Succession Planning

Custody chief: Younger associates, clients crucial

Oct 28, 2012 @ 12:01 am

By Dan Jamieson

Older financial advisers are overconfident about the future of their business and aren't doing enough to attract new, younger clients, according to the head of TD Ameritrade Institutional.

“Sure, they may have $500 million in assets, but their average client is 72,” Tom Nally, president of the TD custody unit, said at the firm's fall regional conference in Dana Point, Calif., last week.

The stakes are high, he said.

If advisory firms can't attract younger in-vestors, their assets will decline as older clients die off.

Citing research from Cerulli Associates Inc., Mr. Nally said that Generation X and Y investors will accumulate close to $46 trillion in assets by the end of the decade, including $18 trillion in inherited assets from baby boomer parents.

Most NextGen investors are likely to fire their parents' advisers, he said.

Research conducted in 2009 by professional services firm Rothstein Kass found that 86% of heirs in global family offices intend to fire the adviser used by their parents.

Sometimes advisers beat their clients to death's door.

“All the time, we see situations where [an] adviser passes away unexpectedly, and they don't have a succession plan in place,” Mr. Nally said in an interview. “The clients are just sort of stuck.”


That is why the firm has been encouraging advisers to reach out to the children of boomer clients, bring on younger associates, plan for succession and adopt technologies used by younger investors.

Last month, TD Ameritrade revamped its adviser matchmaking service, now dubbed RIAConnect. The idea is to help advisers hire young advisers as a strategy for bringing in young investors.

A big part of the RIAConnect revamp is offering coaching to advisers on how to prepare for an acquisition or new hire.

Although most advisory firm owners want to buy other practices, few are truly prepared to hire and train new professionals, and incorporate them into a firm, Mr. Nally said.

“You have to give [a young hire] a career path. You have to give them development opportunities so you can paint them a picture of ... why it's a good career move to join XYZ Financial Advisers,” Mr. Nally said.

But recruiting young people is a tough task for the average advisory firm, said Ross Gerber, chief executive of Gerber Kawasaki Wealth & Investment Management, which has 19 advisers who cater to younger investors.

The average adviser is busy with clients all day, said Mr. Gerber, whose firm, which has $175 million in assets, is affiliated with LPL Financial LLC.

“How do they hire people and grow?” he asked. “They don't have time to invest three hours a day to train someone.”


Those in Gen Y, which comprises people in their early 30s or younger, need especially close management and guidance, Mr. Gerber said.

Mr. Nally acknowledged the challenge but thinks that more-efficient technology can free up time to spend with new advisers.

Social media, of course, is also seen as an important element in efficiently attracting and communicating with the new group of investors.

TD Ameritrade has incorporated social-media training sessions into all its adviser events. The sessions are led by outside consultants who walk advisers through the development of social-media strategies.

“We're going through another technology revolution, and it's being caused by mobile [devices] and social media,” said Fred Tomczyk, chief executive of TD Ameritrade Holding Corp.

Mr. Nally noted that advisers at TD Ameritrade execute over 30,000 trades per day via mobile devices.

By focusing on the next generation, Mr. Nally thinks that the firm can fill a void left by the wirehouses.

“By cutting these investors and advisers free, they've shot themselves in the foot [and] opened a door of opportunity” for independent advisers, he said.

Mr. Gerber agrees about the opportunity, “but the problem is profitability” with younger investors and their smaller asset bases, he said.

The answer is doing multiple things for young families — individual retirement accounts, Section 529 plans and life insurance, Mr. Gerber said — and then asking for recommendations via social media.

Still, many advisers don't want the smaller accounts that younger investors typically bring.


One TD adviser at the event, Brian Lockhart, founder of Peak Capital Management LLC, has pared back the number of clients he serves, and boosted his minimum to $1 million in an effort to deliver more of a family-office-type service.

He hasn't seen the need to follow TD's advice in chasing down the next generation, though Mr. Lockhart does hold regular meetings and dinners for clients and their children and grandchildren.

But TD's efforts address a valid concern, he said.

“The kids often go in the opposite direction, probably because they felt the adviser didn't relate to them,” Mr. Lockhart said.

Mr. Nally told advisers that they could start with something like seminars for younger investors, getting them on the right path toward saving and investing, while “planting the seed” for a full advisory relationship. Twitter: @dvjamieson


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