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Luring Millennials Is a Waste, Take 2: Serving the Children of Clients Makes Sense

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Surprisingly, I only got a couple of comments to my last blog, Luring Millennials Is a Waste of Advisors’ Time, instead of the flood of feedback that I’m just “too old to get it” that I was expecting. And I found one of them to be quite intriguing. It was posted by Deborah Fox, CEO of the Fox Financial Planning Network and, in San Diego. Here’s what she had to say: 

“Bob, I respectfully disagree with you. I started in the business in my mid-20s, and built from scratch a book of clients that I could relate to, which were mainly millennials… …Within a few years, I was earning over $100,000 a year; an income most young advisors would be happy with.”

First, I think we need to establish some definitions here, to be sure we’re all on the same page. According to Wikipedia, the generally accepted age ranges for current demographic groupings in America is as follows:

  • We “Baby Boomers” were born between 1946 and 1964: That makes us between 50 years old and 70 years old today.
  • The “Generation Xers” were born between 1964 and 1984: That makes them between 30 years old and 50 years old today. 
  • The “Millennials” were born between 1984 and 2004: That makes them between 10 years old and 30 years old today. 

Now, a quick look on tells us that Deborah has been a “practicing financial advisor” for over 25 years.” In the interest of discretion, I’ll let you do the math, but when we add that to the above statement that’s she started her business “in my mid-twenties,” it’s pretty clear that her first clients were “GenXers” (and probably some “Baby Boomers) rather than “Millennials.” (Although I couldn’t confirm this, as she wasn’t available at the time of this writing.)

Still, her point that she initially built her business by working with clients who (like herself) were in their 20s is interesting. Fox goes on to describe the business model she used to generate her five-figure income: “I created a service model that fit their needs: debt and cash flow planning, income protection, early stage investing in mutual funds, etc.” 

I take this to mean that she sold her young clients insurance and mutual funds, and probably threw in basic financial planning as a loss leader. After all, how much could the investment portfolios of 20-somethings generate in AUM fees?

To answer that question, I refer you to Melanie Waddell’s June 1 story on ThinkAdvisor, Millennials: Ignore Them at Your Peril, about a panel discussion on the subject at the recent ICI Annual conference. Among other things, the panelists revealed that the 70 million Millennials “have between $1 trillion and $2 trillion in assets.” That may sound like a huge number, but when one does the math, it works out to an average $14,286 each.

However, that still sounds pretty high to me: considering that the panelists also said only 63% of Millennials have jobs, and that “seven out of 10 of them have student debt of roughly $30,000.” (When I was 30 years old, I didn’t have $14,000 in assets, and I didn’t know many people my age who did—although you could of course argue that I wasn’t hanging out in the right circles). And the stat that “35% actually own a home,” sounds ridiculously high to me. 

So it seems pretty clear that Millennial clients are not going to fit into the AUM fee business model of many independent advisors. And Fox agrees. She goes on to say:

“However, this model can only work if a firm builds a separate, standardized service tier [for] millennials, which includes using appropriate technology to automate many of the workflow steps. [And also includes] adding millennials to their business as employees. Millennial employees can enthusiastically and profitably serve millennial clients and nurture them on their journey to becoming a HNW client; either organically or through inheritance of the assets from the firm’s HNW clients.” 

And there’s the key to Fox’s fondness for Millennial advisory clients: targeting the children of existing clients, the Holy Grail of independent advisors for decades. A firm that can continue to manage the portfolios they have grown for years, into the next generation of clients, is a much more valuable, ongoing business. 

Of course, in Fox’s view, this requires owner-advisors to get over the idea of hiring Millennial advisors, and letting them work directly with clients—which in my experience is no small hurdle.

And, to make ends meet, they’d need to add commission products for them to sell. 

What’s more, there’s the problem that 20-somethings rarely take advice: and when they do, it’s almost never from their parents, and by extension, I’m guessing, from their parents’ advisors.

I still don’t believe trying to attract random 20-year-olds is a good business model for most advisory firms, but if Fox really has devised a way to hang on to client portfolios after Millennials have inherited them, it quite possibly could be a quantum leap in the evolution of independent advice.