Some advisors are content to ride out their careers with their current client roster, feeling little need to grow their practice by attracting the attention and assets of younger clients.
But there are some that do feel the need, either because they understand it’s their fiduciary duty to steward their clients’ assets into the next generation or they want to monetize their business at some point in the future and need a growing practice to do so. Some younger advisors are trying to build a viable career among their generational cohorts. In fact, financial advisors overall expect 41 percent of their clients to be members of the Gen X or millennial generations within five years, up from 30 percent today, according to a new survey from TD Ameritrade Institutional. Meanwhile, the baby boomer generation will fall from 46 percent to 43 percent of clients, and seniors from 23 percent to 14 percent.
“When you think about this next generation, they’re the accumulators now,” said Kate Healy, managing director of Generation Next, TD Ameritrade Institutional. “Many advisors are in that spot where they’re seeing a lot of their clients be in that decumulation mode, and for their firms to grow, they really want to start to cater to the accumulators, and that’s exactly what’s starting to happen.”
Yet about a quarter of advisors don’t have a strategy in place for how to make up for the assets that are being transferred out as older clients retire. For those that do have a strategy, they often need a different service model for these younger clients, Healy said.
To that end, some 47 percent of advisors say they’re changing their fee structure to woo next gen clients, including 33 percent who are offering a flat fee for financial planning or coaching, 23 percent who are lowering asset minimums and 14 percent who are adjusting their pricing.
“I’m starting to hear more and more advisors experimenting with it,” Healy said. “Is it a flat fee? Do they start to charge a monthly fee for coaching? We see some of the younger advisors do that and be successful at it.”
Millennials and Gen Xers are willing to pay the same amount of money as older generations, Healy said, not necessarily for managing their assets, but for getting a full-fledged financial plan.
“They need to make sure they’re able to counsel clients on more than just investments,” Healy said. “They need to have debt management to talk through student loan debt because that’s a big piece of a millennial’s portfolio.”
Millennials are asking for advice on a number of issues, such as whether to take a certain job, go back to school or rent or buy a house.
“It’s imperative for advisors to think through what are the ancillary services outside of just investment management that they can offer—career counseling, debt management, tax planning, managing inheritances,” Healy said.
Advisory firms also need to think about hiring younger advisors, and look for talent from places other than the financial planning programs. While the programs are growing, there are still only about 120 to 130 programs graduating less than 1,000 students a year.
Healy suggests advisors look at career changers, women re-entering the workforce and people in ancillary degree programs, such as teaching, social work and psychology—which are considered “helping professions.”
According to the survey, based on a telephone survey of about 300 independent registered investment advisors, 30 percent are hiring younger advisors, 25 percent are recruiting and training mid-career changers and ex-military folks, and 24 percent are hiring college interns.
Forty-four percent are doing nothing.