An old saw claims that good wine and wisdom get better with age. But of late, that doesn’t seem to apply to aging advisory businesses. At our firm, Next Chapter, we see organizations of all sizes delivering great financial results, in the form of earnings, but losing assets as their clientele inevitably ages and leaves.

A decade from now, we may recall the sale prices witnessed during the zero interest-rate era of the pandemic as a high-water mark. Advisors can’t control the macro environment, but if left unchecked, firm valuations could continue to slide. That’s not the next chapter most ownership envisions.

There are, broadly speaking, three lenses through which different groups of advisors view their situations.

The first group, let’s call them Group One, is inclined to say: “What’s the problem?” If their firm’s earnings are great—powered by a historic bull market—then owners will likely see only minor problems. If they plan to retire soon and sell their equity, they’ve got nothing but a severe bear market to worry about.

They are likely timing their own retirements to coincide with this cresting wave of success. Things are great for employees and stockholders too, as long as their time horizons at the firm are short. Call them smart or lucky, but they should be fine, as long as they follow through on their exit plan and don’t stay too long.

The second group looks at it by fretting over the client attrition. Group Two firms are operating as usual for the most part, but they’ve lost longtime clients who’ve either died or reached some other critical major event in their lives like facing down the death of a loved one or a significant illness.

As you know from extensive industry data, advisors who don’t have solid relationships with their clients’ spouses, partners or adult children seldom hang on to those relationships (different sources put the percentage of new widows who fire their spouse’s advisors at 70% to 90%, while advisors are said to lose 90% of their late clients’ children.) One of our trust and estate colleagues at Next Chapter says that when she’s competing for new business, she’s seen survivors in a family quietly questioning the value of continuing with their incumbent advisors, and she usually finds enough overlooked details to win clients away.

There’s a cost for their inaction.

Advisors in this situation don’t lack the interest or willingness to hold on to the business. They mostly aren’t sure how to proceed when the clients’ surviving family members are staring down critical life moments like death or college funding or illness and need guidance.

The third group of advisors look at things this way: If this is the problem, bring it on.

Group Three firms lean into the challenges of handling aging clients and perceive the opportunities and problems of dealing with surviving spouses or partners and children. Advisors who see around the corners in clients’ lives this way are actively requesting engagements with family members before most of the critical life moments come up. This effort pays dividends as situations develop and the family already knows and trusts the advisor and team.

Such practices are also good at managing more of the moving parts in a client’s life than a straight investment shop would. Such firms are “longevity savvy,” and boast several attributes:

They have a dedicated team on the professional staff to meet the unique demands of longevity planning. Such professionals can pay heed to their clients’ critical life moments without disrupting regular business.

A mindset of proactivity. Such practices are not just ready for action. They facilitate it. In the classic family office model or the ethos of a private bank, connecting with surviving spouses and partners and the next generation is part of the business objective. It’s not an ancillary activity.

The practice measures success in opportunity, not by absolute financial returns. This metric is different for most advisory practices and becomes more powerful as the size of the organization increases. Another essential trait of these firms is that they prioritize high-level service for “the other 80%” of the clients who are not typically the firm’s biggest revenue generators. The narrowing of engagement is a natural development over time as clients that are not ideal or not fully connected may slide off in part, attracted by other products, different ideas or lower fees. Underlying the “full opportunity” objective is a dedicated plan to earn back those clients and “held away” assets by learning why they are not engaging with the practice and determining what it would take to get them back. This is the true mindset of creating and maintaining organic growth.

So Growth Doctor, What Now?
Back to Group One. Their perspective that there is “no problem” may be inaccurate if they have the wrong exit strategy. Just like your family’s home when it’s for sale, your firm’s value has a lot to do with your view of the result. A practice that has been depleted by withdrawals from aging clients, assets not replaced with those of G2 children or new Gen Xers or millennials, is truly a wasting asset. Not surprisingly, we see greater scrutiny of the “age-weighted” revenues when buyers approach firms.

