We’re bombarded these days by consultants, gurus, pundits, etc. advising independent advisors that they have to start attracting Gen X and Gen Y (millennial) clients. At the risk of getting a flood of comments telling me I’m an old fogy (sometimes you just have to take one for the team), I hope most advisors are taking this ‘advice’ with healthy skepticism, because it flies in the face of much of what the independent advisory industry has learned over the past 40 years or so.
What follows is an email exchange I recently had with a media consultant pitching a story on the subject. I think it captures both sides of the issue quite well:
Consultant: “I thought that your question ‘Does either group have enough assets for independent advisors to start thinking about them?’ makes an interesting point. For independent advisors, it doesn’t really matter if their next HNW client is a millennial or GenXer—however ensuring their practice is prepped to capture that next level of growth is the key. (We are seeing some niche practice growth trends; for example among executives at tech startups or entrepreneurs, but again advisors should look across generations, regions, asset classes and client groups etc. to expand their practices to capture growth, whereever the trend evolves.)
“What does that advisory practice of the future look like? How can an advisor’s practice of today not only survive but thrive in the future. They can’t only focus on their existing client base, who is aging and heading into their de-accumulation years. Regardless if its Gen X or Y—these groups will become the base of an advisor’s HNW practice of tomorrow, either from a wealth transfer as older generation pass down their wealth, or because they’ll be hitting their primary earning years. The key is to capitalize on tools and partners that can allow advisors to service and communicate with these different asset groups as well as expand their prospecting options. Thus laying the groundwork for the next stage of their practice.”
Me: “Thanks for the response. You’ve done a very nice job of articulating the current popular thinking about attracting younger advisory clients. Unfortunately, that’s not really how the advisory business works. From Wall Street wirehouses to mom and pop RIA firms, success in the advisory depends on attracting the “right” clients; that is, clients who need the kind of advice a financial advisor provides, who can afford that advice, and who are willing to take advice. If a client fails to meet all three tests, they will be too time consuming, legally risky and/or will not generate enough revenue to work with, cost effectively.”
Generally, clients under 40 don’t meet these standards, and I know many advisors who won’t take clients under 50. That’s one reason why “taking younger clients who will become good clients someday” is generally a bad idea. I know it’s tempting to work with wealthy younger clients (wealthy thanks to the tech boom, for instance), but they still only tend to meet one or two of the above criteria (not being ready to take advice is their most common failing).
That’s why younger clients tend to change advisors a lot, which makes them even less valuable — and more costly. Successful advisory firms have learned that it’s not worth taking clients until they are both financially and mentally ready for advice.
What’s more, the notion that advisors should “look across generations, regions, asset classes and client groups etc. to expand their practices to capture growth” is off the mark as well. Successful advisory firms focus on specific kinds of advice for specific kinds of clients: Doctors, or business execs, or Wall Street brokers, or tech entrepreneurs or small business owners, etc. I know an advisor who built a great business only working with vineyard owners (and she gets great Christmas presents from her clients). This makes firms more efficient as businesses, and it makes marketing and referrals more targeted and efficient, as well.
Every new generation of advisors has felt pressure to “get their foot in the door” by working with younger clients. As far as I can tell, they virtually always regret it. I am willing to acknowledge that I could be wrong about this, but I sure don’t see any evidence that “This time it’s different.”
And just for the record: even if I’m right about this, it doesn’t mean that I’m not an old coot.