Individuals must consider many factors when choosing a financial advisor: expertise, credentials, types of services offered, how the firm charges and how much, whether the advisor is a fiduciary, and if their philosophies are in line with each other.
Another factor that some people confuse in their vetting process involves the idea of experience. It used to be that someone approaching retirement age would not consider working with an advisor who did not have the requisite amount of “gray hair.” This was not surprising. After all, when it comes to a business relationship, most people instinctively prefer to work with people their own age. Furthermore, baring one’s financial soul to a younger person might, on the surface, be uncomfortable for some.
How should one define experience when it comes to selecting an advisor? Should it be based purely on age? And, in fact, is it really in their best interests to work with an advisor with gray hair?
This is not an easy question to answer. The average age of a financial advisor is 50. A significant number of advisors are approaching retirement and they control a substantial portion of the assets under management.
Take the case of the “baby boomer” couple who is approaching retirement and looking for an advisor who can help them with retirement planning and the decisions and issues they are likely to face both today and tomorrow. Should they team with an advisor who, as a contemporary, will be looking at the same retirement villas in Tuscany? Or should they team with a younger professional who will get them not only to but through their retirement years?
Ideally, considering how much hand holding may be involved in the years ahead, it makes sense that individuals are better off with someone who is not thinking of retirement at the same time they are. Advisors should be actively involved in a client’s life throughout their retirement years. Experience is certainly essential, but that doesn’t mean the advisor needs to have personally gone through the exact same experiences as the client.
There are advantages in working with planners of all ages at long-established firms, as they are most likely to have had similar client experiences. This includes helping clients make decisions such as when to retire, when to place a loved one into an assisted living facility, or whether to purchase a second home in a sunny and warm place. Not to mention being able to offer expert advice when it comes to pension decisions, Social Security choices, gifting programs and charitable giving.
As people approach retirement, they have more questions and concerns. This only grows once they are actually retired and often have more time to worry about their money. They become more sensitive to market fluctuations and whether their money will last through retirement. These individuals will benefit from an advisor who is familiar with their portfolio and their short- and long-term goals. Also helpful is working with firms that have a succession plan in place, where an experienced planner mentors a younger planner, sharing their knowledge and a client’s history and assisting with the transition to ensure a client is comfortable. This increases the chances of a long-term successful relationship.
For families, choosing or transitioning to a younger advisor has numerous benefits. Technology changes fast and younger advisors are more likely to stay current. They are also more likely to relate well to younger members of the client’s family. Most advisors, regardless of age, have now experienced the worst downturn since the Great Depression as well as a bull market, providing real-world experience in how to manage the ups and downs. For boomers, this should provide reassurance that their advisor has the requisite level of experience while being young enough to offer continuity through the years. For their children who might just be entering the investment world and starting to accumulate assets, it allows them to work with their peers but feel confident in the advisor’s abilities.
During a transition, it’s important that clients never feel they are being “handed off” because they are not “important enough” to be handled by a senior advisor. Rather, for the reasons mentioned, one should feel confident that it is in their best long-term interests that a transition team be put in place.
The financial advisory business is different than other businesses. Attorneys are hired for specific events and projects, such as court cases, estate plans and wills. Even accountants, who are certainly considered trusted advisors, often meet with clients only once or twice a year. But a financial advisor provides ongoing monitoring and analysis, as well as advice, for what may be 25 to 30 years during a client’s retirement. It is a very personal and long-term relationship that cannot be overlooked or underestimated.
So what challenges might younger planners have? Generations tend to have different communication styles, so it is the responsibility of younger planners to be more attentive, listen better and communicate effectively in the way the client is most comfortable. They must understand how to balance different styles of communication with technology. They need to detect when a client just needs to talk, and provide them with that personal relationship.
I speak from experience. We went through a transition at our firm several years ago as the result of a merger. The previous owner was a sole practitioner. Another planner and I, both in our 30s at the time, were immediately introduced to the firm’s clients and mentored through the process. Over time, these clients – most of whom immediately saw the benefits of working with a younger advisor who would be with them for the long-term -- were transitioned smoothly. We then instituted a program to work with the clients’ family members through which we meet with children separately from their parents and the original planner. We discuss topics beyond their parents gifting them money, with the intention of learning about their personal financial and life goals and educating them on their options. Of course, we maintain a “privacy wall,” never revealing information about one to the other. The outcome has been positive, giving family members a feeling of confidence in us, and often an interest in developing financial plans for their own families to ensure their earned – and inherited – wealth is protected.
The bottom line is this: Our client base discovered that while in some ways age doesn’t matter when working with a knowledgeable financial advisor, a young advisor can actually be advantageous. Remember, this is not about recreating the wheel. Rather, it’s to make sure the wheel continues to turn effortlessly so it can transport clients and their families on a journey to their intended destination.
Darren Zagarola is a fee-only comprehensive financial life planner with the wealth management firm of EKS Associates in Princeton, N.J.