The industry is struggling with generational transition and transformation. I recently heard Mark Tibergien, CEO of Pershing Advisor Solutions, speak about the issue to a bunch of advisors who are shifting their practices to the next generation - and his remarks gave me an interesting way to frame the issue.

Like many of you, I'm a roaring baby boomer. Since the average age of advisors is about 56, I can be fairly confident that I am speaking to you as a peer. (If you are a Gen Xer or a millennial, don't go away: I've got something for you, too.)

So, boomers, you're probably the founder of your firm. When you started out, formalized planning was new or relatively non-existent; you talked more about the plan and product than the people, and your business was, well, you. The more time you put into your business, the more successful you felt you were and the more money you made.

In my own practice, I prospected in the evening, prepared plans in the morning, closed them in the afternoon - and before I left to go to some seminar, I took the trash out. We boomers tend to value office face time and simply can't understand work flexibility or other work-life balance trends. For us, the path to success was hard work and more hard work.

So when Tibergien said that boomers measure success by time and effort put in, it made sense to me - and, presumably, to the roomful of older advisors nodding their heads. But then he asked, "How do you think your next-gen advisors measure their success?"

We didn't know. In fact, we have all been puzzling over this since we brought our new, younger partners into the firm. "Next gens," Tibergien said, "measure their success in terms of outcomes."



Reflect back on the early days of your firm. Think about your 80-hour weeks spent designing and developing your practice. You didn't have much software support, so anything you wanted to give the client had to be designed first. If you were working with a broker-dealer, you could offer only what it provided. If you were doing financial planning, you first needed to educate your client about what financial planning was.

Now look at your practice. You have more technology support than you can use. You can afford administrative, operational and paraplanner support, so you leverage your time and work more effectively with clients. You're now thinking about succession for your business and it seems appropriate to bring on new professionals.

Here's where the generational disconnect becomes a problem.

You've paid your dues - and if you believe your successors need to pay theirs, too, you're going to be looking for 80 hours a week of work and constant availability to the client. I'm embarrassed to say I used to brag that I was available to clients 24/7. Not one called me at 3 a.m., but I had a beeper next to my bed, just in case, and all my clients knew it.

Further, you believe ownership of client relationships lies with the rainmaker who attracted them in the first place - and that your reward for holding the firm together during the lean times should be to collect on your equity now, in your later years. You figured this business was your retirement plan.

You may also worry that your younger advisors don't understand your business - not that you did when you started - and you are reluctant to place any kind of management in their hands.



While you're pondering that, let me direct some words to Generations X and Y.

When you were hired, your firms were growing at a faster pace than even the founders could have imagined. You were probably brought in to support these rainmakers. It wasn't necessary for you to generate business; there was plenty to go around.

You wanted a career path that included partnership, and you assumed the road to get there was to take good care of the clients and become indispensable to the firm. You also assumed that one day your founder would retire and leave the entire firm to you. Your understanding of ownership was as a right earned by tenure and good client relationship skills, and you figured you had that under control.

Now here is the problem. This industry really needs the next generation of advisors; 77 million boomers are retiring and searching for financial help. The average age of current advisors is mid-50s, and they are thinking about retirement, too. More important, the next generation of clients want and need help in a different way, with advisors who share the same perspectives and work-life challenges. They want to relate to their advisors, not the legacy advisors of their parents.



Boomer advisors, I believe your responsibility to the next generation of advisors - both for their benefit and in order for you to make a successful transition - is to educate them, prepare them, mentor them and encourage them to find their own place in this industry.

They do not need step into your perspective and your history, however. So stop complaining that your younger teammates aren't spending 80 hours working. Even if they need to spend more time on the business, you will never motivate them by whining. You need a better way to communicate the realities and responsibilities of ownership.

One advisor recently told me he had asked his next-generation advisors to formulate a new business plan so he could be assured that they were focusing on the future growth of the business. After 18 months, he was still waiting. I suggested he set a realistic time frame, telling them something like this: "You have six months to get a viable business plan to me. I'm unconcerned about how you plan your time to get it done, but I want to see it on Oct. 1."

If you are expecting your next-gen teammates to grow the business, help them set realistic and attainable new business goals - and hold them accountable. Many practices are moving away from fixed compensation in favor of a fixed base with a significant variable component. That's great - it reflects younger workers' focus on outcomes - but be sure you are compensating for the behavior you want to see. Consider including a retention bonus for keeping clients and an acquisition bonus for new clients.



Now, next-gen workers: Your responsibility is you need to know as much today about business and managing a practice as you do about planning and advice.

There was a time when advisors could - and did - fumble around with the practice and still have a viable business. Not any more. This is rapidly becoming a massively competitive business and you need to sharpen your business acumen to be profitable.

While you may have an altruistic need to help people, you will not help anyone if you do not remain in business. You need to know what it costs (in money and time) to bring on new relationships, and you need to know how to make them profitable.

In any service business, there are rewards. You are paid to manage client relationships. You may even receive a bonus for keeping them happy. Unless you are told otherwise, the clients are clients of the firm, no matter who is taking care of them.

If and when you achieve a partnership in a firm, you will be rewarded with equity ownership, as well. In a profitable firm, equity has significant value. It is purchased. And it is rarely given away.

Bottom line for boomers: Stop whining and get specific about your expectations for those who wish to become owners. Hold them accountable for the outcomes, but leave it to them to figure out how to succeed.

And next-gen advisors: Don't expect a free lunch. Equity is valuable and you will have to earn it. But you have a right, once expectations are set, to earn it your own way.



Deena Katz, CFP, is a Financial Planning columnist and an associate professor of personal financial planning at Texas Tech University. She is also chairwoman of Evensky & Katz, an advisory firm in Coral Gables, Fla.

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