Organic growth is the metric—retention plus the addition of new clients combined into net annual cash flows—and this measure has become top of mind for buyers, including more savvy private equity firms. And the buyers’ education is improving after they approached earlier acquisitions with too much optimism. A dilapidated house just won’t fetch the same premium that a well-maintained structure will. For similar reasons, advisory firms tilted toward Gen X and millennial clients still in their accumulation phases will command higher valuations than those firms top-heavy with older boomer clients.

Group One usually see a couple of options, depending on their time horizon. If the owner of a firm wants to leave sooner, one option is to align their firm with another and help transition relationships on a time line that’s transparent for everyone. This is the best way to increase value—by getting help to expand the existing relationships.

Group Two takes more time. Essentially, those in this group want to recruit a junior partner to earn out their equity stake by re-engaging tenuous clients and their families. We recently saw the daughter of a primary owner over time refresh most of her firm’s relationships, nearly doubling the practice revenue. She took advantage of the first-generation connections but really focused more on the next-gen kids, who she said were “learning a lot” seeing the issues faced by their aging parents. With those lessons running in real time, the new advisor got the kids to the table investing in retirement income and long-term care, and that added an immediate bump to the firm’s margins.

It's a bit easier for those in Group Two if their will is genuine. So many advisors and firms are running so fast that it is difficult for them to find the time to add longevity services. The additional needs of aging clients and their families can creep up on us, and all of a sudden everyone seems to need everything. That’s the real challenge of those major life events—they don’t come with advance warning.

Group Two firms first need a strategic “time-out.” They should resist the temptation to treat longevity planning as just a bolt-on to their existing capabilities. This is a different business requiring different services … and likely even dedicated personnel. The most effective model we have seen is one in which a firm acquires a specialist, someone to not just meet the current expectations of current clients but also oversee the practice’s “expansion” into longevity planning and the aligned capabilities, such as references for caregiving needs, the execution of estate planning and help reducing risks of fraud.

A senior wirehouse advisor we know, whom we’ll call Linda M., joined an existing practice of four professionals at a competitor in Northeast Florida. Linda says, with a smile, “I do the soft stuff.” She now oversees most of the firm’s financial planning capabilities in addition to coordinating support capabilities such as fraud protection, caregiving referrals and long-term care. Linda’s four partners each focus on other legacy capabilities, retirement plans, investment portfolios, bonds and tax management. They say, “For our clients and their families, Linda is the glue.”

The 30-Year Flood (Of New Business)
Our demographic issues are so well-known that even mentioning “baby boomers” can get you eye rolls. The advisory business is being shaped by this demographic megatrend, but there’s uneven awareness about it. Many advisors have not been immediately affected by the loss of clients and thus are complacent about their current terrific financial results. So the response to the demographic changes has varied widely.

The impact of our clients’ longevity has been felt slowly, but it will eventually be a game-changer for alert advisory practices leaning into the trend, as well as for companies providing capabilities and products to support clients living longer. Adaptable firms have an opportunity to capture market share at a rate we have not seen since managed accounts started steamrolling stockbrokers. That part of the industry captured $12 trillion from a dead start.

A similar path could be enjoyed by companies offering retirement solutions, including protected income. Annuity sales were a record at over $100 billion in the first quarter of 2024. Given the slim penetration rate of annuities and other retirement income solutions within the advice industry, I can see upside that is multiples of the current run rate as they grab a pretty basic share of the retirement pie. The annuity buyer is getting younger, which reflects a lot of the interest from Generation 2, which has learned from watching their parents. And we know that they are just getting started; this tide will lift all participating boats.

Longevity planning and solutions, stimulated by major life-changing events, are the biggest potential disruptors and drivers of business valuation since the move from advisors selling products to positioning managed solutions.

So what is your plan?

Steve Gresham is the managing principal of NextChapter, a consulting firm solving for retention and organic growth by solving for longevity. He is also a senior education advisor to the Alliance for Lifetime Income. See more at nextchapterinnovation.com.