People aged 45 and younger, those who are often referred to as “Next Gen” and include the huge millennial cohort, will in the future offer enormous growth opportunity for financial advisors. Numbering over 72 million, millennials are now the largest living adult generation in America according to the U.S. Census. They represent 23% of the world’s millionaires. On the other hand, some 42% of them struggle with student debt.
It’s become obvious that your firm can’t afford to ignore these young high earners, but do you really know how to talk to them? And when they rely so heavily on technology, are you using digital tools to meet their needs in a personalized way?
To serve the next generation, there are a few key factors advisors should consider.
• This group is fully aware that retirement planning should start early, but many are staring at a lot of student loan debt and haven’t even begun concentrating on long-term saving yet.
• They will have many different careers, so their futures will be far less linear than their parents’ paths were.
• They want their investments to be sustainable and have an impact on the world around them.
• As a member of this generation, I know that if someone my age has used robo-advisors like Betterment or Wealthfront or used fintech mobile apps, they most likely won’t leave those digital platforms behind to join up with a financial planner using technology that’s dated.
• If a firm offers the same information a person can glean from a website, next-generation clients will be turned off and look elsewhere.
• Younger investors may prefer to work with a handful of financial advice outlets and participate in trading themselves rather than have an exclusive account with one firm.
• If advisors want to pique the interest of next-generation clients, they need tools to clearly differentiate themselves from competitors.
It’s critical to establish relationships with younger clients now, because we’re about to see the largest-ever intergenerational wealth transfer in the United States—from the baby boomers to their heirs.
This shift, known as the “Great Wealth Transfer,” has already begun, and will mean the handover of some $68 trillion over the next 10 years. The largest percentage of that will go to millennial heirs. And reports suggest that 45% to 80% of them will fire their parents’ or grandparents’ financial advisors. It could cost your firm millions in future business if you fail to retain those clients or sign new ones. I’ve found the best way to build a bridge to next-generation offspring is to simply ask my existing clients if they want us to help their adult children. A large number of them do, and I’d bet the same is true for most advisors.
Younger people confront more uncertainty than their parents did. But they also have more choices. That means they need to see many different scenarios presented to them for protecting their future financial well-being.
What Does The NextGen Client Look Like?
While no two clients will have the same problems, in my 17 years as an advisor I’ve seen some common themes and clients with similar profiles:
• “Justin” entered the workforce late after earning two graduate degrees, and he’s already tried a couple of different careers. He is now well-paid but has fewer years to work. He married later in life and has yet to buy a home.
• “Ashley” achieved impressive career success at a young age, quickly rising through the traditional ranks of corporate banking. But she wants to be on track for financial independence by age 45 so she can run her own business or take a more satisfying job that pays less.
• “Rajiv” is an accomplished entrepreneur. He has paper wealth at eight figures but zero financial planning in place and no nest egg saved for his children’s education or his retirement. He maintains an expensive standard of living but lacks an estate plan and adequate insurance coverage.
• “Hannah” is a talented video producer who earns a good living through freelance work, but she’s not getting benefits such as a 401(k) employer match or subsidized health insurance. She has no budget left for retirement saving after purchasing pricey homes and traveling extensively. She expects to rely on a significant inheritance down the road.
NextGen Clients Are Redefining Retirement
To work effectively with younger clients like these, you must understand their needs.
The kind of retirement planning done by most conventional advisors today is out of date. If you aren’t prepared to move beyond traditional retirement plan templates and discuss things like complex deferred compensation or unorthodox financial goals—or if you aren’t anticipating a younger client’s possible encore career—it’s time to shift focus. These clients have smaller portfolios today but higher income potential ahead, and that can fuel the future growth of advisories like yours.
I’ve worked with many next-generation clients who know they need a financial plan but aren’t sure where to start. Their near-term goals are to pay down student and credit card debt, buy a house or save for their children’s education. But they don’t want a lecture. Instead, they want to partner with somebody who will show them alternatives, complete with data visualization and digital tools they can retrieve anytime and anywhere.
To win this lucrative new business, advisors must showcase their robust service offering.
• For example, you should be able to offer tax planning ideas for business owners or those being paid primarily through stock or other incentive options.
• You should be able to show clients how your firm can insulate them from life’s setbacks, such as divorce, disability or death, by using tools such as risk management, estate planning and smart insurance strategies.
• You should be able to demonstrate to clients how they can use Roth accounts to take advantage of today’s lower tax regimes should rates rise in the future.
• You should be able to give clients confidence about their children’s future college expenses by modeling 529 plans and other education funding approaches.
Retirement is being reinvented by younger people, and they need guidance early on to prepare for what might be lower income from a career change, reduced investment returns and rising taxes. Without your help, they may fall short and have to reverse an early retirement decision.
The Business Case For NextGen Clients
It should be obvious that this pool of younger clients offers vast opportunities for advisors. If you get to these prospects early, help shape their habits and address their questions and fears at the onset, a long and fruitful relationship can lie ahead.
One common fear I have run into is that these clients have lots of planning needs and high expectations, but not a lot of money to pay advisors. I suggest overcoming this by improving the intersection of expert advice and technology you offer, in a way that helps you attract and scale more NextGen business. For example, young professionals are very comfortable with conducting business digitally, which speeds up information-gathering. But you should always maintain a personal touch with phone calls and in-person meetings, too, to deepen the relationships.
If I have learned anything in recent years as my firm has grown, it’s that I can’t do everything, and automation helps. Artificial intelligence (AI), for example, can help an advisor achieve a scalable, comprehensive financial planning process. It’s no longer necessary to depend on a jumble of spreadsheets, checklists and Google to find planning opportunities in disciplines beyond plain-vanilla retirement advice.
To further this process, in early 2020 I launched FP Alpha, an AI-driven, comprehensive wealth management platform that complements today’s retirement software. It’s now helping advisors expand their offerings and demonstrate a value besides investment expertise to more clients, including discerning millennials. It allows advisors to appeal to younger clients by offering an efficient, digital experience that generates holistic recommendations drawn from clients’ financial documents (like wills, tax returns and insurance policies). And it’s powered by advice from 40 subject-matter experts representing more than 15 planning disciplines.
Clearly, this type of comprehensive planning will be what clients demand in the future, especially next-generation consumers who want to understand all the ways advisors can help them—in a broad scope of areas from tax and student loan debt management to health and life insurance review.
Advisors will have more opportunities to create trust by offering custom guidance to solve the problems young professionals know they have—and those problems they don’t yet know about. These clients will need the same “grown-up” advice that your most established high-net-worth clients get, not entry-level planning, regardless of their ability to pay at this stage. To make this possible, and to guarantee a meaningful role for financial planners for generations to come, we must follow younger clients’ lead and embrace technology to automate, scale and standardize the experience for all.
Andrew Altfest is the president of Altfest Personal Wealth Management and the CEO and founder of FP Alpha.