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Finding Future Clients

About a year ago, after the death of a longtime client, who was also a good friend and contemporary, John Moore examined his account roster and made an unexpected discovery. My book was aging, just like the rest of the population, says the 56-year-old Moore. And if he didn't act fast, pretty soon the Albuquerque, N.M., financial advisor would have a client base almost completely skewed to retirees,

About a year ago, after the death of a longtime client, who was also a good friend and contemporary, John Moore examined his account roster and made an unexpected discovery. “My book was aging, just like the rest of the population,” says the 56-year-old Moore. And if he didn't act fast, pretty soon the Albuquerque, N.M., financial advisor would have a client base almost completely skewed to retirees, something he didn't want.

So, Moore, who runs John Moore & Associates, which is affiliated with Raymond James Financial Services, embarked on a major effort to win younger clients, targeting up-and-coming professionals and entrepreneurs and promoting two 30-something staffers to become advisors. “When we meet with accounts, one of them is there with me, so [the clients] don't feel they're just meeting with their father,” he says. The new advisors have brought in about 30 new clients.

Welcome to the dawning of the Geezer Age. With the first tranche of the 77 million baby boomers about to retire, it's likely that more and more advisors will face the same situation as Moore. And, that's not necessarily good news. While some of those folks stand to retire with healthy-sized accounts and will continue to retire with healthy-sized commissions, many will have to stop accumulating savings and start spending. “Because of inadequate retirement plans, many people will have shortfalls,” says Kirby Horan, a senior analyst with Cerulli Associates.

For the prudent advisor, the situation calls for strategic planning — and reaching out to younger clients. That can include targeting anyone from promising junior executives to the children of existing accounts. In some cases, it also may mean being willing to take a financial hit while developing less-wealthy prospects.

Opportunities, Current and Otherwise

So, what to do? The first step is to get an accurate snapshot of your client make-up. “Rip your book apart,” says Horan. That means analyzing the demographics of your account mix to see just how many soon-to-be-retirees you have. It also should involve a different type of segmentation. John Nersesian, managing director of wealth management services at Nuveen Investments, for example, advises dividing clients into a few categories. There's what he calls “current opportunity,” your wealthiest — and probably older — clients “who keep you in business,” he says. Next, is “future opportunity,” younger clients with the potential to turn into A-list accounts. Finally, come the people who have what Nersesian calls “referability” — people who might not be that wealthy themselves, but who provide referrals, perhaps to their own clients.

Probably the best bet is to cultivate the children of your most affluent clients. One tack is to suggest to clients that they bring their offspring in for a joint meeting, so they understand where the money is, and you can provide them with an understanding of basic financial concepts. For best results, start as early as possible. In your first meeting, start asking questions about the kids — ages, interests — and try to unearth any concerns the parents have about them.

Cultivating these relationships, however, is a time-consuming job. Rick Nummi, executive vice president of GunnAllen Financial in St. Petersburg, Fla., for example, recalls a client whose three children inherited $75,000 each after her husband died. She feared that one son would blow most of it on a Porsche he had his eye on unless he received some financial guidance from a knowledgeable, disinterested source. So, Nummi met with the son several times, explaining the basics of debt, among other topics. On his advice, the young man ended up buying municipal bonds and using the taxes he saved to help buy the car.

For really wealthy clients, you can offer to run more elaborate annual or semiannual family gatherings where clients discuss a variety of financial and nonfinancial topics. The key element is that you not only provide a financial education for the children, but also serve as an impartial third party that is able to diffuse interfamily tensions and misunderstandings. “It takes a lot of stress out of the equation,” says Nersesian.

With less-wealthy clients, there are other ways to build relationships with their children. For example, you can arrange a meeting to help them with tasks like building a budget. And, you can use a review of a client's beneficiaries to suggest that the children come in. “Upfront, we say we'd like you to bring in everyone who's gong to be a beneficiary to get them involved in the process,” says Gene Guererra, an advisor with RBC Dain Rauscher in New Haven, Conn.

You can also use tools to get the kids involved. For example, New York Life Insurance has developed a system of prelabeled folders for organizing wills, trust statements and the like. Chris Blunt, president of Mainstay Investments and executive vice president of investment management for New York Life, suggests using the system to include adult children in the process of helping to organize their parents' papers. “Then, once the information is pulled together, it can lead to a follow-up conversation with the kids,” he says.

Target Risk Takers and the Young

Another lucrative market is entrepreneurs. If you can't attract a crop that have made it big already, then you need to look for those with clear promise. Consider Van Pearcy, a financial advisor with Van Pearcy Financial Services, associated with Raymond James Financial Services, in Midland, Texas. He recalls a longtime client who, when they first met, was just starting his own business. While his account was small, Pearcy could see the man was going places. He was right. About 12 years later, the client sold his business for about $4 million. “Our relationship started out by doing simple IRAs and college savings plans,” he says. A few ways to find such people: Tap into local young business owners groups, like the Young Entrepreneurs Organization. And ask CPAs to pass on names of promising small business owners.

Then, there's the option of simply going after any younger client with the potential to rise up in the world. Nersesian points to an advisor who took on a 30-year-old client clearly on the fast track of a company he had just joined. While the relationship started with $50,000, five years later, thanks to restricted stock options, he was worth $20 million.

Williams, for his part, suggests focusing on high-level executives. “They're one of the greatest markets,” he says. “They're wealthy people — and the advice they're given is terrible.” That's because, according to Williams, they often seek advice from an in-house attorney, with little expertise in estate law, and company accountants, who are unfamiliar with the full gamut of deductions to take. He recalls going over clients' old tax returns and uncovering “hundreds of thousands of dollars” in lost deductions. An added benefit: Since they tend to change jobs every three to five years, they can provide a constantly evolving set of referrals. Williams remembers running roundtables for executives at companies employing his clients, then holding similar discussions at other firms that he approached when his accounts jumped there. “They keep on moving up the ladder, and their network only gets stronger,” he says.

One way to find up-and-coming clients is through volunteer work. “I target future leaders of the community,” says Pearcy. He serves on several charitable boards, including a children's rehabilitation center, where he has cultivated relationships both with scions of wealthy families and executives in local companies — individuals he figures will be worth a lot of money soon.

The downside of taking on too many younger clients, of course, is that you might go broke waiting for them to make their mark. “If I spend my time only working on younger clients, I may be out of business,” says Nersesian. “That's why you need to strike a balance between up-and-comers and wealthier, older clients. It's a delicate sleight-of-hand — and one you may have no choice but to try if you want your business to grow.”

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