Amid estimates that nearly 40% of all financial advisors are likely to retire in the next 10 years, the need for a new generation of advisor talent is clear. To meet this challenge, CFP Board’s Center For Financial Planning has engaged in fundraising for several years to fuel campaigns that have focused on building the advisor workforce of the future. But a recently announced increase in annual CFP certification fees – shifting the Center’s efforts from voluntary fundraising amongst donors to a mandatory cost for all CFP certificants, as 35% of the fee increase is allocated to Workforce Development efforts – raises an important question: Who actually benefits the most from increasing the number of students pursuing degrees in financial planning?
Insurance companies and broker-dealers in the business of manufacturing products and hiring advisors to sell them often dominate career fairs and job boards, frequently drawing in graduates of CFP Board-approved education programs. But these positions are often tenuous for new advisors, with extremely high failure rates, driven in large part by compensation that is reliant primarily on commissions from product sales. In fact, for decades, approximately 80% of those who take such ‘financial advisor’ sales jobs with product manufacturers leave those companies (and potentially the industry) after 3–5 years! And while CFP Board does emphasize in its Career Guide that commission-based income is lower initially for more upside in the long run, the guide does not acknowledge the drastically higher failure rates that come with commission-based roles.
The added complication is that, while this structure of hiring a large number of new advisor recruits with a high level of churn results in a high volume of aspiring planners potentially leaving the industry altogether, it is quite profitable for the insurance companies and broker-dealers themselves. As from the perspective of the product manufacturer, spending money on recruiting to get new advisors who bring their ‘natural-market’ list of 100 friends and family means that the company ‘gets’ 100 leads at the cost of nothing more than some licensing exams and a recruiter to bring them in – as new advisors who are recruited but don’t sell much of anything don’t get paid much of anything… but the insurance company still gets to keep the list of 100 prospects (and in many cases, the trails from the new advisor’s early sales that no longer have to be paid after the advisor leaves). Which, at scale, can actually be even more cost-effective as a lead generation strategy than simply buying leads from a third-party lead generation service (and thus why such high-turnover recruiting strategies have persisted for decades)! Because of this ‘cost-effective' source of leads via high-turnover recruiting, a number of the industry’s product manufacturers have historically been corporate sponsors of the CFP Board-affiliated Center for Financial Planning’s Workforce Development initiatives in order to build the pool of potential recruits (for those companies to potentially hire as their lead-generation source!).
But now, with its recent increase in CFP certification fees, the Center’s funding appears to be shifting: out of CFP Board’s recent $100 increase to its annual certification fee, $35 is allotted to the Workforce Development program, which means now the Workforce Development initiatives that historically were funded voluntarily by product companies in alignment with their sales efforts will instead be funded on a mandatory basis by all CFP certificants… effectively turning a portion of the CFP Board’s certification fee into a marketing expense for product manufacturers via their high-turnover recruiting efforts (which will simultaneously undermine the CFP Board’s own growth goals as a result of that high turnover).
Given the substantial risk that CFP Board’s increase in certification fees is funding the marketing efforts of product manufacturers, there are steps that CFP Board can take to ensure that fee increases are actually supporting the long-term expansion in the number of financial planners. First and foremost, CFP Board needs to determine and demonstrate that young people who enter CFP Board-registered programs actually do end out becoming CFP certificants in meaningful numbers, and are not just a conduit to high-turnover sales jobs. This could be done through a study working with the largest CFP Board-registered programs to determine whether their students took an industry job after graduating, how many are still in the industry 3 years later, and how many of them ultimately got their CFP marks, among other questions. With this data, CFP Board could then update its Career Guide to reflect the realities of what career choices and starting firm paths really lead to increases in success (or failure) as a new financial advisor.
Ultimately, the key point is that if the CFP Board is going to turn the Center for Financial Planning from a voluntary contributed-income program into one funded by a mandatory portion of CFP certification fees – especially since nearly 50% of all CFP certification fees are no longer for the operation of the CFP Board itself, but for the organization’s own growth initiatives – it needs to do the research and bring the data to show that its initiatives will be a good allocation of capital. And until it can determine whether increasing the flow of students will result in a larger advisor workforce or just a higher volume of advisor churn (and also update its Career Guide to help students navigate those risks), CFP Board should delay the increase of at least the Workforce Development portion of its new certification fee.