Making younger clients a top priority — but not the only priority

When it comes to serving younger clients, financial advisory firms tend either to dabble in it with whatever leftover resources they have or take a whole-hog approach through something like the XY Planning Network.

But that wasn’t going to cut it for The Johnston Group, which is why the $500 million Minneapolis-based firm created a separate Foundations platform to target clients who didn’t fit into the firm’s traditional market of older, wealthier investors.

“My opinion was if we could start with a younger group of clients and have them understand that it’s all about managing their cash flow intelligently, then they would be wealthier clients in the future and we would be expanding generationally,” said Brad Johnston, the firm’s founder.

The Johnston Group was founded 24 years ago, but the dedicated focus on clients who are just getting their feet wet in investing dates back just two years, when some of the younger advisers at the firm convinced Mr. Johnston to experiment with working with clients who might not generate a lot of revenue for the firm.

The result was the Foundations platform, which starts with a comprehensive financial plan that costd clients between $500 and $1,500. From there, any assets are funneled to Charles Schwab’s Intelligent Portfolios robo platform, which The Johnston Group white​ labels​ and accesses through its custodial relationship with Schwab.

“We see advisors leveraging the automated investing solution as a means to serve smaller accounts in a more scalable way,”said Jessica Heffron, vice president for client experience at Schwab Advisor Services. “We also have advisors who are actively using the IIP platform as a growth engine for their firm. These firms have created a differentiated offering for investors who may not be ready yet for their full wealth management offer.”

The Foundations platform has grown to more than 100 clients. And with an average account size of $50,000, the platform has added $5 million to the robo-platform, for which The Johnston Group charges 60 basis points on assets under management.

Fees for the platform compare the firm’s traditional family office planning fees of 1% up to the first $1 million, which include breakpoints down to 40 basis points for accounts over $10 million.

Mike Giefer, one of the advisers who helped put together the Foundations platform after making the case to the firm’s leaders, said the platform benefits both younger clients and younger advisers working with those clients.

“I do appreciate Brad’s commitment to this effort,” Mr. Giefer said. “I’ve heard from other younger advisers that have been told by firm owners that they aren’t going to let them spend time looking for clients that aren’t generating revenue.”

Of the firm’s six client-facing professionals, half are in their mid-30s or younger. Mr. Giefer said that was the driving force behind the Foundations effort, which now includes a chief innovation officer to expand the social media and marketing push to help reach the target market of younger investors.

The investing side of the Foundations platform involves 12 different customizable portfolios that are built and managed on Schwab’s robo-platform.

But Mr. Johnston said the value goes way beyond whatever asset management fees the firm can take in.

“I don’t think there’s much good advice being delivered to young people, and this is an antidote to the sales culture that’s out there,” he said. “But it’s also a business proposition, so we had to do something that would make them want to write a check.”

On that note, Mr. Johnston proudly boasts of the firm’s policy of refunding the cost of the initial financial plan to anyone who feels they didn’t benefit from it.

“At the wirehouses, where it’s all about size and scale, they understand that planning is an important part of building relationships, but I don’t think they feel an accountability,” he said. “We wanted an accountability mentality, so we’re accountable to making you understand everything you need to understand and that you will be able to make effective decisions. And if that is not true, then you get your money back.”

Related Topics: Charles Schwab & Co., The Adviser's Consultant