From the August 2013 issue of Investment Advisor • Subscribe!

Brave New (Client) World

With apologies to Wayne Gretzky, advisors should be heading not only where the wealth will be, but increasingly where it is today

Illustration: © Ikon Images/Corbis Illustration: © Ikon Images/Corbis

Even though most advisors are running their business better with improvements in such hard areas as technology and compliance, many of them have made less progress in building strong relationships with today’s clients. They also risk missing out on tomorrow’s growth by neglecting audiences beyond the traditional affluent white male client.

These advisor alerts aren’t mine. They come from an eye-opening “Investor of the Future” study released in June by Pershing Advisor Solutions.

Consider this: More than half of adult Americans are single, according to Pershing’s Kim Dellarocca (as reported by ThinkAdvisor.com on June 6). Many women are their family’s sole breadwinner. Same-sex marriage is already legal in 10 states (and the recent Supreme Court ruling will extend federal benefits to same-sex couples), and racial minorities will become a majority of our population over the next 30 years.

How can advisors use this information to stay current and embrace the future? I questioned Dellarocca, head of segment marketing and practice management at Pershing, to glean her insights and recommendations.

Olivia Mellan: According to the study, female advisors tend to have a more diverse client base with whom they are more deeply engaged. Does this imply that male advisors focus more narrowly on niche markets?

Kim Dellarocca: I think the male advisors we surveyed grew their business by focusing on where the wealth was during that time. For example, if an advisor is 55 years old and has been working since age 25, his typical client over the past 30 years—an affluent white male head of household—reflected top earners during that time.

When women entered the advisory business, many looked elsewhere for clients: for other women, for clients with different lifestyles, for more ethnic diversity. Some male and female advisors haven’t changed their business model to catch up with where the wealth is now.

OM: Should advisors have a diversified “portfolio” of clients? What research findings point to (or against) this idea?

KD: Yes, they should be diversified, and they don’t have to look far to diversify. Among their existing relationships, they can diversify immediately by cultivating the wives and children of their existing male clients. These different genders and generations are important segments to develop.

OM: I’ve urged advisors for years to not only cultivate both spouses but to facilitate family retreats involving all generations. Speaking of client diversity, your survey report says “Diverse groups almost always outperform homogeneous groups […] by a substantial margin.” Can you explain further?

KD: Several outside sources have reinforced the point that diversity is good for business. For example, companies with more women in management positions and more diversity among the staff tend to perform better [than those with a more homogeneous makeup].

Diversity—whether measured by gender, age or ethnicity—encourages you to look beyond your sameness. If you’re always around those with whom you agree, where’s the innovation? Who’s going to point out your blind spots? With a more diverse advisory practice, you will also get more views that closely mirror the demographics of future clients and the work force of the future.

OM: What does your research tell us that male advisors might learn from female advisors? What could female advisors learn from their male counterparts?

KD: Men could learn from women that clients have moved from looking for performance to looking for a relationship. And women are good at developing relationships. So men could learn from women to be great listeners; they could learn to engage with more members of a client’s family; they could focus on competencies other than just managing money, like estate planning, family governance or special-needs children, to give some examples.

Women could learn from men to be more confident. This doesn’t mean that a woman should act like a man. She should just be herself and ask for what she needs to be successful in her job or career. Men are likely to start with a “yes” and then negotiate for what they want, whereas women think about what they want or need but don’t know how to ask for it. Their hesitation to say “yes” can take them out of the negotiation.

OM: Two-thirds of advisors in the survey said they believe widows and widowers will be an important client segment in the future, yet we’ve learned that 70% of new widows fire their advisor within a year. What are advisors doing wrong or not doing right?

KD: They’re not building a relationship with their female clients. If the male head of household is their client and they haven’t taken time to focus on the spouse, a widow may turn to another trusted source for financial advice. A financial advisor should have such a close relationship with the wife that if something happens to her partner, the advisor is the first person she would call. The relationship should be that close.

OM: Do many advisors turn off younger investors? How can they reach this 35-and-younger group more effectively?

KD: I don’t think younger clients necessarily want to see a younger advisor; they just want to see someone who “gets” them. So my suggestion is to take time to understand them before you market to them. Understand how they want to be communicated with, what motivates them, what are their concerns. Then build an offering and an office around them. Don’t just try to serve them the way you serve boomer clients.

OM: Advisors in the survey who say they’re “doing better than ever” are optimistic about future growth. But given that many of them aren’t planning to hire more advisors in their practices, is this expectation of growth truly realistic?

KD: Growth can mean different things, depending on the advisor’s age, business goals and so on. You want to use your [existing] staff for maximum efficiency, and there are many other ways to improve efficiency, such as with better technology. So while you may need to hire to support your goals, you wouldn’t automatically say, “I’m optimistic about growth, so I’ll hire 10 more people.”

OM: Considering the small percentage of business owners in the affluent segment and the fact that owners’ assets are typically tied up in the business, should advisors limit their pursuit of this kind of client? Why or why not?

KD: It’s true that business owners have a lot of money tied up in the business, but other marketing opportunities exist. An owner’s staff might have money that needs to be managed; she may have other business owner friends and networks that you could work your way into. Or you might provide help for the business itself, like managing their retirement plan. You could provide lending solutions, help with succession planning. Because of this big ripple effect, I wouldn’t discourage advisors from taking on these clients.

Today’s well-established financial advisors did a lot of things right originally. From my perspective, they now need to take a step back and look at where the investors of tomorrow are. They will need to build bridges with population segments who are different from them but who may need their services in the future. That means researching these audiences to learn their values, how they like to be approached and what they’re looking for in an advisor. Armed with this knowledge, advisors should find it easier to determine the changes they will need to make in order to achieve success.

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