What Is Paraplanning?

Paraplanning refers to the administrative and clerical duties of a financial planner delegated to and carried out by junior members of a financial planning group.

Similar in scope to a paralegal at a law firm, 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 the administrative, back-office, and clerical duties that financial planners delegate to junior-level staff.
  • These activities may include preparing financial reports and creating client invoices, and can be accomplished either with in-house staff or through outsourced services.
  • This allows financial planners and senior staff to focus on client-facing activities, high-level planning and analysis, and prospecting for new accounts.
  • Paraplanners often have undergraduate degrees in accounting or finance, and may get their credentials from FINRA as Registered Paraplanners.
  • Successful paraplanners will often be promoted to the role of financial planner.

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, paraplanners may be unavailable to some smaller companies.

Paraplanners typically have minimal client interaction. Instead, they prepare and construct plans outlined by the financial planner. 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. Other duties include managing the firm's financial planning software and billing clients.

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 and might, after accumulating years of experience, 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 functionally 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 toward 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 (CPAs).

According to PayScale.com, the average annual salary for a paraplanner is $46,582 as of March 2021.

Types of Paraplanners

Paraplanners may be classified into two distinct groups: In-house and outsourced third-party paraplanners. Here is a quick look at each of these:

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 their 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 that need additional assistance during busy periods. It 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.