From the February 2012 issue of Investment Advisor • Subscribe!

Bridge Builder

Successful advisory firms use all the members of their firms, regardless of age, to get that way. Five advisors and TD Ameritrade’s Tom Bradley shared their thoughts on how to bridge the advisor generation gap

Photography by David Johnson Photography by David Johnson

The independent advisory business is a people business. It was founded by clear-sighted pioneers and built on their smarts and sweat. Those pioneers are getting older, while the need for competent, ethical advisors will only grow as boomers move into a new kind of retirement in the midst of volatile markets and slower economic growth. So the outlook for the independent advisory business is bright. Or is it?

The wirehouses and insurance companies that trained most of those pioneering advisors have shrunk, and while colleges are educating young advisors, the graduates of those programs, and their older career-changer peers entering the business, don’t have the same skills as did the pioneers.

The problem, as many wise observers and participants in the industry agree, is that the maturing independent advisory business needs fresh entrants, and that those pioneers among you are dragging your collective feet when it comes to succession planning. As the then-25-year-old Angie Herbers presciently wrote in Investment Advisor exactly seven years ago this month, “This gap between successful planners and the next generation is wider than most people realize, and it’s growing. The cultural differences are leading new planners into careers fraught with obstacles, disappointment and frustration. The crisis doesn’t just involve newcomers to the profession. I believe that the implications for the established planning community are much worse: The failure to find a place for these young professionals results in low productivity, high employee turnover and unattractive exit strategies that cost firm owners millions of dollars every year.”

Following discussions with Tom Bradley, the veteran head of TD Ameritrade’s RIA custody unit, we decided to convene advisors old and young to discern whether that gap has shrunk and how smart advisors in the trenches are building their businesses by incorporating all their human capital assets, regardless of age.

On a rainy day in lower Manhattan, Bradley and five advisors from the New York metropolitan area, ranging in age from 27 to 62, gathered to share their experiences and practices at the Museum of American Finance, in a literal roundtable discussion overseen by the visage and written words of Alexander Hamilton.

Part One: Defining the Issue

To begin the roundtable, Tom Bradley related two incidents that brought the issue into focus for him. One was when he attended a program at Wharton, where one of the professors mentioned that studies showed children of clients are not likely to hire their parent’s advisors. “That grabbed my attention for obvious reasons,” Bradley recalled, since “that’s your business and my business.” Several months later, he said, he spoke at a NAPFA conference where he heard advisors “refer to the younger folks in their offices as ‘pains in the neck.’” After hearing that, he realized “we’ve got a big problem.” Digging further into the issue, Bradley said the professor’s contention was borne out by the research, and he began speaking about the issue publicly.

So, is there a generation gap between older and younger advisors, between the pioneers of the profession and those who are coming into the profession and, if so, how do you close it?

The advisors then jumped in. Mark Germain, the 62-year-old founder and CEO of Beacon Wealth Management based in Hackensack, N.J., responded to the issue of the children of clients not retaining their parents’ advisors by characterizing it as a “legacy for the business” issue, arguing that “a value proposition has to be created so that the business connection can be transitioned.” Germain says his role “is, and has been, to build the firm and figure out how you can keep all of the assets that we’ve accumulated there, generating perpetual revenue.”

One way of creating that value proposition and ensuring that legacy is to make sure that younger members of the Beacon team have regular client contact. Roundtable member Chris Cacchiola, 27, calls himself a client service manager/planner at Beacon. “I really do a little bit of everything, from planning work with clients to administrative work. We’re a smaller firm, so I’m really the front line for the client.”

Pinnacle Associates is described by 40-year-old portfolio manager Ryan Fause as a “mid-sized asset management firm” with a wealth management arm, based in New York, that’s gone through its own transition over the past two years, with 60% of its $3 billion in AUM coming from high-net-worth individuals and families. He says that when it comes to “the chemistry that glues together the advisor-client relationship, if it’s an older individual that connects with the older advisor, and they see eye to eye, that’s what works.” But in meetings with clients and their children, “you have to bring with you someone that they can connect to, that they may be able to introduce to the heirs of their wealth, that they’re comfortable with.” If those younger potential clients are uncomfortable, they’ll move on.

Ray Mignone is the founder of fee-only Ray Mignone & Associates, which delivers financial planning and investment management services to clients from offices based in Queens, N.Y. Since, says the 57-year-old Mignone, a proud member of the FPA and NAPFA, “we’re a small firm, I get to do just about everything.” Mignone notes that younger people are “so used to communicating in short bursts,” but because of their reliance on electronic communications, they often “don’t know how to read body language, which is a big part of communicating.”

Corie Gabriel, 29, runs the private client group at Roosevelt Investment Group, a New York-based boutique money management firm where Gabriel serves as the primary contact for the firm’s high-net-worth clients. He joined Roosevelt three years ago from Fisher Investments, but the firm’s founder is 70, several of the other senior managers are in their 70s as well, and the firm has been building succession plans at the firm for the past five to seven years, he says. Earlier in Roosevelt’s history, those now-older managers “were wearing all of the hats” of managing money, finding new clients and servicing clients.

Many of the private clients that Gabriel and his team deal with are people who “might have been with our firm for five, 10 or even 20 years,” and are primarily in the 50-75 age group. Gabriel says Roosevelt is instituting a Fisher-like formalized client service model.

Part Two: Discerning the Gaps

Gabriel said that at Roosevelt, the older members of the firm weren’t focused on proactively servicing the clients “because their main goal was managing a very good portfolio and making money.” It’s the younger client service personnel at Roosevelt, he says, who make sure that “all of our existing clients are proactively serviced.” As part of that succession planning, even Roosevelt’s investment team has been expanded, and rather than having three people on the team who “were all in their 70s, it’s now eight people ranging in age from 35 to 75.”

