Bridge Builder

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.