Paraplanning vs. Financial Planning: Key Differences and Roles Explained

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.

Like paralegals in law firms, paraplanners enable financial planners to focus on clients and their investment needs. Paraplanning includes analyzing clients’ needs and researching and recommending suitable products aligned to those needs.

Paraplanners benefit financial firms by allowing planners to focus more fully on client relationships and complex planning tasks.

The Role and Responsibilities of Paraplanners

Paraplanners handle most of the groundwork, like preparing plans and reports for financial planners. Larger firms often create new departments for these roles. But the cost of hiring paraplanners is high and, as a result, paraplanners may be unavailable to some smaller companies.

Paraplanners usually have little interaction with clients. 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 remain in their roles long-term, eventually training newcomers after gaining experience. They may also specialize in a specific area such as estate planning or venture capital. Others may use the role as a steppingstone to advance in the financial industry and may go on to become financial advisors or planners themselves.

Key Differences Between Paraplanning and Financial Planning

Paraplanning functions differently from financial planning. The main difference is in how they interact with clients.

While paraplanners do not have contact with clients, financial planners do. They guide and advise people about their investment goals, plans, and strategies. Financial planners generally hold more advanced credentials and education than paraplanners.

Qualifications and Career Path for Paraplanners

Paraplanners usually need 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 experience, build skills, network, and aim to become financial planners.

The College for Financial Planning offers the Financial Paraplanner Qualified Professional (FPQP) designation. 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).

Exploring In-House and Outsourced Paraplanning Options

Paraplanners may be divided into two groups: in-house and outsourced. Here is a quick look at each of these:

Benefits and Drawbacks of In-House Paraplanning

Internal paraplanning allows financial advisors to become familiar with the specialized skills of their staff. If a paraplanner excels at reading bank statements, the financial planner knows to use that person.

Hiring internal paraplanners also reduces the risk of sensitive client information being leaked to competitors. A downside is in-house paraplanners might seek promotion over others.

Advantages and Challenges of 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 that contractors are accountable.

The Bottom Line

Paraplanners assist financial planners by handling administrative duties to allow planners to focus more fully on client interaction and strategic planning. Paraplanning involves preparing financial reports and client invoices and the role may be fulfilled by in-house staff or outsourced services.

Paraplanners typically have backgrounds in accounting or finance, and they might seek professional credentials to advance in the field. Career trajectory possibilities include advancing to financial planner roles or specializing in specific financial areas. They may be in-house or outsourced, and each role comes with its pros and cons.