Paraplanning involves performing the administrative duties of a financial planner. This function was created to allow financial planners to focus on working more closely with clients and identify their investing needs.
BREAKING DOWN ‘Paraplanning’
Paraplanning staff does most of the grunt work (preparing plans and reports) for financial planners. Some large firms have developed new departments for paraplanners within their organizations; however, the cost of hiring paraplanners is high, and as a result, this option may be unavailable to some smaller companies.
Paraplanners are expected to hold a bachelor’s degree in accounting and/or finance. The Financial Industry Regulatory Authority (FINRA) offers a Registered Paraplanner (RP) qualification. To receive this, applicants must complete a 10-module course and take a final closed book exam. To increase their prospects of employment, paraplanners can become a Certified Public Accountant (CPA). Working as a paraplanner is being utilized by recent graduates to get a foot in the financial planning industry’s door, where they can gain experience, network and move up to become a financial planner.
Paraplanners typically have minimal client interaction. They are responsible for preparing and constructing plans outlined by the financial planner. Other duties include managing the firms financial planning software and billing clients. Financial plans get regularly updated as a client’s situation changes; paraplanners help gather new information and provide financial planners with updated projections. Paraplanners may also attend client meetings to take notes and follow up on administrative tasks, such as obtaining bank statements and identity documents.
Internal paraplanning allows financial advisors to become familiar with the specialized skills of their staff. For instance, if a paraplanner who is known for his or her skills reading bank statements is needed, the financial planner immediately knows who to utilize. Hiring internal paraplanners also reduces the risk of sensitive client information getting leaked to competitors. One downside of hiring in-house paraplanners is that they could put themselves above other staff and the firm to receive a promotion to a more senior role.
Financial planning firms can outsource paraplanning to companies or independent contractors who provide paraplanning services upon request. Paraplanning outsourcing may be beneficial to smaller firms that have limited budgets, but need additional assistance during busy periods or intend to grow their business. Financial planning firms that decide to outsource need to consider that control might be compromised by delegating work to external contractors. For example, a financial planner may not be aware of a contractor’s other work commitments, which could make it difficult to meet a tight deadline. Setting measurable work targets ensures contractors are accountable.