If advisors want to work with next-generation clients, they need to adopt a new business model. But at the same time, they must also dispense with certain stereotypes about what younger clients want and need.

These were among the conclusions of a discussion between Cammie Doder, chief marketing officer and partner at Aspiriant in Los Angeles, and Stacey McKinnon, chief operating officer, chief marketing officer and wealth advisor at Morton Wealth in Calabasas, Calif., in a virtual “fireside chat” titled “NextGen Clients—Myths And Realities,” hosted by Evan Simonoff, editor-in-chief of Financial Advisor magazine, which sponsored the event.

Myth #1: NexGen Clients Don’t Have Assets

NexGen clients are “the future of everybody’s business,” Simonoff began. But one of the primary myths about millennials and younger folks is that they don’t have much in assets and are difficult to serve.

McKinnon said younger people may not have amassed great wealth, but they do have some assets. Typically, however, it’s not in stocks and bonds. Instead, it may be in real estate, cryptocurrency or stock options. Often, that makes their portfolios more complex than those of other folks. But what they lack in accumulated assets, they more than make up for in income. “They will quickly become wealthy,” she said. “Are we going to wait for that? Are we going to create a model that can serve them now?”

Myth #2: NexGen Clients Don’t Care About Investing

Doder responded to a question about whether younger clients really care about investing. “They’re not gamblers, this next generation,” she said. But she acknowledged that they are interested in a wide range of topics and opportunities. “It’s our job as advisors to help educate them, to help them think about all the different investment opportunities,” she said.

Young people are socially conscious, she continued. They are interested in environmental, social and corporate governance (ESG) investing. But that doesn’t mean they are narrow-minded. “The next generation is very passionate about aligning with their values,” she said. “That includes where they work, what they do and their investment portfolios. It’s really important to them.” But there is plenty of room for advisors to help them find investment opportunities that are aligned with their core values.

Myth #3: NexGen Clients Prefer Robo-Advisors

From there the conversation shifted to technology. Simonoff asked if NexGen clients really prefer robo-advisors.

“Young people might know and prefer technology, but that only makes their desire for human connection more important,” said McKinnon.

The kinds of financial decisions they are wrestling with—whether to open a 529 college savings account for their kids, whether to buy a second property for rental income—are complex and require human interaction. “I don’t think robo-advisors are going to cut it when it comes to giving them the advice they want and need,” she said.

Myth #4: NexGen Wants To Give Its Money Away

The last question about stereotypes concerned whether NexGen clients want to give their money away.

That’s only partially true, said Doder. They understand life’s expenses, and they want to live nicely, to travel, to “do a lot of things.” But they also want to give back to their communities when they can—and they don’t want to wait until the end of their lives to start their charitable giving. Their advisors should help them plan for all these different priorities.

Creating A Business Model For Serving NexGen Clients

The conversation then moved to how to create a realistic business model for addressing NexGen clients. McKinnon said that, because younger clients don’t have much wealth yet, “we have to take the AUM model off the table, at least until we get to the point where they qualify for that.”

So rather than charge a fee based on assets, she suggested advisors ought to instead use something akin to the model concierge medicine uses—perhaps an annual subscription fee for advisory help available as needed. “While we’re not helping clients with their health, we are helping with their financial well-being,” she said.

Another option she suggested would be a fee charged to clients based on a percentage of their income.

“It’s not the clients who have to be different. It’s really we who have to think differently,” said Doder. She said Aspirant had launched a service called “Emerging Wealth” for clients who don’t need the traditional level of service. There was really no point in over-serving a community who really don’t want that kind of attention, she said.

McKinnon added that hiring younger talent to serve younger clients is also a “compelling” way to attract the next generation.

Understanding The NexGen Mindset

Simonoff pointed out that millennials came of age during a series of economic disasters—including the bursting of the tech bubble, the financial crisis of 2008, a housing crisis in which many people lost their homes, a weak job market and (most recently) the pandemic.

“These folks have gone through a lot,” Doder acknowledged. Consequently, they are big believers in diversification, she said. They even diversify their revenue stream. “That’s why we hear so much about the gig economy and people having multiple jobs,” she said. “It’s not so much about lifestyle as diversification.”

To that end, they want to be informed about the variety of available investment opportunities. McKinnon agreed, saying NexGen clients are very interested in becoming better educated. “They don’t want to just delegate their portfolios,” she said. “It’s not a trust-me strategy [that they seek].”

NexGen clients will inevitably find information on their own, the panelists agreed, though it won’t all be good information. “Our ability to create educational content and cultivate or curate content that’s in line with what’s in their best interests, that will help guide them, is a really important part of the service model today,” said Doder.

NexGen clients still want a trusted advisor, she added, but they want it to be more of a partnership. They want to ask questions and be informed.

On the other hand, McKinnon said, the traditional two-hour in-person consultation won’t appeal to most NexGen clients. “YouTube is a must,” she said. “The amount of people finding financial advice on YouTube has dramatically increased.” She suggested that advisory firms should create short, informative YouTube clips—five- to seven-minute informal videos that “teach about financial topics.”

Pressed further about recommended resources, Doder insisted there is no single all-purpose resource. Part of her job, she said, is finding out what each client wants to know more about and then providing sources that support their needs.

Insatiable Appetite For Info

Simonoff asked: Is there a dichotomy between young folks’ complex needs and their almost insatiable appetite for information?

The kind of information NexGen clients want may be complex, but it should never be time consuming, said McKinnon, adding, “They more appreciate back-of-the-envelope financial planning.”

In fact, she stressed the importance of getting a firm’s compliance team “on board with texting and using apps.” NexGen clients want answers by text or with a seven-minute or shorter video message.

In this way, the whole business model could be built around periodically touching base in short bursts—a “series of small touch points, maybe 15 minutes or less at a time, throughout the year,” said McKinnon.

It’s essential to clearly articulate service parameters, said Doder, and “don’t provide services the client doesn’t really want or need.” If they want more later, renegotiate terms.

“We have to stop thinking in terms of the tasks that we do and think more about the outcome of the tasks, their value,” McKinnon stressed. Sometimes, she added, advisors forget to tell clients why they make certain recommendations. That won’t connect with the NexGen.