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3 Financial Planning Business Models to Effectively Serve Gen X and Gen Y: Pt. 1

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As the financial planning profession continues to grow, it also continues to struggle to reach and effectively serve Gen X and Gen Y, as most planners tend to focus their businesses on baby boomers—no great surprise, given that baby boomers control the most wealth in the country, and that most financial planners themselves are baby boomers and simply find it comfortable to serve their peers.

Nonetheless, the reality is that it’s actually quite possible to build business models that can effectively serve at least a fairly wide swath of Gen X and Gen Y, whether on an AUM basis by serving the “emerging affluent” clients that larger RIAs reject, an ongoing retainer basis to provide as-needed guidance in an ongoing planning relationship for the cost of a gym membership and cable TV, or even using a more “traditional” comprehensive financial planning business model that simply combines a modest level of assets-under-management with implementing the basic life and disability insurance that those in their 20s, 30s and 40s will need anyway.

Ultimately, the true challenge of building a successful firm to serve Gen X/Y clients is not really about the business model, per se, which can easily produce a healthy personal income at a reasonable 100 to 150 clients, but instead how to grow and get to that number of clients in the first place. In other words, while designing the right business model helps, in the long run the real problem serving Gen X and Gen Y is a marketing problem. However, given how underserved the younger generations are right now, simply differentiating yourself by establishing a niche practice focused on Gen X and Gen Y clients may itself be an effective marketing cornerstone for growing a successful business to serve them.

Financial Planning For the Price Of A Gym Membership And Cable TV

Financial planning retainer models have already been gaining some popularity in recent years, although most commonly as an alternative to AUM pricing for firms that are struggling to manage profitability in the face of volatile markets and volatile revenues. The core value of this business model is to apply the same principle of the retainer model, but simply do it at price points accessible to Gen X and Gen Y.

This business model has the simple goal of providing a retainer-style financial planning relationship for an ongoing cost of $100 a month, which is roughly the average cost that most people pay for a gym membership and cable TV (about $50 a month each, depending on your geographic locale). In point of fact, “financial planning for the price of a gym membership and cable TV” can actually be the tagline for the business, as providing a comparison anchor point for the cost of your financial planning services is an effective marketing technique.

At a revenue price point of $1,200 a year, a target capacity of 150 clients generates $180,000 a year of revenue, a pretty healthy income for a business with very few costs. It may not be a business you can sell for very much, but frankly that’s really a challenge most financial planning businesses have faced for years. Nonetheless, it’s a healthy living that can grow over time with additional clients and/or by increasing your pricing as your clients increase their income and wealth, too.

Notably, this business model can also be done on a standalone hourly basis, but hourly models make prices highly salient and can cause clients to keep questioning whether each problem or question they have is really worth being “on the clock” for an answer. By contrast, a retainer model encourages clients to keep asking questions and utilizing your services (since it’s part of the retainer anyway), helping to ensure that once clients are set up for an automatic recurring retainer charge (either via bank draft or credit card), they remain happy and well-served clients for the long run. 

As with a typical retainer arrangement, services would be provided on an as-needed basis with clients, anticipating some busy points at the end of the year (reviewing employee benefits decisions for the upcoming year) and perhaps during tax season. But more broadly, advice will cover all of the cash flow, tax, insurance and (simple) estate planning matters that are common to those in their 20s, 30s, and 40s (Gen X and Gen Y).

To keep the business efficient, and to manage utilization, most questions, issues and meetings could be handled via email, phone call and video conference, which also opens up the potential for working with clients outside your local geographic area. Not only is there little need for in-person meetings in most situations, but the reality is that aside from an introductory meeting (for clients who are local), most tech-savvy Gen X or Y clients will likely appreciate the flexibility of a tech-savvy advisor that uses the available tools and technology of today.

This also means that beyond some financial planning and CRM software, a website, an email account, a phone number, and video conferencing capabilities, your business will have virtually no overhead costs! You may not even need an office! In addition, the business model is rather simple from a compliance perspective, as it can be done with just a state RIA registration. There will be no actual assets under management, and no product implementation, so there is no need for the cost or hassle of a custodian or broker-dealer, and much of the essential state RIA compliance can be outsourced or templated (e.g., RIAinaBoxRIA Compliance Consultants, or RIA Compliance Group) given the simplicity of services involved. (Technically, if no investment advice is given, setting up an RIA might not even be necessary, although many clients may wish for guidance on their portfolios and 401(k) allocations, so getting the RIA set up is a good idea.)

As with other monthly-cost business models outside the financial services industry (including the aforementioned gym membership and cable TV), the reality is that particular clients will need your services more in some months and less in others, and may even go long stretches without any questions at all. As long as the total needs of clients match up with the capacity to answer their questions, and the revenue is reasonable, the business model works just fine. Especially since your prospective clients have probably never seen anyone else offer services like this, which means you will likely have virtually no competition.

Comprehensive Financial Planning Services for Today’s Young Professionals

In this second business model, the goal is not just to provide (and be paid for) advice, but also to provide (and be paid for) the implementation of the client’s financial planning needs, including both the investment and insurance product needs common to today’s emerging Gen X and Gen Y affluent. The core value of the business would remain financial planning, with recommendations crafted through an appropriate fiduciary process; nonetheless, proper financial planning recommendations do lead to a need to implement the recommendations, which is how the planner under this model gets paid.

This business model relies on a state RIA registration, and a state insurance license, to implement the investment portfolios (on an AUM basis), term insurance and disability insurance most commonly needed by those in their 20s, 30s and 40s; after all, the clients are going to have to implement after receiving your advice, and the cost of a particular term insurance policy is the exact same whether they buy it from you or via (but you earn a couple hundred dollars for implementing)!

Average revenue per client might be anywhere from $1,000 to $3,000 per year, depending on the depth of services and the particular implementation needs of the client, leading to a potential gross revenue that averages about $300,000 with a “full” 150 clients (albeit with some income volatility given a smaller AUM base and some fluctuating needs for insurance products from year to year).

Notably, because no commissionable securities products are used —i.e., no commissioned mutual funds, variable life insurance, or variable annuities—there would be no need for a broker-dealer relationship. Just an RIA for the investment management fees (along with a relationship with an investment custodian), and a state insurance license (along with a relationship with a life insurance brokerage general agency).

In our next post, we’ll finish our discussion of the second model and move on to the third before finishing up with an implementation strategy.


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