The aging of the baby boom generation has been a boon to many financial planners. Fifty- and sixtysomething boomers, heading into retirement, have brought their large portfolios and a desire to have them well managed, in order to support a comfortable retirement. But loading up a practice with pre-retirees as well as older retirees may have its drawbacks.
"Many planners are working with clients just as they are getting ready to draw down on their assets," says Matt Iverson, CEO of Boulevard R in San Francisco, which offers marketing programs for financial advisors. "There is not a lot of growth opportunity there."
Clients who are in withdrawal rather than accumulation mode will pay lower asset management fees. What's more, some clients in that age bracket will die, passing on assets to charity or beneficiaries who aren't clients.
To prevent such erosion, some planners are taking steps to maintain their client and asset bases. "They are building a stream of clients who are in their mid-thirties to their mid- forties now," Iverson says. "These individuals may be about to hit their peak earning years, and they will be high-net-worth individuals in the future."
To serve these younger clients, planners may have to be willing to drop their asset-under-management minimums. They also will have to cope with a different kind of mind-set about investing and financial planning. But the most difficult task is finding these clients. Many advisors are looking in a logical place-the families of their older clients. But others are using new marketing techniques-like Facebook, e-newsletters and blogs-to reach out to wired clients whose planning needs and communication methods are quite different than their older peers.
Finding relatively young and under age 50 clients is not a slam dunk. "Traditionally younger clients have not been a central focus of our marketing efforts, and they have not made up much of our client base," says Craig Carnick, a financial planner in Colorado Springs, Colo. He adds that these individuals typically don't have substantial resources that require advisory help nor do they have a frame of mind that encourages long-range planning efforts.
Even successful professionals and executives in their thirties and forties may not have been able to accumulate large portfolios, considering the expenses involved in buying a home, raising young children and so on. Those that can may have taken a substantial hit from the recent market drop. Nevertheless, planners can resolve this issue, if they wish, by lowering their required minimum amounts of assets to manage. Indeed, Iverson reports that some planners are dropping their minimums in order to attract younger clients.
The "frame of mind" to which Carnick refers may be more difficult to address. "I'm hearing more planners say that attracting 'young' clients is definitely a different experience than attracting baby boomers as clients," says Michael Kitces, director of research for Pinnacle Advisory Group, a wealth management firm in Columbia, Md.
Such conversations usually involve Generation X clients, who technically are 45 or younger. (The post-World War II baby boom lasted from 1946 to 1964, so the first children after that were born in 1965 and turned 45 in 2010.) As Kitces puts it, "They buy and consume differently than baby boomers."
Kitces has found that Gen Xers tend to have a very cynical and short-term focus. "Successful planning for Gen Xers often involves relating financial goals to near-term tangible increments that they can identify with and achieve," he says. Kitces adds that approaching Gen Xers about how their lives will be better a few decades from now in retirement is unlikely to work with those prospects the way it still can work with boomers.
Could those near-term goals for Gen Xers be buying a vacation home or paying for a wedding? Alternatively, would such a goal be reaching $500,000 in liquid assets? Kitces says both of those goal frameworks can be viable. "If the goal is something like reaching $500,000 in liquid assets, it may just be a waypoint on the journey to retirement security. The point is that Gen Xers will be more receptive to a long-term goal that is broken into a shorter-term series of attainable steps."
For planners, working with Gen Xers in this manner involves reframing how they convey their services, Kitces contends. Unfortunately, it can also lead to challenges in dealing with those clients. Gen Xers may have a tendency to judge investment performance in the short term as well, he says.
Iverson also believes that Gen Xers are more focused on the short term. "They want to know, 'How can I afford to send my kids to college?'" he says. "'What will happen if my parents get sick?' Retirement seems a long way off."
In addition, Gen Xers tend to be quite skeptical of financial advisors, at least initially, Iverson has found. "I've seen research indicating that 62% of Gen Xers are self-directed investors, vs. 37% of pre-retirees," he says.
And, even if they want to work with a financial planner, Gen Xers won't automatically use the one who has been advising their parents. This is the generation that doesn't want to drive the same cars their parents' drive or wear the same clothes their parents wear, and the same may be true for their parents' financial planners.
Some advisors report no trouble in retaining the allegiance of clients' children. "I've been there for the mortgage on their first home and for the prenup when they got married," says Susan Kaplan, a planner in Newton, Mass. "There's no question of finding another advisor. Even if the children move some distance away, I've been able to maintain the relationship."
Kaplan adds that she takes care of clients' families as a courtesy, and has always done so. "I meet with and help clients' adult sons and daughters from their first job and 401(k) selection to the sale of their business or divorce settlement," she says. This service began as a perk for Kaplan's clients, but it has mushroomed into a steady flow of new clients; it certainly has led to a retention of assets after death or divorce.
