Can 'new' paraplanners benefit all IFAs?

Are IFAs becoming too dependant on paraplanners, or not enough? Professional Adviser's features editor Joanna Faith looks at the evolving role of the paraplanner.

The number of IFAs relying on paraplanners is growing as advisers juggle mounting client demands and tough competition with the rigourous standards prescribed by the RDR.

However, there is still not universal support for paraplanners across the industry.

Some fear IFAs are too dependant on them. Others say they do not see the need for paraplanners at all. But arguably the most important question is what will happen to the traditional adviser role as the paraplanner’s position develops and becomes more significant?

The evolution of the paraplanner

The function and profile of the paraplanner has evolved over the last decade from a secretary-type position to a job for highly-qualified individuals.

The Institute of Financial Planning (IFP) has taken the lead in formalising the paraplanner role. Its latest move is the launch of the Certificate in Paraplanning, the first qualification in the UK that specifically tests the skill set and competences of a paraplanner. The exam will be available from July this year and there has already been significant interest, according to Nick Cann, CEO of the IFP.

The organisation has also produced its own version of competencies for paraplanners to address the issue of varying job descriptions between firms.

The IFP breaks down the paraplanner’s job into four key parts:

• preparing and maintaining the client file;
• preparing recommendations;
• implementing recommendations;
• reviews

It is generally assumed the paraplanner is not authorised by the FSA to give advice.

Martin Vaughan, director of Paragon Paraplanning, an outsourced paraplanning company, and an ex-financial adviser, says there is no difference between what he does and what an IFA is qualified to do except as a paraplanner he is not authorised by the regulator so cannot give advice.

“I provide a highly technical and bespoke service to my clients on issues including inheritance tax, CGT and complex pensions issues,” Vaughan says.

He suggests the paraplanner role evolved naturally out of firms wanting to be more efficient and make better use of their resources.

“You don’t need to be authorised to undertake the whole financial planning process,” Vaughan says.

With the paraplanner left to do the technical work, the planner has more time to be out of the office building relationships with new clients and strengthening ties with existing ones.

Freed from the desk

This has arguably become the key role of an adviser. “A competent paraplanner working in a well defined role can add significant value, allowing advisers to focus on their core competencies of building relationships and delivering advice,” says Martin Bamford, managing director of Informed Choice.

Bruce Wilson, managing director of Helm Godfrey, agrees: “Paraplanners leave advisers to work with clients. If they don’t, advisers start losing touch and can’t understand what the issues are.”

Cann believes advisers are spending too much time on the wrong thing and that hiring a paraplanner can free up time allowing them to add value to their service.

A sales role

However some industry commentators are concerned that allowing paraplanners to carry out technical analysis and research, and then having the planner communicate these findings to the client, could lead to errors and oversights.

Harry Katz, principal of Norwest Consultants, does not use a paraplanner and cannot see the logic in hiring one.

“If I sit in front of a client talking about their investment choices, how am I meant to convey that conversation to another person?” he says.

“Does it mean having two people in the room during a client meeting? That’s not a very efficient way to run a business.”

He thinks the fact paraplanners are not authorised by the FSA can actually make your business less efficient. “I’d have to double check all the work they had done to make sure they were compliant,” he says.

Bamford says IFAs can rely too heavily on paraplanners and problems can materialise if there is no communication between the planner and the paraplanner.

Family-run Informed Choice overcomes such risks by implementing strict processes.

"We always have a case conference for new clients and the adviser is very involved in shaping the advice before the paraplanner does their report. The adviser always gets final sign off before the report is presented to the client,” Bamford says.

For a small IFA firm like Informed Choice, which has eight client-facing advisers and five support staff including three paraplanners, managing these internal processes is straightforward. For larger organisations, however, it is more difficult and time consuming.

Danny Cox, head of advice at Hargreaves Lansdown, says the larger the organisation, the harder it is to manage the efficiency of a paraplanner/planner team.

His firm does not use paraplanners as they do not fit in with its business model, where the vast majority of clients do at least some of the planning themselves.

“We have 65 individual advisers; it would be difficult to find paraplanners for all of them.

“The paraplanners have to be able to increase the planner’s productivity for it to be a truly effective relationship.

“Where the paraplanner is not used effectively, they are a significant cost and reduction in profit,” Cox says.

Evolving role of the adviser

But Bamford believes the IFA environment has altered so much paraplanners are now an important part of a firm’s structure.

“In this new world advisers should not be sourcing funds and products. Their role has to be more about relationship management,” he says.

One alternative is outsourcing the fund and product research to one of the 20 outsourcing firms in the UK. But some advisers are wary of this option.

“I don’t like it because you’re outsourcing control and approach. A lot of your value comes from your people so outsourcing a core proposition such as paraplanning can reduce the value of your business,” Bamford says.

Katz believes outsourcing the paraplanner function is even worse than having an internal presence. “There is an even bigger disconnect between the fact-find and the client. How is the paraplanner meant to know what the client has said?”

However, using an outsourced paraplanner for the last four years has proved economical for Strover Leader & Co. Colette Cook, one of the firm’s two IFAs, uses Paraplan Plus to do her fund research and compile client reports.

“We think it is economical. Having someone in the office sitting there not always doing something can be expensive. This system is more of a pay as you go option,” Cook says.

“The success of outsourcing depends on the quality of the paraplanner and the size of your business,” she adds. “At the beginning of our relationship with Paraplan it took a little while to get the teamwork sorted. But now it is seamless. Planners need to look at the bigger picture and need more specialist advice for areas like fund research. For an adviser to say they’re an expert in all areas is foolhardy.”