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Great expectations. Those two words express the feelings of many advisors who anticipate serving the adult children of their high-net-worth Boomer clients — and retain as AUM the wealth they helped their clients build — when the children inherit Mom and Dad’s estate. Unfortunately, advisors’ hopes for serving HNW families for more than a single generation often are dashed on the rocks of today’s realities.
What’s going on and what can advisors do to change course?
The chief reality is that most advisors don’t create personal relationships with the adult children of older HNW clients while Mom and Dad are still alive. One simple reason may be geography, as many of today’s retirees and near-retirees don’t live near their adult children, making live inter-generational get-togethers more difficult and advisors probably less apt to reach out. A much bigger reason, however, is that adult children probably perceive their parents’ advisor to be fine for Mom and Dad, but either disinterested in them, not equipped to handle their problems or just too old-fashioned and expensive.
The truth, of course, is that most advisors can address the financial and investment-related concerns of investors of all ages because our research has found that everyone is concerned about pretty much the same things to roughly the same degree: having enough money for retirement, investment returns, minimizing taxes, inflation, healthcare, and estate planning.
What’s different is that the mindsets, information-related habits, and delivery preferences of older clients’ adult children are typically vastly different from their parents, whether the children are GenX (44-59-year-olds), Millennials (28-43), or older members of GenZ (12-27), and whether they are HNW themselves or on the journey to that status. As a result, if they want help with their financial challenges — whether that’s investing, budgeting for a child’s college education, paying off one’s own college loans, saving to buy a house or understanding 401(k) choices at a first job — younger age cohorts approach financial advice differently.
For them, going online is the first (and often final) step. For example, our research on HNW investors indicates that 77% of affluent Millennials consider their financial knowledge to be “very good” or “excellent,” versus only 41% of Boomers and 39% of GenXers, probably because Millennials were the first generation to grow up with the internet, giving them more immediate and widely available access to information than any previous generation. With so many financial literacy tools at their disposal, it perhaps should be no surprise that Millennials feel the way they do about their financial knowledge or why 59% of them said they do not think they would hire a financial professional, saying they prefer handling the job themselves and have confidence in their own ability to do so.
In addition, 27% cited cost as a factor that would prevent them from hiring an advisor. When asked to state in dollar terms how much they would expect to pay per year for an advisor, 72% said they would pay less than $5,000 per year—half of what many advisors would assess to manage $1 million in assets, based on a 1% AUM fee.
In short, advisors approaching the adult children of older clients — let’s call them ACs — with the same service model and value proposition that satisfies their parents likely will find that their efforts fall largely on deaf ears. Focusing on the financial issues that clients’ ACs are grappling with and delivering solutions in a customer-centric and cost-effective way is the route to attracting and retaining those next-generation clients. Here are some suggestions:
- Shine a light on non-investment areas. Most ACs know that financial advisors handle investments. They may not be aware of the extent of services that are offered, such as tax planning or insurance advice, for example. While 44% of advisors in our survey offer estate planning, for example, only 31% of younger and older HNW clients say they engage with an advisor for that service. Surprisingly, 45% of the Millennials surveyed want estate planning help, compared with 29% of Boomers. Why not develop a 60-minute estate planning review session, or a similar session on another non-investment-related topic, and offer it as a value-added benefit for Boomer clients and their ACs, regardless of whether the latter are clients, have their own advisor, or are do-it-yourselfers.
- Create an additional service tier. For the many younger potential clients who want investment advice — often with greater participation in the process and greater interest in a wider variety of investments than their parents — the current AUM fee model may be fine. But for those who need more planning assistance and little or no investment advice, a subscription, project or hourly fee model may be more appealing. Service could be provided by financial planners or paraplanners backed by software with which the clients can engage. While revenue from this service tier will be lower, so will costs, yet the arrangement lays the foundation for long-term relationships that can morph into traditional AUM arrangements.
- Focus on them, not you. Before trying to get in front of ACs to tell them what you do, what if you surveyed them to learn about their financial challenges so you would better know if what you are selling is what they are interested in buying? You could use survey findings to shape the offering of your alternate service tier as well as in the creation of content that would demonstrate how you understand the needs of younger investors. Once the alternate service is available, you might consider offering it to the ACs of current clients as a one-year free subscription in recognition of their parents’ loyalty and your firm’s commitment to the financial wellness of their multigenerational family.
- Modify your social media and web presence. Communicating how you serve the needs of different generations is the next step. Consider investing more heavily in the content on your web site. That content should demonstrate your subject-matter expertise in ways that help clients and potential clients understand the issues they care about — different types of investments, taxes, budgeting, saving for college, etc.
For advisors with older HNW clients, the reality is that those clients as well as their adult children can benefit from your advice. Being aware of the differences in the way those adult children approach financial advice and modifying how you and your firm deliver that advice is the key to unlocking the door to serving them.
The information, analysis and opinions expressed herein are for informational purposes only and do not necessarily reflect the views of Envestnet. These views reflect the judgement of the author as of the date of writing and are subject to change at any time without notice. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. Intended for investment professionals only.
