Investment advisers who have built up a solid foundation of assets under management shouldn't use that as an excuse to rest on their laurels.
That's because while they rest easy, wirehouses and regional broker-dealers have been scooping up the next generation of clients. Charles Schwab & Co. Advisor Services interviewed 40 individuals between the ages of 30 and 45 who had at least $500,000 in investible assets and an income of $150,000 or more, and found only one was with a registered investment adviser.
At the same time, as many as 40% of independent advisers' clients are retired and 30% are within 10 years of retirement, according to a Schwab survey of advisers, released Thursday. Among those who are already retired, 60% are already drawing down on their assets, the Schwab study said.
Those 30- to 45-year-olds will be a key market for replacing those dollars and represent a nearly $3.5 trillion asset opportunity, Schwab said, citing data from consulting and research firm Cerulli Associates. The firm has dubbed that demographic “Generation Now” to provide a sense of urgency to investment advisers to reach out to capture their business, according to Bernie Clark, head of Schwab Advisor Services.
More from Mr. Clark on how advisers must adapt to Generation Now
If they have not been already, advisers need to be moving quickly to update their technology, personnel and sales pitch to be more appealing to that group, he said.
“I think the model has to change,” Mr. Clark said. “We're already seeing firms start to use their next generation of advisers or modeling products to make it a little more turnkey.”
Advisers need to change their outreach by hiring younger advisers who can partner with younger clients, Mr. Clark said. They also need to be updating the way they communicate with those clients because the quarterly mailing of statements may not be how this group likes to review account performance, he said.
“They need to be using more technology to attract the next generation,” Mr. Clark said. “Advisers have to challenge themselves to appoint the next generation of leaders that they can pair off with clients and make sure people coming into the office are seeing someone who looks like them.”
Adopting new technology also means partnering or finding a way to incorporate newer online advice platforms that can allocate clients' assets based on an algorithm. That may appeal to some younger clients in that age range who may not be ready or have the assets for a full range of financial planning.
“It's great technology, and incorporating it into your offering is great for the adviser,” he said. “It's not about necessarily beating or competing with it.”
The next step is getting the word out. RIAs as a whole still lag behind some of the larger brand-name brokerage firms in terms of recognition, and many investors still don't understand the service they provide for clients, Mr. Clark said. He added that the “fiduciary standard” is a good sales pitch for the incoming generation.
“Still, one of the bigger challenges of this industry, even at $3.9 trillion [in assets under management], is education and awareness,” Mr. Clark said. “It's [about] doing what's best for the client, not a suitability standard which you might find at a traditional brokerage.”
Social media will play a big part in that, Mr. Clark said.
“I do think social media is going to be one of the major changes in trying to get marketing out there in another medium,” he said.
Advisers also need to, of course, be incorporating their clients' adult children as well and should be prepared for some long-distance relationships that may result. In many cases, adult children who are inheriting a client's assets may be in another part of the country, he said.
A previous version of this article incorrectly attributed research identifying the $3.5 trillion asset opportunity to Schwab. That research was done by Cerulli Associates.