Age may bring wisdom -- and, for advisors' clients, it often brings wealth as well. But many advisors don't fully understand the threats that older clients pose to the health of their practice, says one industry observer.

Older clients create three major challenges for advisors in the years ahead, Johann Schneider, Russell Investment’s program director of Capital Markets Insight, observed in a recent blog post. In a follow-up conversation, he argues that advisors need to analyze their client base and prepare response strategies or jeopardize the future of their business.

“These risks are hidden from a lot of advisors’ purview,” Schneider says. “But an aging client base is what they need to be looking out for in the next five years. If people aren’t talking about it now or aren’t concerned about it now, they will be when they start to see the impacts of it.”

Schneider identifies the following three threats, which he says emerge in the later "decumulation" stage of a client’s investment life -- when clients typically start spending their wealth faster than they are replenishing it.


As clients spend down their wealth late in life, the advisor has fewer assets to oversee or invest on the clients' behalf. Though decumulation is a natural part of the investment process, a practice that skews too heavily toward clients in decumulation phase -- a real risk as the boomer generation retires -- may be in trouble. “Decumulation is the primary risk,” said Schneider. “It’s a potential threat to the future growth of advisory businesses.”

Protect yourself: To counteract the threat, advisors need to diversify the age distribution of their client base, Schneider says, suggesting advisors focus on an average investor's "peak wealth" as coming between the ages of 65 and 75. “An easy rule of thumb: For every client that you have over the age of 70, you should probably have one or two clients to balance that out from the ages of 55 to 60,” he says. “So you want one or two that are coming into that peak wealth phase for every one that’s moving out of it. That way you will ensure that you have a more balanced book.”


This is common among higher-net-worth clients, Schneider says. Although these investors may never actually decumulate, they sometimes develop a roving eye, finding investment opportunities that are not overseen by their primary advisor. “While many clients are wealthy enough to not have a decumulation risk,” said Schneider, “they can just take the assets and go at any time. So while they’re not drawing down on assets, you could lose a big chunk if you don’t focus on those important clients.”

Protect yourself: Communication is key in guarding against asset flight risk, Schneider says. Advisors need to stay in close touch with their high-net-worth clients, and maybe even suggest that clients consolidate their outside assets under the advisor’s management.


After a client’s death (or other estate-related) event, when assets are passed on to a client’s heirs, most research suggests the existing advisor is unlikely to retain management. “Advisors sometimes take for granted that they will maintain those assets after an estate event or after death,” Schneider says.

Protect yourself: Advisors need to deliberately build connections with the children of existing clients, Schneider says: “In my experience, unless the advisor has taken a proactive approach in engaging that next generation, there is a very small possibility" that the assets will actually remain with the same advisor.

More broadly, Schneider says advisors must  keep a close eye on their client book and conduct a thorough demographic analysis of their clients and their assets -- to ascertain just how dependent they are on their oldest clients, and how vulnerable they are to any of these challenges. Then they need to confront the risks directly, Schneider says, managing and optimizing their client base if they are to stay ahead.

“This is going to be a big issue over the next five years,” Schneider said. “Advisors who are in front of it, who are aware that this is happening and take steps now to deal with it will be in the best position to grow and maximize their value going forward.”

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