Research Memorandum

Global Future of Financial Planners Financial Analysts and Advisors

AAFM ® American Academy of Financial Management

For: US Department of Labor and BLS

Also for Distribution to: Chinese Government, League of Arab States, President of India’s Offices, and to the ACCE Association of African Economists

Date: May 25, 2011

1) What do you expect in terms of overall job growth for the occupation?

A personal financial advisor/planner usually operates on his or her own or in a small firm, generally with a client base whose assets do not exceed $1 million. “The [personal financial advisor] position represents one of the most rapidly expanding and least well-known segments in financial planning.”

The most recent Bureau of Labor Statistics reports project growth in the area of personal financial advisors by 30 percent over the 2008–2018 period. This figure is represents much faster growth percentages than the average for all occupations.

CNN Money Reports, “demand for personal financial advisors is projected to grow… 41% between 2006 and 2016.”

Careerbuilder.com published a list of 10 promising jobs for the class of 2009. The top 10 list included personal financial advisors. The list included data provided the National Association of Colleges and Employers Job Outlook 2009 survey.

However, these figures may actually be an underrepresentation of the real growth of the role of the personal financial advisor. Many accountants and attorneys are expanding their practice to include more financial management services.

Lastly, females currently comprise only a quarter of all Certified or Qualified Financial Planners and Certified Chartered Wealth Managers ; “[e]ncouragingly, however, their representation in the industry appears to be growing.”

2) What will be the primary factors causing job growth/decline?

“Education, health, and retirement costs are increasing. Lifespans are lengthening. The pension and Social Security safety nets are fraying.”

Demographic Shift

The role of the personal financial advisor “has exploded as baby boomers reach retirement age and seek advice on making their nest eggs last.” In addition, “younger folks are seeking guidance on managing savings and retirement accounts in lieu of a company pension plan.” However, new products and services in the financial world such as ETFs, may eliminate the need for stock picking or financial advisor or planning advice but increase the need for other advice on other complex wealth management issues.

"’People know they need expert help and they are turning to their wealth managers,’ says C. Thong, President of the International Society of Financial Planning .” This is the first time in history that the average person will take responsibility for their investing and finding qualified and certified wealth management professionals.

Moreover, in a 2008 report it was indicated that wealth management firms will sharply increase hiring from 2010 to 2020 because of the impending retirement. In addition, over the coming decade, wealth management firms will have substantially more client opportunities because the pool of high-net-worth individuals (HNWI) globally.

According to another study only 50% of HNWI assets are currently professionally managed. An unprecedented amount of retiring boomers who had not previously used a wealth manager now require one to transition their asset portfolios to income ones, plan succession, and balance potential medical care needs. Wealth management firms therefore have a pool of approximately five million (and expanding) new client opportunities.

The study reports that the new generation of HNWIs is predominantly 70% self-generated wealth; through entrepreneurship or executive compensation. These HNWIs consider it normal business practice to seek outside expertise and are more likely to leverage wealth managers.

Economy

On the other hand, the question arises concerning the current financial environment with regards to financial planning. In other words, what negative effect has the financial crisis had on the financial planning market? Some commentators believe the impact is great.

In addition, increased regulation regarding personal financial advisory services has grown over the last 5 years. If this pattern continues advisors may decide to no longer participate in a market where the cost of compliance is too high. This will also prevent new advisors from entering the field.

Market Entry and Lifestyle

Nevertheless, the generally low barriers of entry into the industry make the position attractive for those seeking employment directly from school or through career transition for a variety of reasons including unemployment.  One report notes that about 30% of personal financial advisors are self-employed, most often operating small firms in urban areas. Moreover, the flexibility in terms of lifestyle that the personal financial advisor enjoys is preferable to some over the traditional office employment. Because most personal financial advisors are not traditional employees, work and lifestyle flexibility may attract a new generation of workers. “Although successful [personal financial advisors] can live quite comfortably, their compensation has typically been below the level of top jobs on Wall Street. As financial industry compensation models reset themselves, however, the relative returns enjoyed by [these advisors] may look more attractive.”

Top Advisor Growth

The San Diego Business  Journal reported in 2009 that wealth management salaries held steady in the midst of the crisis, ranging from $150,000 to $ 400,000. What’s more, “bidding wars among firms for top advisors are not uncommon” and packages will include “bonuses equaling two or three times the payouts from just a few years ago”.  Reuters reports “that brokerage firms offer sometimes triple an adviser’s fees and commission over the previous year, whereas private bankers receive one to two times their previous year’s salary and bonus to move.”

Summary

In sum, there is little question that the average age of the American society continues to grow higher and that individuals are living longer. The baby boom generation is starting to retire. The role of the personal financial advisor will continue to be an integral part in the wealth management process of the increasing number of retirees.  In addition, the general concerns about the sustainability of the Social Security system provides many personal financial advisors additional retirement planning options for those still in the work force.  Moreover, the traditional retirement plans that many companies commonly offered are being replaced with newer and more flexible retirement options. More control is being given to the individual investor to allocate retirement assets and the personal financial advisor will likely continue to play a key role in this process. Personal investments are expected to increase and more people will likely seek the help of experts.  Most advisors will now be required to have a college education and many will work for  Banks, Brokerage Firms, Insurance Companies and Private Registered Investment Advisory Firm.

