Despite recognizing that wooing younger clients is vital to the longevity of their businesses, most advisers aren't making any effort to do so.
Six in 10 advisory firms don't have any strategy in place to court younger clients, according to a recent survey conducted by TD Ameritrade Institutional.
The RIA custodian found that nearly half of advisers consider an aging client base to be among the biggest threats to the industry.
And despite that concern — in more than two-thirds of firms, the average client is 55 or older — the preferred tactic for growth among 56% of advisers is client referrals, which typically don't diversify a client base, said Philip Palaveev, chief executive of the Ensemble Practice, which consults with financial advisers.
“Businesses often feel that the most important thing is taking care of things today and focusing on existing leads,” he said.
“It's very rare that a 60 year old will refer a 35 year old,” Mr. Palaveev said. “This is a natural property of social networks. If you look around, most of the people you are friends with are probably within five years of your age.”
“The key to forming a relationship with the younger client is having an advisor that is at or near the same generation,” Ramsey Bova, president of Moneywatch Advisors Inc., wrote in an e-mail. “People want to work with those they can relate to.”
To complicate matters further, most young people simply don't need the most complicated — and lucrative — services that advisers offer.
Typically, young people need help building wealth, not managing it. Some advisers may justifiably decide that waiting 10 years for a younger client to become profitable simply isn't worth it. At the same time, failing to attract clients while they're young may mean missing them altogether, Mr. Palaveev said.
“Courting younger clients is like planting a tree farm,” he said. “You plant a forest and then you wait years before you can harvest it.”
David Edwards, president at Heron Financial Group, said hiring young advisers is hard but crucial to getting younger clients. He hired Danielle Campisi, 38, who was looking to change careers.
“I made a huge dollar investment in someone who after two years I thought would be profitable to me,” Mr. Edwards said. “A lot of advisers aren't willing to make that investment and then they wonder why it's not working for them.”
Mr. Edwards' other efforts at reaching out to the next generation included helping a client's grandchild with a university thesis.
Of the 26% who have a strategy in place for attracting young people, about half are focusing on hiring younger advisers, the survey said. The next most popular approach is offering web-based advisory services.
TD Ameritrade's researchers interviewed 302 independent advisers, including those who are not clients, from Jan. 6 to Jan. 17.
Trevor Hunnicutt contributed to this story.