The best advisors are getting better. Of the 50 fastest growing RIA firms in Financial Advisor’s 2022 RIA survey, the 50th ranked firm grew at a 40.6% rate.
Other surveys reveal similar findings. The top 100 wealth management teams ranked by Barron’s increased client assets by an average of 10% over 2021. That’s strong performance considering this challenging environment. But much more impressive is their average revenue gain of 48%.
How are they doing this? It is likely not by beating the market—but because they are following the leads of clients and listening to them about their changing needs.
New industry data shows that clients want help with complex issues such as the retirement planning challenges that arise when people live longer. Those advisors who listen carefully to their clients are adapting, and thus likely winning new assets and new clients.
Here I’d like to distill these ideas into what I see as winning growth strategies and the action steps advisors should take to pursue them. I’ll also look at the research that gives these ideas support.
Adapting To New Client Priorities
Sometimes it feels as if clients are from Venus and advisors are from Mars. Why? Why is it that they are increasingly talking at cross purposes?
It’s likely because advisors are still mainly talking about managing portfolios and touting their investment solutions, while clients are instead talking about the things that matter most to them, including the risks of inflation, health and the healthcare costs they’re going to face in retirement.
It’s important to remember, too, that retirement is a family affair. Too often, spouses, parents and adult children have not been involved in the planning, and they all have different priorities and concerns.
The advisors who are going to see growth in this environment are the ones who engage with a client’s entire family, especially aging parents with immediate needs and adult children who will become the next-generation clients.
That means advisors will have to lead with the planning—by first organizing a jumble of accounts and products, and then by providing the foundation for more specific solutions the clients will need in retirement.
Successful advisors will also adopt protection strategies besides investing—helping clients prepare for expected and unexpected events. They’ll be asking the clients tough questions about their health and family history and a lot of “what if” questions.
Most of the industry claims to be client-focused, but too many clients say they don’t see it (or feel it). In April, Morningstar released a terrific report by Danielle Labotka called “Why Do Investors ‘Break Up’ With Their Financial Advisor?” The report reveals the complex array of reasons for the disconnect, laying the blame mainly on poor communication. Nowhere in this business is the communication more off-target than it is in retirement planning.
Morningstar isn’t the only one pointing out the disconnect between investing services and planning advice. J.D. Power piled on with a report, also in April, noting that investor satisfaction with full-service advisors continues to slide. (On the consumer insight company’s 1,000-point scale, investor satisfaction with advisors had fallen 17 points year over year to 727.) The company says the culprit is the “systemic problem” in wealth management in which advisors focus on investments while clients are seeking more comprehensive advice. The study shows 42% of advisors delivered transactional advice, 47% delivered goals-based advice and only 11% provided comprehensive advice.
The leaders we talked about at the beginning of this article are standing out because their competition isn’t delivering these things the clients are actually asking for.
Solving For The ‘Trimesters’ Of Retirement
Retirement isn’t an event. It’s a journey in which people move on to face new developments and challenges. Every retiring client is a brand new traveler. And their trip usually happens in three phases (or “trimesters.”)
In the first stage of their journey, they are likely enjoying the best health and most wealth.
But no amount of money can insulate a family from failing health or cognitive ability. Retirees will turn to different priorities as they age—their money worries will give way to healthcare worries as they live longer lives and deal with more physical changes.
That’s when we get to the second and third phases. The second is what we might call the “slow-go” phase—when spouses or family members have become incapacitated. The third trimester is the “no-go” period when the client may be alone.
Longevity is inevitable but also manageable if you prepare for it, but most clients aren’t prepared for these second and third phases. They might say they know what will happen, but they likely have chosen to avoid the blunt truth about incapacity and disability, even if they have older parents, relatives and friends who have grappled with sudden health issues.
Some of the issues are new to them, but won’t be to the best advisors, who have likely prepared them for critical life events when the clients themselves didn’t know what to do.
Author Ken Dychtwald, a gerontologist and the founder of Age Wave, said the idea of someone’s “life span” should be contrasted with their “health span.” Consider that the life expectancy for Americans overall is 78.5 years, yet most people will suffer multiple chronic ailments for their last 12 years or so. That’s one of the takeaways from a study that Dychtwald collaborated on with Edward Jones. The researchers also noted that two-thirds of people age 65 and older suffer from at least two chronic conditions. And the authors found that by age 85, nearly three-quarters of women are widows, and 36% of men are widowers.
These are critical considerations, because physical health and cognitive health are critical determinants of older retirees’ ability to live safely and securely.
But then consider that advisors don’t like to talk about longevity and health. Preliminary findings from a new survey of clients and financial professionals from the Alliance for Lifetime Income showed that 75% of financial advisors do not discuss the risks of cognitive decline with their retirement planning clients. It’s not an easy topic. But it’s reality, and clients expect advisors to anticipate potholes in the road ahead.
What The Best Advisors Have Come To Realize
Now put all this in the context of an advisory business. Consider the solo advisor. How likely is it that they will be able to deliver custom and complex retirement solutions at the same scale they are selling investments? No matter how loyal the clients, you can’t fly solo working with a retiring family.
That means the most successful advisors are those building teams of professionals, teams comprising people with different talents. One person might be great at investing but may not have the empathy needed to talk to a client about cognitive health. A planning pro, meanwhile, may not have the time to learn the fine points of protected income products. Such teams could also more easily recruit younger advisors into their existing, successful ensembles to improve the breadth of solutions.
Successful teams are also those that plan for succession. Advisors are aging right along with their clients, and the best way to ensure continuity for those clients and a graceful exit for themselves is to have a plan for when they leave work. The team approach is the very best way to do this for many top advisors committed to their clients and their colleagues.
Showing Your Worth
The best advisors also know they must get paid for what they do. Retirement planning is not something that should be considered a loss leader or an added-value service for what’s primarily an investment business. And that means top advisors don’t typically charge only for investments. Many charge for plans, for their time and for complex solutions. And for that, they expect to see all their clients’ assets and retirement plans and other existing investments come under their purview.
When they build better scale, they have better success. There are millions of clients with trillions of dollars at full-service financial advisories, which are trying to keep track of an average of 150 clients. That math just doesn’t work if they are trying to deliver real retirement planning and solutions. Top advisors promote the value of their teams and frequently include different team members to assist a family.
And dealing with the entire family is important. There’s a virtuous loop you enter when you work with multiple generations in a client family. Boomer clients might need assistance with aging parents today, and place it among their top priorities, and that gives the advisor an opportunity to show their value. Previously unengaged spouses and adult children, meanwhile, can participate in the process, creating a relationship with the advisory team that secures their assets for the future.
Planning, protection and solutions represent a cleaner value proposition of “advice.” Too many clients have no idea what’s involved in retirement planning and even fewer seem to know what financial advisors really do. Top advisors don’t shy away from the complexity, and they make sure clients have a healthy appreciation for the work.
Steve Gresham is the managing principal of Next Chapter, a leadership community dedicated to achieving better retirement outcomes for everyone. He also serves as senior education advisor to the Alliance for Lifetime Income. He was previously the head of Fidelity’s Private Client Group. Steve is the author of The New Advisor for Life (Wiley).