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How to attract and keep the next generation of clients

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We know RIAs need to attract younger advisors to stay in business as older advisors retire, but considering how much wealth will be transferred to millennials over the next couple of decades, what strategies should RIAs use to attract younger investors, too?

The good news, according to Jill Jacques, vice president and wealth management/retirement lead at North Highland, a consulting firm, is that millennials tend to work with older advisors because are looking for someone with experience and also because they often get a referral through their parents.

When they do work with younger advisors, they expect them to stay up-to-date on the latest trends or to work on teams with more experienced advisors.

“Advisors who have the parents of a millennial [as clients], it’s a very good inroad to have the millennials be involved as a family,” Jacques said. “Millennials are going to their parents. Parents want their millennial children to learn about finances. For advisors, that’s a great sign that you can start to form an intergenerational relationship.”

Jacques pointed out that most millennials don’t have enough assets of their own to qualify at a lot of firms. “Looking at the household, you can broaden who you see as a client versus just the assets under management you can bring in house.”

Advisors who want to hold onto younger clients, though, are going to have to change. “Traditional advisors who have created a successful practice offer some outdated processes and approaches that aren’t going to translate to millennials,” Jacques said.

One such process is how they delineate between in-person meetings and phone calls. Jacques suggested advisors may have to change the mix of what information goes online and what is covered in a face-to-face meeting. “For millennials, they want to go face-to-face when there’s an important decision to be made, but they do not want to go face-to-face if it’s just information gathering. That’s where digital really plays a part.”

Presenting information is another challenge for advisors who want to attract millennial clients. “A lot of times there are 50-page documents with charts and graphs and numbers. What millennials are looking for is more of an executive summary, with more of an infographic feel. The more the advisor can paint the picture of what’s going on, rather than giving a 20-page dissertation about what’s going on, that will ring true more for the millennials.”

It’s also important to frame investments based on what they do for the millennial client rather than what they cost. Instead of talking about a “1 percent wrap fee or a certain percentage commission, it’s more the value they’re getting out of it,” Jacques said. “I know we have to disclose fees for compliance reasons, but that’s not something necessarily to dwell on.” Millennials care about how an investment can get them to their goals, Jacques said.

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Studies have shown that millennials lean conservative when they invest, and Jacques said, “I would agree that millennials as a generation are more savers than investors. They’re concerned about saving first and paying off debt, then going into investments. When they do go into that investment side, they continue that conservatism through their investments.”

That conservatism could hurt them, though, as over 50% of Gen X and Gen Y money is in cash, Jacques said. UBS’ first-quarter Investment Watch found that millennial investora have an average 52 percent of their money in cash.

“That says a couple of different things,” Jacques said. “One, it does say they’re more conservative, and two, that generation is still trying to figure out where best to invest.”

Jacques said, “There’s a thoughtfulness to investing and they are more likely to go to their parents for advice first,” but added that millennials “do want to go to an advisor for investments.”

Advisors need to recognize young investors’ conservative investing tendencies, she said. “Just because they’re younger and an advisor may want to put them in more aggressive portfolios given their time horizon, they will probably have a risk tolerance lower in general than some of their other clients.

“It can be an easy trap to fall into to say, ‘In order to achieve your goals, you need to be very aggressive. You have time, don’t worry about it,’” she said. “But there’s a different value proposition that millennials are looking for. They’re looking for somebody who can mentor them and coach them along the way. They want to be heard.”

In their quest to attract younger clients, Jacques cautioned advisors against forgetting about Gen X. “As an industry, we are not seeing a lot of focus on Generation X,” she said, even though they have about $125 billion in buying power. “There’s a way to connect Gen Xers and millennials without completely going over Gen X.”

Gen X shares some of the conservative investing tendencies of their younger counterparts, Jacques said, but unlike millennials, they do have enough assets to be interesting to larger firms. Connecting with them isn’t cut and dry, though. Some prefer face-to-face meetings, while others would rather work online, Jacques said.

“The key for a financial advisor is to not generalize a client or a prospect based on their generation, but really get to the heart of what kind of relationship they want out of the advisor. Whether you’re a millennial or Gen X, some people want an advisor to be a true investment broker and some people want an advisor to be a coach and a mentor.”