What Is Paraplanning?

Paraplanning refers to the administrative duties of a financial planner carried out by junior members of a financial planning group. The function of a paraplanner was created to allow financial planners to focus on working closely with clients and identify their investment needs. Paraplanning includes analyzing clients' needs, and researching and recommending suitable products aligned to those needs.

Key Takeaways

  • Paraplanning is defined as the administrative duties of financial planners.
  • Paraplanners are the junior level staff members that carry out the paraplanning activities, such as preparing financial reports and creating client invoices.
  • Paraplanning can be accomplished with in-house staff or through outsourced services.
  • Paraplanners often have undergraduate degrees in accounting or finance, and may get their credentials from FINRA as Registered Paraplanners.

Understanding Paraplanning

Paraplanning staff, also called paraplanners, do most of the grunt work such as preparing plans and reports for financial planners. Larger firms have developed new departments for these roles within their organizations. But the cost of hiring paraplanners is high and, as a result, may be unavailable to some smaller companies.

Paraplanners typically have minimal client interaction. Instead, they prepare and construct plans outlined by the financial planner. Other duties include managing the firm's financial planning software and billing clients. Financial plans are regularly updated as a client's situation changes, so they 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.

The role of the paraplanner is not synonymous with a secretary or an administrative assistant. It was developed to allow financial planners more time to devote to their clients. By doing so, it gives the paraplanner other duties that don't require face-to-face time with investors.

Many paraplanners stay in the role for the long haul. For those who are lifelong paraplanners, they may also take on the additional responsibility of training new entrants into the field. They may also specialize in a specific area such as estate planning or venture capital. Others may use the role as a stepping stone to advance in the financial industry, and may go on to become financial advisors or planners themselves.

Paraplanning vs. Financial Planning

Paraplanning is very different from financial planning. The main difference between the two involves how directly they interact with clients. While paraplanners do not have contact with clients, financial planners do. They provide guidance and advice to people about their investment goals, plans, and strategies. Financial planners also have more advanced credentials, education, and qualifications than most paraplanners do.

Paraplanning Qualifications

Paraplanners are expected to have a bachelor’s degree in accounting or finance. Many college graduates work as paraplanners to gain entry into the financial planning industry. As paraplanners, they gain significant work experience and skills, network with other financial planning professionals, and work towards becoming financial planners.

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 Certified Public Accountants (CPA).

According to PayScale.com, the average annual salary for a paraplanner is $45,303 as of August 2019.

Payscale.com reported the average annual salary for a paraplanner was $45,303 as of August 2019.

Examples of Paraplanning

Paraplanners may be classified in two distinct groups: In-house and outsourced paraplanners. Here's a quick look at both of them.

In-House Paraplanning

Internal paraplanning allows financial advisors to become familiar with the specialized skills of their staff. For instance, if a paraplanner known for his or her skills reading bank statements is needed, the financial planner immediately knows who to use.

Hiring internal paraplanners also reduces the risk of sensitive client information being 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.

Outsourced Paraplanning

Financial planning firms may decide to outsource paraplanning to companies or independent contractors who provide these services upon request. Outsourcing may be beneficial to smaller firms with limited budgets which need additional assistance during busy periods. They may also benefit firms that intend to grow their business.

Financial planning firms that choose to outsource need to consider that control may be compromised as they delegate 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 tight deadlines. Setting measurable work targets ensures contractors are accountable.