Germain says that when it comes to the skills of the younger and older generations, “there’s a significant difference” because of the older generation’s experience. “You cannot, unfortunately, get someone who went from undergrad to grad school to come in and expect them to know how to deal with a 55-year-old potential retiree. They have no basis for comparison.” For Germain, it’s a question of having some shared experiences with clients. “You have an older generation that has experienced many of the things that the clients are experiencing. Bringing people into the firm and creating a legacy environment is being able to transfer how you talk to this client.”

Instead, he says, “the client has to be the focus.” In talking to that client, Germain warns that any client shouldn’t “think you’re going to show him 22 charts and he’s going to be impressed. He wants to know how he’s going to pay for…his daughter’s college education and where we want him to take the money from” to do so.

“You have to know the client, and I think that’s the toughest part in our business. Ray [Mignone] and I, as we built the businesses, the clients came with you, and you took them from when they were a little bit smaller and growing, and you gave them the vehicle to get where they are now.” He then uses the example of a specific long-term client who, when she retired, “came up to me and she said, ‘Thank you for making me a millionaire.’ Chris [Cacchiola, Germain’s 27-year-old colleague] can’t get the same rapport with that client, because he didn’t make her a millionaire in her mind.” Germain is quick to point out that he didn’t actually make her a millionaire; “it was her own money, she worked for it, she saved it, she put it aside.” But the point is that you have to get your clients to look at the younger generation of advisors in the same fashion as they look at the older generation.

Bradley added that it’s true that some younger advisors “have the playbook and they don’t have the experience to know what not to do, so they think ‘We have to do all of these things,’” but if they don’t understand what’s important for the specific client, “they waste a lot of time on stuff that’s not important for the client.”

Part Three: Bridging the Divide

So if that is the challenge—getting clients to feel rapport with an advisor who is younger than them and who hasn’t had the life experiences that they’ve had—how do you make that transformation?

Bradley asked Germain whether he matches younger clients—such as the children of clients—to a younger advisor. “There needs to be a matching of mindset, rather than generation,” Germain responded. “The matching is getting someone who understands and thinks the way they think,” which in terms of the engineer daughter of his client who thanked him for making her a millionaire, is “totally numbers-based.

Well, I’m a numbers-based guy, but they also see that eventually I’m going to be gone, so the person meeting with them and talking with them—and we have three client service people—we match the person to the client.”

Germain compliments younger advisors. “There’s a tremendous amount that the younger generation brings to the table, and I’ve always said that one of the reasons why you hire young people is they don’t know what can’t be done.”

At Roosevelt, Gabriel said that over the past four years, the firm has transitioned many of its legacy client relationships to younger people on his team. “Our plan was to transition the practice over a couple of years, but within three months we transitioned the whole practice.” Gabriel said there was “primarily zero kickback from the clients. We went from an environment where the portfolio managers were more reactive—answering questions when someone called, sending market commentary every so often to the clients—to a proactive client service model, where every month or two weeks, these clients are being touched on a regular basis” via electronic means, blogs on a revamped website, portfolio performance reports by email and telephone calls.

Clients had no problem with the transition, Gabriel reports, because those younger advisors who are now the primary point of contact “were sitting in on the investment committee meetings, were fully apprised of what’s going on in the market and what our thoughts are, so we can have high-end conversations with them.”

Germain admits that the younger generation possesses a “tremendous technology skill set that the older generation takes a much longer time to learn.” Moreover, he says younger people also “have the education and they’re better at short-term problem solving than people our age. But what we bring to the table is all that experience. So there’s this blending that has to happen with the two generations.”

Fause said that two years ago Pinnacle started sending performance reports to clients electronically, saving the firm time and money. “You’d be surprised how many people accepted the online way,” he says. Pinnacle is also a heavy user of social media, commenting on the markets on a day-to-day basis, and using LinkedIn and Twitter with clients as well.

Part Four: Thoughts on the Future

Germain says “technology is critical” already and reports that at Beacon, “everything we get is scanned and put into a PDF” format and delivered to clients, who can also pick up documents on the Beacon website. “We just started using QR codes [printed barcodes] on our literature. You hit it and it takes you right to the URL where we want you to go.” The firm holds a monthly conference call using the Web-based Go-To Meeting application with clients, “and that conference call is on the website the next morning. So people that weren’t able to dial in and ask their own questions are able to hear the conference call.” The Beacon website is not only about serving current clients. A prospective client came into the office last year, he recalled, and Germain asked what questions he had. “ ‘All the questions I had,’” Germain quotes him, “ ‘you already answered on your website.’ “That client was 48.”

In speaking to younger clients, Mignone recalled his point about a lack of appreciation for body language. “You have to be more specific and make sure that what you’re communicating is understood the way you want it to be,” he says.

Fause brought up the differing cultural touchstones of the generations. “You ask a boomer, where Kennedy was when he was killed, they’ll say Texas. If you ask someone from the younger generations, they’ll say, ‘Wasn’t it a plane over Martha’s Vineyard? It all depends on which Kennedy you’re talking about.”

Wrapping up the conversation, Bradley said it’s important for older advisors to coach the younger generation of advisors, but “we also, in my view, have to get coached or reverse-mentored by them. Listen and learn and adapt.”

“You need to take a look at the power that’s out there, the brainpower that’s there,” Germain says. “Younger people are able to absorb an enormous amount of information in the electronic age and the technology allows them to get the information, where our role is to channel all of that stuff that’s going on, to create a vehicle to deliver it for service to the client. It’s still that brainpower that allows you to grow the firm.”

As far as the generational gap goes, says Germain, “instead of battling it, you have to find a way to work with it. You have to be open to their generation and what they’ve been through.”

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