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How Financial Advisers Can Be Ready for the Next Generation

Financial advisers who want to capture a share of the pending wealth transfer need to adapt their service models.

Cerulli Associates estimates that some 45 million households will transfer over $68 trillion in wealth over the next 25 years. For financial advisers, some of these households might include clients who will be transferring wealth to the next generation of their families. Advisers who want to retain the assets of this new generation of clients, and perhaps attract new clients in this demographic, need to understand how to adapt their practice in order to connect with this group.

The next generation of investors is different from their parents. They’ve grown up with technology, they are used to purchasing what they need online and are used to online banking via apps and similar tools.

Not only do these younger investors use technology to conduct all sorts of transactions, they are comfortable using it for meetings, even before the “Zoom boom” created by the COVID-19 pandemic.

These younger clients want to meet with their advisers, they just don’t always feel the need to do so in person. As many have discovered during the pandemic, remote meetings can work well -- but just know that many younger clients are happy to continue this trend after the pandemic subsides.

According to a recent study by the consulting firm Deloitte, the next generation of investors has some different ideas about their money and how they interact with advisers than their boomer parents and relatives. Among these are:

  • They want to be more in control regarding financial decisions including the implementation of advice received.
  • Their view of risk is more skewed towards downside risk versus as the volatility of their investments as measured by statistics such as standard deviation.
  • This generation is more likely to seek advice and opinions on financial matters not only from a financial adviser, but also from peers and through their own research.

From Robert Powell’s Retirement Daily on TheStreet: Older Women Report Facing a Financially Uncertain Future.

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Cultivating the Next Generation

This isn’t to say that this next generation will uniformly reject the traditional advice models used by traditional financial advisory firms, rather it means that financial advisers looking to thrive and prosper in the future may have to adapt their firm’s models for delivering financial advice.

Advisers who want to work with this next generation of clients should be having conversations with the adult children of their older clients. These conversations should predate these children inheriting their parent’s wealth and should be geared towards being a resource for the children. Family meetings and perhaps providing help to them on issues like what to do with their 401(k) when they initially start working can be ways to build a relationship and to cultivate them as clients once they both inherit their parent’s assets and build their own wealth.

Implications for Advisers and Their Firms

As far as what the advisory firm of the future might look like, we can only speculate. But some things advisers might consider in adapting to the needs of the next generation of clients include:

Offering clients a more robust digital experience in working with your firm. This means offering them easy access to their accounts via client portals on your website. This can also be used to exchange emails and documents securely. It can also mean offering solid, compelling financial content on topics that will be of interest to them in various aspects of their financial lives.

Communicating with this next generation in the ways in which they are comfortable. While phone calls will always be part of the process, texting can also be an effective and welcome method for this group. Digital meetings may also be an attractive option for these younger clients.

Advisory firms should consider offering multiple advice models. Some clients might be fine with the traditional discretionary model based on AUM fees. Other clients might be more comfortable with a retainer model that is focused on financial planning and guidance, allowing the client to make their own financial decisions. Advisors might also consider some version that combines an online robo-advisor feature coupled with their live advice for clients.

It’s also crucial that advisers understand that these younger clients have had different life experiences than the previous generation. For many of them, their first experience with the financial markets was watching the pain their parents experienced during the financial crisis. This might be part of the focus of this group on downside risk cited by the Deloitte study.

Financial advisers who want to thrive and prosper in the future, and who want to capture their share of the pending wealth transfer, need to adapt their service models to meet the needs and preferences of the next generation of clients.