“Always first draw fresh breath after outbursts of vanity and complacency.” –Franz Kafka

Vanity and complacency: Plenty has been said and written about these two traits–and almost none of it good. Webster’s defines vanity as a feeling of excessive pride, and complacency as the feeling you have when you are satisfied with yourself. One need only remember the fable of the grasshopper and the ant to get the point that’s being made here: the industrious ant toils away endlessly under the hot summer sun planning ahead; while the grasshopper, absolutely content with his current situation, sits in the shade singing, even laughing at the ant. Well, we all know how that story turns out. But how many of us in the advisory industry actually take this life lesson to heart? How many of us are content to continue on with our current business model, never preparing for “winter” months as the lowly ant does? For example, how many of us continue searching for clients along the same demographic market segments, never realizing that what works today may not work so well tomorrow?

The majority of investment professionals today target the same old market segment, never grasping what a great untouched potential future growth opportunity exists for those who are willing to work for it. According to the most recent Rydex AdvisorBenchmarking survey, very few investment advisors focus on younger clients (those under 42) or have any established dialog with this age demographic. According to our findings, baby boomers represent the largest segment of advisor clientele, with almost half (48%) of their clients falling in this age range. But at the same time, the groups commonly known as Generation X and Generation Y, or Millennials (under 42 years of age), are up and coming. According to the KPMG report Beyond the Baby Boomers: The Rise of Generation Y, “In order to reach and to win those young adults, financial professionals should make those generations a priority.” And our research supports that statement–only 5% and 12% of clients, respectively, fall into the Gen Y and Gen X categories. With a majority of investment professionals focusing all their attention on baby boomers, an opportunity exists whereby seeking relationships with younger investors could translate into more clients in the future.

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Even more benefits abound! This younger generation has more well-diversified investment portfolios and a larger allocation to newer, nontraditional investment products and alternative assets. Young millionaires in the Gen X segment are proving to be more sophisticated in their investment style than their older millionaire counterparts–this according to the “Wealth in America 2008″ report by Northern Trust. Considering the fact that investments in alternative products will increase in the next few years (see Practice Edge, December 2007), it may be even easier for advisors to educate this generation on the subject. Also, according to Curt Weil of the Lasecke Weil Wealth Advisory Group, “Generations X and Y are more comfortable with risk and better educated. But in order to reach this segment, you have to be tuned to them. For example, since they are very technologically savvy, you have to have your marketing materials in an electronic format. “

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Baby Boomer Generation: Have a Focus

Make no mistake, the baby boomer generation will continue to be a focus for many advisors. It’s understandable given the fact that boomers control the largest pieces of the wealth pie. However, many advisors (57%) are already preparing themselves for “cold” weather. Some advisors (44%) are building strong relations with their clients’ children and others (44%) are partnering with professionals who offer services to pre-retirees. “We look at building strong relations with clients’ children as a way to provide better service to our existing clients, to add service value to them. For example, depending on the case, we might lower the minimums for the top clients’ children. Eventually we will be transitioning to the next generation and today’s clients’ children are tomorrow’s wealth inheritors. We encourage our clients to bring their kids to our firm,” says Michael Sadoff of Sadoff Investment Management.

Know Your Audience

Gen X and Y clients are much different than the boomer clients you’re used to working with. Before you determine if they’re a target market you want to pursue, take note of their uniqueness. While not all members of these generations share all of these attributes, the characteristics listed here may give you some insight into approaching younger investors. Gen Xers tend to see financial advisors more as “partners” rather than as someone to whom they want to hand off authority. So be prepared for these younger clients to be much more hands-on than older generations. “Teamwork” is something that resonates with them. Growing up in the information age, both Gen X and Y are very comfortable with technology. Gen Xers are very independent and self-sufficient. They came of age when corporate America was downsizing–when stability, loyalty and safety nets at work started to disappear. Gen Yers are less independent than their Gen X counterparts. While many Gen Xers grew up as latchkey kids, Gen Y kids grew up with organized social activities, such as play dates. Doted on by their parents since birth, Gen Yers are often known for their hovering or “helicopter” parents who often act as a sounding board for all major decisions–such as where they work and where they live. Gen Yers value relationships, meaning that “trust” is especially important with them. And they dislike uncertainty. They like clear rules and guidelines–so make sure to outline how you will work with them so they are comfortable.

Should you decide that this is a potential target market for your business; educate yourself on the different aspects of those who could one day be your largest customer base.

1. Establish a relationship with your clients’ children; boomer wealth will likely transfer to those Gen X and Gen Y adult children.

2. Fine-tune your marketing materials to target younger market segments. In addition to personal meetings, consider blogs, e-newsletters, or podcasts as effective methods of communicating your message.

3. Be clear in your approach to working with them and invite their feedback. They like to know what to expect.

4. Rethink traditional time lines. Many Gen Xers and Gen Yers are children of divorced parents. They are postponing marriages, mortgages, and children–but when they do commit, they want to prioritize their lives to spend more time with family. Consider this when conducting wealth planning for them.

Learn a lesson from the grasshopper’s vain complacency. Those investment advisors who invest in their practice’s future by having a subset of younger clients may be richly rewarded in the years ahead.


Maya Ivanova is a research analyst with Rydex AdvisorBenchmarking.com, an affiliate of Rydex Investments. She can be reached at mivanova@advisorbenchmarking.com.

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AdvisorBenchmarking, Inc., an affiliate of Rydex Investments, is a research and analysis center focused on the RIA marketplace Through its web site, www.AdvisorBenchmarking.com, the firm conducts multiple advisor surveys every year covering a host of business management and investment-management practices. The findings and analysis of the data are then released to the marketplace in the form of annual studies, quarterly research notes and monthly newsletters. The service is aimed at helping advisors grow and enhance their firms by comparing how their businesses fare against other advisors, as well as learning best practices of the most successful advisors.