The youth movement

Reaching Gen X and Gen Y can help advisers build their practice now and increase their firm’s value when they are ready to sell it, according to Amy Mullen of Money Quotient in a session called “Close the Generation Gap and Build a Sustainable Financial Planning Practice.”

Ms. Mullen noted that the average age of financial advisers is 56. Clients are even older, averaging from the mid-50s to the 60s. That means that clients are reaching the stage of their lives when they will begin drawing down their assets rather than adding to them.

At the same time, many advisers are considering how to disengage from their firms. Some 60% have no clear succession plan, she said. For many of those, their general plan is to sell their firm to a younger adviser. However, the pool of younger advisers who are interested in and capable of running a firm is relatively small. And they do not want to buy the kind of firm that many advisers are selling, Ms. Mullen said.

In particular, younger advisers are looking for firms that are sustainable, meaning that they have both younger clients and younger staff. Ms. Mullen quoted an industry insider as saying, “If I were buying a financial advisory firm, I would discount the firm’s value based on the number of clients and staff over the age of 55.”

Gen X and Gen Y can help advisers grow a sustainable firm, she said. As clients, they have more to offer than many advisers may think. For example, she said, the wealth of Gen X and Gen Y will increase from $2 trillion in 2011 to $28 trillion by 2018. It likely will increase even further as they inherit from parents and grandparents. But 86% of Gen X and Gen Y will fire their adviser when they get their inheritance – most often because they don’t feel that adviser understands them.

And as advisers or other staff within a firm, members of Gen X and Gen Y often make it easier to attract and serve younger clients – which can make the firm more valuable for a potential buyer.

So what can advisers do to reach Generation X and Y?

The first thing is to acknowledge a few basic truths, Ms. Mullen says. First, they are very different in some significant ways from their parents and grandparents, who may make up the bulk of an adviser’s clients. Like every generation, they were shaped by their experiences.

Among the most significant of those experiences has been technology. Gen X and Gen Y are very tech-savvy. They are comfortable online and with social media, and they will work only with advisers who are comfortable there too.

“Technology is a major factor in attracting them,” Ms Mullen said, adding, “If you don’t have a website, they won’t work with you.”

They want that website to be full of information and interaction. Gen Y in particular is interested in lots of videos and podcasts. They want to be able to find out from an adviser’s online presence what the firm can do for them.

Then, Ms. Mullen warned, “You better deliver on what you say.” If an adviser does not deliver, “Gen Y will tell their entire social media circle about it.” However, she said, they also will tell their social media circle about firms that do what they say they will.

While there are some differences between the two – Gen X is more skeptical, while Gen Y is more collaborative – they both want to focus on values and goals rather than investment performance.

In order to reach these younger investors, Ms. Mullen said, advisers should follow the 5-E Model for Effective Communication: Explore, Engage, Envision, Enlighten and Empower.

Explore. This step begins with learning more about what motivates these generations, and it also involves preliminary discussion with potential or new clients to define the client-planner relationship.

In moving from background information to interacting with specific potential clients, advisers should focus on understanding the person’s main concerns and aspirations, estimating the scope of the likely engagement between the person and the adviser, relating the services the adviser can provide to what the person needs and wants, and verifying that the relationship would be a good fit for both the adviser and the potential client.

Engage: This step involves gathering client data and establishing goals. Ms. Mullen stressed that when advisers are trying to engage with Gen X and Gen Y, they should talk less about things like rates of return and more about the client’s vision.

It also is important to understand that young investors do not want their adviser to do everything for them. They want to be involved in the process.

“One of the biggest things you can do to create a supportive environment and engage more with your clients is to do less for them.” Ms. Mullen said. She suggested that advisers can do this by:

• Working with clients to co-create the agenda for meetings.
• Letting the client do research as part of the process.
• Working collaboratively to establish an action plan with clearly defined steps.

Envision: In this step, advisers help their clients to understand and explain their goals. Ms. Mullen said this is the most important part of financial planning, “and most people don’t do it.”

Tools advisers can use to help Gen X and Gen Y clients visualize their goals include:

• Questionnaires to help walk them through the goal-setting process.
• A collage or vision board showing the goals toward which they want to work. They can create their own images or use technology tools such as Pinterest and Instagram.

Enlighten: In this step, the adviser analyzes and evaluates the client’s financial status and helps to develop and present a financial plan involving specific and concrete recommendations. To help with this step, Ms. Mullen suggests that advisers:

• Use language that is supportive rather than controlling.
• Actively involve the client in the process.
• Be honest and direct.

Empower: This involves implementing and monitoring the plan. Ms. Mullen suggests that advisers:

• Break big change into small steps.
• Celebrate their clients’ successes
• Continue to nurture clients’ understanding of what’s important.

This article is part of a special advertising section that appeared in the December 15, 2014 issue of InvestmentNews. It was written by the InvestmentNews Content Strategy Studio and does not reflect the views of the InvestmentNews editorial staff. To download the full supplement, please click here.