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These Millennial Advisors Are Killing It With Younger Clients

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For the past year or so, I’ve been mentoring a dozen or so millennial advisors (ages 25 to 30) who have launched their own independent advisory firms. These young business owners aren’t really ready yet for business consulting — or ready to pay for it — so I work with them pro bono to build the foundations for the practices that they eventually want to have. I do this to give the younger generation of advisors a better head start in business than the baby boomers or my generation of advisors had. I think it’s the right thing to do.

But I also do it as professional research, to get better insights at a grassroots level into how the independent advisory business is changing to adapt to today’s challenges: digital “robo” advice, the fiduciary issue, fee compression, the influx of breakaway brokers and the retirement of the baby boom generation, to name a few. What I’ve found is nothing short of astounding.

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Under the radar, this youngest generation of advisors has created an entirely new advisory business model, designed to work with clients who are millennials themselves. Even more surprising, it’s working better than you can imagine — answering the questions about whether millennials make good advisory clients, and about how older, more established advisory practices can attract and work with them, and make a good living doing it.

The business model that these young advisors are using appears simple on the surface. Yet its effectiveness suggests a subtle complexity that can only come from a subtle understanding between members of the same generation. The problem that most older advisors have with millennial investors is that they don’t have much money, and seem to be more interested in their current lifestyles than in saving for retirement. Consequently, they don’t want and can’t afford to pay for financial advice — which would appear to make them rather poor advisory clients.

But the millennial advisors see their peers differently. They realize that many of their peers don’t have high incomes, but they also know that most millennials are concerned about their futures, just not in the same way as the older generations. What’s more, they know that many millennials very much want financial advice about how to prepare for those futures, but they want to get it their way.

And “their way” is the key. It turns out that millennial investors don’t want ongoing financial advice — and truth to tell, they probably don’t need it yet. They want someone to call or text when they come to decision points: getting their financial lives in order, starting to invest, and when they have a major financial event such as changing jobs or getting a promotion, bonus or inheritance.

To accommodate these clients, millennial advisors have created a low monthly retainer model, charging their clients in the neighborhood of $215 a month. I know, you’re wondering how in the heck they make a living on $215 a month? I did, too. Here’s how:

1) First, they provide very basic financial advice: a budget, a simple financial plan, advice about a basic investment portfolio and where to get it, and answering basic questions at the beginning of the relationship.

2) They don’t manage assets. As I said, they give investment advice, but they don’t manage the assets. Consequently, they don’t have the costs of a custodian or a BD. Nor do they have the usual fees or revenue split.

3) They don’t generally schedule appointments. When the clients have questions, they call or text, which means they don’t have to spend much on fancy offices.

4) They don’t have anything to monitor or to follow up on. The actual implementation of any plan or portfolio is in the hands of the clients. The advisors simply give advice. The client is free to take it or not, and to call — or text or whatever — when they have more questions.

5) The millennial clients get the advice they need, when they need it, in the way they want it, at a price they can afford. This all makes them happy clients, which makes then inclined to stay clients and to refer their friends — which leads to a lot more clients.

This adds up to very low overhead, but it has an even better benefit. As you may know, at best, the most efficient financial planner or advisor can handle about 85 clients. Any more than that and the service quality starts to go down. These millennial advisors don’t provide those kinds of traditional services to their millennial clients (who don’t need them), they just answer questions on a reactive system. Consequently, the young advisors that I mentor can handle about 135 clients — in solo practices. If you’re doing the math, that works out to be $350,000 per year, with very little in the way of expenses.

While this trend is obviously good for millennial advisors (and their happy clients), it’s good news for older financial advisors as well. For one thing, it’s a pretty clear indication that, contrary to other reports, millennials do want financial advice and are willing to pay for it. What’s more, these advisors have shown that their generation makes a financially viable client base long before they hit their peak earning and investing years.

The message for today’s established advisory businesses is that if they want to have millennials as clients in 20 years or so, they need to start attracting them now. Otherwise, they’ll be trying to take them away from the advisors they’ve had for over two decades — and good luck with that. In my September Investment Advisor column, I’ll talk about what older advisory businesses need to do to attract their share of millennial investors before it’s too late.

— Read Back to the Future: What Boomers Can Teach Us About Millennials on ThinkAdvisor.


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