As an “old-timer” RIA, I've been trained on the three types of investors:
• Do it yourselfers (DIYs)
The DIYs typically like to control their own investing, based on one or more of the following reasons:
• They want total control over their investments.
• They don't want to pay for help.
• They don't believe a professional adds value.
• They want to time the market, buy “hot stocks” or otherwise place bets.
The validators want to do it themselves, but with occasional advice and check-ups from a professional. These investors are good candidates for one-shot and periodic reviews, typically by a fee-only financial planner. Although these clients don't want to spend much money, they do value expert advice.
Finally, the delegators are (and have been) our “sweet spot.” These investors want to rely on a professional to handle their investments. Trust is critical to retain these clients in the long term. However, should they become disenchanted with an adviser, they will turn to another adviser rather than moving to a different role (DIY or validator).
NEXTGEN IS DIFFERENT
As a result, we have always focused predominantly on delegators as a client source. NextGen investors are different. I would classify them into the following categories:
• Advice seekers
• Collaborative delegators
The primary commonality with this group is the desire to understand and have a role in their finances. The difference between the categories is the degree.
Researchers will avail themselves of all information on the Internet. As a result, they will either use no-load funds, such as Vanguard's, or will go with a robo-adviser. These investors want “autopilot” but they want to choose the pilot.
Advice seekers know that expertise is valuable. Yet, they don't want to pay commissions or a percentage of assets under management. This seems similar to the validators of prior generations, but it's not entirely. Advice seekers want service and ongoing instant access.
ACCESS TO KNOWLEDGE
They not only want a financial plan to help them reach their goals, they want access to knowledge through blogs, interactive websites and personalized communications — typically email or through a client portal — from their adviser. They will follow advice and make their investments as instructed. This segment can actually be great clients; they are willing to pay retainer fees and might “graduate” to a full service investment management client down the road.
Finally, collaborative delegators want a professional to handle their investments. Unlike delegators — who, for the most part, prefer a hands-off approach, collaborative delegators want to be involved and understand what the adviser is doing. They are savvy shoppers. They not only expect the tools and communications of advice seekers, they demand that their adviser pay attention to all the details that they have delegated. This includes regular rebalancing, analysis of asset allocation and holdings, tax-efficient investment strategies, integration with their financial plan and concise, paperless reporting.
To be competitive, attract new clients and combat the robo-advisers, it is imperative that we adapt new service models focusing on two prospect pools (advice seekers and collaborate delegators) and embrace technology.
Sheryl Rowling is chief executive of Total Rebalance Expert and principal at Rowling & Associates. She considers herself a non-techie user of technology.