Some of the children of Kaplan's clients are just add-ons to their parents' accounts, but others have become important clients on their own. She mentions one client's daughter, who she has been working with since the daughter was very young. "She just got divorced from a successful husband and now has a $3 million portfolio," Kaplan says. "Because of our long-term relationship, our firm is managing that money."
Like that recently divorced young lady, some clients' children ask for advice on managing their money. "I give them a choice," Kaplan says. "At no cost, I'll tell you what to do. Alternatively, I'll manage the money at your parent's rate." Kaplan has a substantial minimum for client assets but no minimum for managing assets for clients' children.
In most cases, the children start out managing their own money, Kaplan says, reinforcing Iverson's finding that many young adults are self-directed investors. After a while, though, many of those younger people ask her to do it. Clients' children start to have more assets, so they want professional advice. They understand they're getting a good rate, even though their assets are below her minimum. "This has turned out to be a worthwhile strategy, even though I didn't plan it that way," she says.
Other planners recently have placed more emphasis on seeking young clients, particularly the children of existing clients. "Although young individuals are still not the focus of our practice, in the last five years or so we have made more of an effort to 'seed' the future growth of our firm," Carnick says.
After working with families for more than three decades, Carnick says his firm is seeing the children who were once in high school grow up to be young adults. "They are interested in financial planning and in our firm because their parents have told them about us. These young adults realize we can advise them on the resources that will or could eventually come their way."
In many cases, Carnick's firm already manages trusts, UTMA accounts and 529 plans that involve these young adults. "They have become well acquainted with our people and our services," he says. Carnick feels very strongly that this next generation of young clients will be important for his firm's continued success and must be cared for and nurtured. What's more, his firm has already garnered some revenue from assets that clients' children have brought to them apart from their parents.
"While we don't treat these young clients or potential clients any differently than older clients, we do understand that they may require some extended discussions and education," he says.
So even college-age children of clients are invited to attend a "College of Financial Knowledge" at Carnick's firm. This is a two-day introduction to budgeting, investing and other basics of financial fitness.
"We charge the clients for the effort we deliver," Carnick says. "This is a long-range seeding effort and not a meaningful revenue source. We continue to offer this program despite the scheduling problems it creates for our organization as we shuffle the young person from one staff member to another."
Such efforts have paid off, according to Carnick. "From virtually zero percent 15 years ago, 10% of our clients would now fit into the under-50 age group."
ALL IN THE FAMILY
Seeking young clients among the children of existing clients is a natural first step to a more youthful clientele. The next step? How about bringing your own child into your firm, hoping that he or she will relate to contemporaries?
Elaine Bedel, a financial planner in Indianapolis, has taken that route. Her 27-year-old son Evan, a CFP who formerly was with another firm, is now a planner at Bedel Financial Consulting. "Evan has his own blog," Elaine says. "He writes about what other people his age are facing. Buying a first home, getting a first job. He talks the language of his generation, using a different set of examples than I would use. His blog might not be as appealing for traditional clients, but he does connect with younger people."
Bedel takes additional steps to attract younger people. Visitors to her firm's website can click on "Generation Next." Once there, they'll learn about Evan's blog and a series of videos from Evan aimed at the 18-35 age group.
For all potential clients, Bedel offers meetings to go over their situation. She charges for those meetings, so clients feel like they're getting something worthwhile. "Our services are unbundled, so clients of any age can pay for planning even if they aren't paying for investment management," she says.
CLOSING THE GAP
Planners don't need a son or daughter in the firm to reach out to Gen Xers and Gen Yers. "We have a newsletter for younger families (ages 25-45)," says Gary Pittsford, president of Castle Wealth Advisors in Indianapolis. This newsletter, Focus on the Next Generation, is written by Michael Kalscheur, a young partner who works with a lot of the younger clients at Pittsford's firm.
Each month, clients read an article on a topic such as "Staycations" or "Five Ways to Save for College." In a recent issue, an article on "How Can I Save $500 or More a Month?" contained advice such as, "Spend 20%-25% of your income on your next car," and "Between VoIP, Skype and Ooma, consider dumping your land line." Iverson feels that such efforts are worthwhile. "Planners can engage younger people with things such as webinars and electronic newsletters aimed at a younger audience," he says. "They can reach out via LinkedIn, Twitter and Facebook, for example."
Carnick says that referrals of younger people besides clients' children have picked up because of the economy. "People we know suggest that young adults contact us for advice," he says. "Typically, these young individuals have mortgage woes, 401(k) accounts that have nosedived or excessive debt."
When these young adults get in touch with Carnick's firm, they're offered a no-obligation initial consultation, as is the case with all potential clients. "Most of the time, we provide a little 'Dutch-uncle' advice and send them on their way," he says. "In the process, we again seed the future by acquainting individuals with our firm and getting them to think of us as a future resource.