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Practice Management

Financial planners who hope that the assets of the millennials will replace those of their retiring boomer clients may be disappointed. So, what’s a demographically challenged planner to do?

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).

There’s a huge demographic shift afoot, and financial planners are facing a big challenge.

Baby boomers have long been financial planners’ biggest and wealthiest client cohort. But the oldest baby boomers will soon turn 70; they’re retiring in droves, and beginning to spend down their savings and investments. Meanwhile, today’s youngest adults, the millennial generation (roughly 1980–2000), have quietly become even more numerous than the boomers.

Yet financial planners who hope that the assets of this new generation will replace those of their retiring baby-boomer clients may be disappointed— today’s millennials don’t possess the same wealth as their predecessors.

So, what’s a demographically challenged planner to do? “It’s difficult for some firms to cope with the changing landscape,” says Jay Hummel, senior vice president of advisory services at Envestnet, a firm that advises financial advisors. “So many advisors have been focused on that retired client, or pre-retired client, for their growth—because that’s the generation that has money.”

And the numbers bear this out. While baby boomers make up less than 25% of the U.S. population, they account for 45% of Americans with investable assets of at least $1 million, nearly half of those with $5 million or more, and more than 60% of those with $25 million or more, according to financial analyst coaching firm CEG Worldwide.

“If we’re going to serve people and provide wealth management, one of the main requirements is that they have to have wealth,” says John Bowen, the firm’s CEO and a Financial Planning columnist. “If we look at Gen X and Gen Y (millennials), they have no wealth at this point. Obviously, we’d expect that to change, but for now, it is what it is.”

With the youngest boomers reaching age 50 and the oldest nearly 70, this generation is retiring in growing numbers. Despite anecdotal evidence that people are working longer, a recent Gallup poll finds boomers retiring at approximately the same rate as previous generations.

Gallup says today’s 60-year-olds are split 50-50 between those who still work and those who don’t. Among older boomers—those 67 and above—only one in three still works, and even this group is evenly divided between full-time workers and those who work part-time.

As boomer clients spend down their retirement accounts, financial planners are watching these clients’ annual fees drop too. That has led some to alter their business model.

Five years into his career as a planner, Taylor Schulte began to notice a concerning trend: his book of business was aging. “I had more clients taking money out than were putting it in,” he recalls. So in 2014, Schulte left the RIA he had been working for to found Define Financial, which he structured to appeal to younger professionals. Today, the San Diego-based firm doesn’t focus exclusively on millennials, but this demographic is its fastest-growing source of clients.

Where the Money Isn’t
In a more perfect world, succeeding generations would simply take the boomers’ place, financial planners would update their accounts, and everyone’s business would thrive.

Instead, what we have is a perfect storm. A mess of financial foul weather—including the lingering effects of the 2008–09 recession, the nation’s growing college-loan debt load, and overall stagnant salaries—has prevented millennials from amassing the kind of wealth that would make them good clients for financial planners. If you’re building a practice for multiple generations, “you’d be tempted to do that with millennials,” says Bowen of CEG. “But it’s not going to be profitable.”

Given traditional fee structures, he’s right. That’s why Wescott Financial Advisory Group has devised a program for lower-net-worth millennials, with a modified fee structure that replaces some AUM charges with an annual retainer. Called Entrada (Spanish for “entrance”), the program accommodates clients with investment accounts of $250,000 to $2 million.

“This allows us to get smaller accounts with strategic potential in the door,” explains Stephanie Curtis, a Wescott financial advisor, who is herself a millennial. The client could be a younger person who stands to inherit family assets or has recently founded a business. They may not currently have the liquidity to meet Wescott’s $2 million AUM minimum, but the firm reasons that they will reach this threshold as time goes by, and it wants to build the relationship early on.”

Fifty to 75 clients are typically enrolled in Entrada at any given time, accounting for roughly 15% of Wescott’s client base. “Without this program,” Curtis says, “we’d be missing out on some really great clients” with even greater future potential.

Financial planner Cheryl Krueger has devised a different approach to working profitably with millennials. Her Chicago-based firm, Growing Fortunes Financial Partners, only charges clients by the hour, and doesn’t manage their assets.

“It’s more cost-effective,” Krueger says of her business model. “I’m not concerned about clients spending down their portfolio, because that’s not what drives my revenue. They can decide when to use me—and when not to.”

Growing Fortunes is part of the Garrett Planning Network, a national group of hourly based fee-only financial planners. Founded in 2000, Garrett has hundreds of planners in its network. “My clients want the knowledge; they want an advisor, not someone to control their money,” Krueger says. “That’s a real difference. It also means I can work with varied age groups and figure out exactly what they need.”

It’s an approach that seems to be working. While Krueger’s largest group of clients are boomers preparing for retirement, her second largest bloc is millennials looking for help with saving, cash flow, and other more immediate issues.

To attract new and younger clients, Krueger hosts a monthly “money chat” at a Starbucks in downtown Chicago. One Saturday morning a month, she collects about a dozen people to drink coffee and listen to a presentation on topics such as retirement planning and paying for college, followed by a question-and-answer session. Current Growing Fortunes clients attend free, prospective clients pay $50; but if they decide to work with Krueger, the fee is applied to the charges for their first meeting.

Tech + Touch
For financial planners grappling with the retirement conundrum, one major tool—or, depending on your perspective, obstacle—is technology. Common wisdom has it that financial planners can attract millennial clients by providing mobile apps, social media, automated advisors, and more. Like much that passes as common wisdom, this contains both truth and misperception.

On the one hand, it’s impossible to deny that the millennials who have never known a world without PCs and smartphones are highly comfortable with technology, and to court their business, some financial planners are creating new tech-based services and products. Wescott, for one, offers MyWescottVault. It’s a cloud-based storage service, similar to DropBox, which clients use to store and exchange digital documents.

“We see how much the younger generation relies on technology,” Curtis says. “They tend to not want to print something out and send it in the mail. So this tool allows us to interact in a digital way.”

On the other hand, plenty of boomers are perfectly comfortable with technology, too. “The industry talks about multiple client experiences in the context of younger clients, but I think that’s a mistake,” argues advisor coach Hummel. “Clients of all ages now expect the ability, through technology, to do more self-service.”

Miller adds: “I have 70-year-old clients who want the latest technology to review their portfolios. And I have 30-year-olds who ask that I still send things on paper.”

What about the digital sources of advice commonly referred to as robo-advisors? Don’t they represent a serious threat to human advisors? Maybe—but some say that’s a good thing. Hummel believes that the robos can help financial planners clear a major obstacle to taking on millennial clients—namely that their asset base is too small to be profitable.

“Let’s say an advisor can only take on 100 clients. But if you want to add more clients with less wealth, with the right technology that advisor could take on 200 clients,” Hummel posits. “Their overall asset average may be lower, but thanks to technology and the clients’ willingness to take on some self-service, the advisor is going to make up for that by being able to take on more clients.”

Call it technology with a human face—a face that many financial planners hope is getting younger.

—Peter Krass



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