but for younger people?’”

The concept was enthusiastically accepted and NexGen was born. Coates teamed up with 29-year-old Kitces, who, as director of financial planning at Columbia, MD-based Pinnacle Advisory Group for more than four years, has specialized in an evolving position at financial planning firms that focuses on the technical aspects of building plans rather than meeting with clients. Initially, Coates says, they viewed NexGen as a community in which members supported one another and shared information to overcome work struggles. A major hurdle and topic of discussion was that experienced financial planners understood that they needed to hire younger talent but had never really done it before. For younger people looking to break into the business, often with newly minted degrees in financial planning under their belts, it has been unclear what to expect when applying to firms, and which kinds of positions they should be striving for.

Coates says the leading financial planning firms have quickly stepped up to the plate, creating entry positions and scouting for candidates to fill them, often by canvassing financial planning degree programs for prospects. But there’s still a long way to go.

“There are firms that have developed career paths. But there are also advisors out there in a I-have-to-do-it –for-myself phase in life, and they haven’t recognized value of adding staff and giving up some responsibility,” says Michael Branham, NexGen’s president elect.

Those firms may be thinking about hiring, but unlike law firms that have clearly established entry-level positions, they haven’t yet defined which duties such a position entails and the benchmarks for advancement. In turn, that lack of definition keeps financial planning positions off job seeker’s radar screens. Branham, for example, studied economics at the University of Minnesota and knew in school that he wanted a career in which he worked with people and built long-term relationships with them. Unaware that financial planning met those criteria to a tee, he took a job with a large regional financial services firm and quickly discovered he had signed on to a sales position.

“I accepted a job to become an advisor and it turned out to be one of those scenarios where they were hiring as many young people as they could, throwing them against the wall, and seeing which ones stuck,” Branham says, adding that he quickly realized investment products sales was not a long-term choice for him.

At that time, though, he simply didn’t know much about the financial planning profession. By sheer chance, his new wife worked around the corner from White Oaks Wealth Advisors, a financial planning practice that she spotted and pointed out to him. He applied and was given a position under Jonathan T. Guyton, CFPR, in 2001. A few years later, Guyton set up Cornerstone Wealth Advisors, taking Branham with him.

Branham started at the firm as a “planning associate,” answering phones, writing plans, and responding to client questions. He participated in meetings but played more of a background role. Since then, he has received his CFP designation and with more experience under his belt taken on a greater role facing clients, teaming up with Guyton to talk to them or at times Andrea Eaton, another planner who joined the firm in January 2005.

Beyond issues surrounding career development, NexGen members exchange ideas online about the nitty-gritty details of the business. How much can clients contribute to a retirement plan in an unusual situation? Which client management systems and planning software are most effective? How does one approach a boss for a raise? What types of succession plans are financial planning firms putting in place?

“We’re still having a debate over fee-only versus commission-based compensation, and trying to find the best way to structure the business,” says Sabrina Lowell, noting how it can be hard for a young planner with a family to support to start off charging an asset-based fee.

Sabrina Lowell

Lowell is NexGen’s president this year. She graduated from college four years ago with a degree in business and knew at that time she wanted to pursue an investments-related career. She interviewed with a wirehouse, an investment research firm and San Francisco-based Mosaic Financial Partners, a financial planning firm. In search of a smaller firm, she chose the latter. She recalls studying for the CFP in 2002 in a classroom of students in the mid-40s and thinking, “It’s hard for me to relate to these people.” Most of them came from other careers in finance and, due to their experience, received their designations right after passing the exam. She, instead, had to wait a year and a half after taking the exam to accrue the required three-years experience. “A lot of young planners face that,” she says.

In search of peers, she found out about NexGen and Googled the names of Coates and Kitces to contact them. She met them at the Conference for Advanced Planners in 2005, the second year it was open to everyone. “Out of about 450 attendees, there were six younger people,” she says.

Last year that number was considerably larger, she says. Last August, NexGen also sponsored, in partnership with the FPA, its own conference in Estes, Colo. In July, it will hold its second conference—chaired by Kitces—at St. John’s University in St. Cloud, Minn. Conference sessions will include one called “Good Fit,” which will explore the roles available at financial planning firms today and match them with attendees personalities and goals. Part of the Good Fit session will discuss the type of position Kitces holds. He supports six relationship-management planners and four other planners, ensuring their plans are constructed properly, software is being used correctly, and the final analysis and recommendations are appropriate. Kitces, who did something similar for two years at a broker-dealer before finding his current position through an FPA ad, says his role is becoming more common.

“I see more people with a “director of financial planning” tagline by their signature than a few years ago. As the fee model becomes more popular and can support larger staffs at financial planning firms, I think we’ll continue to see this position evolve,” Kitces says.

In an effort to keep NexGen relevant to younger planners, members past the age of 36 can no longer vote. The idea is to keep of issues relevant to the younger mindset. For example, the tech-savvy crowd has recently discussed “paperless office-type software” and the pros and cons of each program, Lowell says. “We had a huge conversation about estate planning software and concluded the perfect product hasn’t been developed yet,” she says, adding that tech-savvy members want planning software that’s comprehensive and robust, so planners can avoid shifting client data from one program to another.

Lowell credits members’ heightened interest in technology to many of them recently earning degrees in financial planning, for which they analyzed the profession in gory detail. Basu, who serves on committees at financial planning organizations including the CFP Board and the FPA, says there are 200 academic institutions offer 300 programs today, with half of those programs providing certificates, 33% undergraduate degrees and the remainder graduate degrees. He adds that 75% of students earn certificates, while between 15% and 25% earn undergraduate degrees and the remainder graduate degrees.

Basu notes that many of those never pursue financial planning as a career. But many of the younger ones that enter the profession have literally grown up with computers and they know how to use them. “So they want the software to really do the number crunching,” Lowell says.

Attend FPA NexGen 2007, A Communities of Interest Conference, July 20-22, Saint John's University, St. Cloud, MN

For more details click here: http://www.fpanet.org/nexgen/

TA