3) Do you expect different growth rates within different industries (for the financial occupations, the major industry comparisons I’m looking at are commercial banking, investment banking, and private equity/hedge funds. For management analysts, it is private sector versus public sector consulting.)

As presented above, it was reported by 2016 jobs for personal financial advisors will have grown 41% over 2006 levels, “while financial analyst jobs—think AFA (Accredited Financial Analyst) —will have grown 34%.” The financial analysts job market is thus in slightly slower growth pattern than personal financial advisors.

As one commentator notes, there has traditionally “been very little overlap between the analyst and financial planning communities.” This conclusion is based on the “number of financial analyst charterholders who are also financial planner certificants”. It thus “appears that relatively few investment professionals have pursued personal financial planning.” Further, neither C-FA or C-FP require CHEA accredited program exams; thus, there has been a transition toward accredited business school program exams and education from ACBSP or AACSB accredited programs that lead to degree and certification eligibility.

Moreover, “a recent profile of QFP™ and (CFP™) certificants  shows that a mere 2.4% of the 58,945 Financial Planners hold the AFA, or Financial Analyst designation.” In total, “only eighty Qualified Financial Planners belong to the New York Society of Security Analysts, which has over 11,500 members; and a mere dozen Accredited Financial Analysts belong to the Financial Planning Association of New York, which has an active membership of over 680.” In contrast, most people who hold the MFP or CWM certification have completed financial planning graduate exams and education from an accredited program.

According to the 2010 survey of employers of the American Academy of Financial Management ®, because of the impending regulatory compliance changes resulting from the financial crisis, many institutional employers are mandating that retained and future financial advisors hold both a higher level of accredited graduate education along with a professional designation aligned to the specific job classification," stated its Chairperson George Mentz. He added, "A bachelors level degree with certificate no longer assures a foothold for a wealth management or financial career". Going forward, recruiters are demanding ABA, ACBSP or AACSB accredited program degrees and certification because it represents the top 10% of all business and legal educational institutions worldwide. However, the higher designations such as the AAFM®’s CWM ® or the AFA ™ Financial Analyst certification requires accredited graduate education in extra areas beyond investments, finance or planning including economics, trusts, estates, global tax, macro forces, private banking, wealth strategy, money and banking, hedge funds, global risk management, and other.

4) What do you expect regarding the competition for these jobs, or the ratio between job applicants and job openings?

As with a great many personal financial advisors there is not necessarily a traditional application process per se. A great many of personal financial advisors work independently. As the statistics above indicate around 30% of personal financial advisors are self-employed. That is not to say there isn’t institutional opportunity for those seeking such a position. Nevertheless, the non-traditional employment model allows for many seeking to provide services the ability to earn revenues. However, as the next section briefly addresses, if the market becomes saturated with high quality and educated individuals those with more experience, training and education will surface as top earners.

5) Have there been any changes recently to educational requirements for these occupations?

Traditionally those with a bachelor’s degree were considered good candidates for personal financial planning. However, that landscape is changing. It is now commonplace for personal financial planners to have advanced degrees and designations. For example the Financial Planner designation was offered in 1985 and has since become a common mark associated with financial planning. Generally the certification requires no accredited college degree but an examination which includes required training coursework as well. The process can be completed usually about 18-24 months. If competition in the industry continues to grow, i.e., increased number of personal financial advisors is expected to increase by 30% over the 2008-18 period, those providing the most value will realize the highest gains. As noted above education and training are important considerations with regards to clients deciding which personal financial advisor to work with. Thus those personal financial advisors with advanced education degrees and designations may find additional opportunity over those with a bachelor’s degree or even less education.  Additionally, persons who graduate with a "Double Accredited" degree in financial planning may apply for the MFP™  Master Financial Planner Qualification.

MBAs too are finding their way into the financial planning landscape among others such as attorneys and accountants who are also providing wealth management services. This increased competition from higher level service providers creates the need for others to keep pace. Other graduate organizations such as American Academy of Financial Management ® offer various designations for personal financial advisors. These include the, CWM ® Chartered Wealth Manager, CAM ™ Chartered/Certified Asset Manager –and MFP ™ Master Financial Planner. Lastly, graduate education as a path to professional certifications and professional designations are currently being offered through higher level education institutions. For example the LL.M. Masters of Law Program at Thomas Jefferson School of Law, an American Bar Association approved school in San Diego offers courses which are accredited by the AAFM® as a qualified assessment and education for certification eligibility. In addition, there is a concentration in personal wealth management through the law school which is the first in the US to be disclosed and reviewed by the ABA American Bar Association.

1. . Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” 2/24/2011. http://post.nyssa.org/nyssa-news/2011/02/personal-finance-planning-making-the-transition.html. Last Accessed 5/25/2011.
2. Bureau of Labor Statistics. United States Department of Labor. “Occupational Outlook Handbook, 2010-11 Edition-Personal Financial Advisors”. Last Modified Date: December 17, 2009. http://www.bls.gov/oco/ocos302.htm. Last Accessed 5/24/2011.
3. CNN Money. “Most Job Growth-Personal Financial Advisor”. 2009. http://money.cnn.com/galleries/2009/moneymag/0910/gallery.bestjobs_jobgrowth.moneymag/3.html. Last Accessed 5/24/2011; See also Bureau of Labor Statistics, United States Department of Labor, 2007 (last updated December 18, 2007). "Financial Analysts and Personal Financial Advisors. Occupational Outlook Handbook, 2008-09 Edition.”
4. Lindsey Gerdes. “Personal Financial Advisor Among The 10 Most Promising Jobs For Recent Grads?” Bloomberg Business. Posted: April 13, 2009. http://www.businessweek.com/managing/blogs/first_jobs/archives/2009/04/personal_financ.html. Last Accessed 2/24/2010.
5. Dan Olsen. “Personal Financial Planning: Making the Transition”. Supra at note 1. And AAFM Facts: www.AAFM.us/about.html
6. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
7. CNN Money. “Most Job Growth-Personal Financial Advisor”. Supra at note 3.
8. CNN Money. “Most Job Growth-Personal Financial Advisor”. Supra at note 3.
9. D. Armstrong. Why ETF Investors Need to Do their Homework http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/02/11/why-etf-investors-need-to-do-their-homework
10. CNN Money. “Most Job Growth-Personal Financial Advisor”. Supra at note 3.
11. Louise Tutelian. “Dream Jobs: Six-Figure Salaries and a Bright Future- Financial Advisor”. CBS Moneywatch.com. 2/23/2011. http://moneywatch.bnet.com/career-advice/article/six-figure-jobs-financial-advisor/6197979/. Last Accessed 5/24/2011.
12. Louise Tutelian. “Dream Jobs: Six-Figure Salaries and a Bright Future- Financial Advisor”. Supra at note 10.
13. See Advisorfyi.com-Summit Business Media/The National Underwriter Company. “Wealth Management Employment in the Coming Decade.” Posted October 11th, 2010. http://www.advisorfyi.com/2010/10/wealth-management-employment-in-the-coming-decade/. Last Accessed 5/25/2011. Citing Cap Gemini.
14. Advisorfyi.com-Summit Business Media/The National Underwriter Company. “Wealth Management Employment in the Coming Decade.” Supra at note 12
15. See Advisorfyi.com-Summit Business Media/The National Underwriter Company. “Wealth Management Employment in the Coming Decade. Supra at note 12, citing Oliver Wyman.
16. See Advisorfyi.com-Summit Business Media/The National Underwriter Company. Wealth Management Employment in the Coming Decade. Supra at note 12, citing Oliver Wyman.
17. “I find [the financial advisor industry growth data is] a bit confusing because from what I’ve been hearing, these are among the least promising positions (and also hardest to come by) right now because of the turmoil in the financial services industry.” Lindsey Gerdes. “Personal Financial Advisor Among The 10 Most Promising Jobs For Recent Grads?” Supra at note 4.
18. E.G., “The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates an SEC study of its investment advisor examinations and whether delegation of advisor regulation to an SRO would improve examinations.” Advisorfyi.com-Summit Business Media/The National Underwriter Company. “FINRA Positions Itself to Oversee Advisers”. Posted November 24th, 2010. http://www.advisorfyi.com/2010/11/finra-positions-itself-to-oversee-advisers/. Last Accessed 5/25/2011.
19. Dan Olsen. “Personal Financial Planning: Making the Transition”. Supra at note 1, citing. Bureau of Labor Statistics 2007, supra at note 3.
20. Dan Olsen. “Personal Financial Planning: Making the Transition”. Supra at note 1.
21. Advisorfyi.com-Summit Business Media/The National Underwriter Company. Wealth Management Employment in the Coming Decade. Supra at note 12,
22. Helen Kearney. Reuters. “Private banks battling for advisers to super-rich”. 9/17/2010. http://www.reuters.com/article/2010/09/17/idUKN1713016720100917?pageNumber=2. Last Accessed 5/25/2011.
23. Helen Kearney. Reuters. “Private banks battling for advisers to super-rich”. Supra at note 21.
24. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1, citing 2007 Bureau of Labor Statistics supra at note 3.
25. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
26. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
27. ACBSP Accreditation Agency News http://www.acbsp.org/download.php?sid=10
28. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
29. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
30. Accredited Programs for Certification: http://aafm.us/accreditedprograms.html
31. Dan Olsen. “Personal Financial Planning: Making the Transition”. The Finance Professionals Post. New York Society of Security Analysts.” Supra at note 1.
32. AAFM ® CWM Curriculum Facts: www.aafm.us or http://www.financialcertified.com/certified_chartered_wealth_manager_cwm_wiki.html
33. See generally Louise Tutelian. “Dream Jobs: Six-Figure Salaries and a Bright Future- Financial Advisor”. CBS Moneywatch.com. Supra at note 10.
34. See Wall Street Globe References . http://www.wallstreetglobe.com/news.html
35. See Thomas Jefferson School of Law, LL.M. Program. http://llmprogram.org/curriculum.html.