Firms with younger clients grow faster, report finds

Firms with younger clients grow faster, report finds
Advisers have stronger long-term business prospects with a client mix that includes many under age 45.
APR 13, 2015
Advisers seeking to develop a growing book of business should consider boosting the number of clients they serve who are under age 45, according to a new report. Financial advisers who have a significant portion of clients under 45 grow an average of 14.1% a year, compared to a 7.7% annual growth rate for advisers who serve older clients, a PriceMetrix research paper released Monday said. Annual revenue for advisers with younger clients was estimated at $890,000, compared to $810,000 for those with older clients.
Traditionally, advisers have targeted older clients because that is where the largest concentration of wealth is found, and advisers can more easily meet asset goals by tapping this demographic. "Older clients are attractive today, but over time that portfolio starts to transition into less actively traded money and the demands on serving those clients don't really go down," said Pat Kennedy, co-founder of PriceMetrix Inc., a practice management software firm. "If you get them on the way up, then you can enjoy the accumulation of wealth and it will help you grow faster." (More: Advise millennials. They may save your practice) The group in the study that showed the faster growth had 27% of clients under age 45. The report also found that the average client age is 62, but that average will reach 70 in a few years if more advisers don't start incorporating more young clients into the mix, it said. Even younger advisers appear to be largely ignoring clients under 45, according to the report. For advisers under age 45, the average client is between 16 and 28 years older than they are, it said. Given the long-term growth rates suggested in the research, firms should consider ways to incentivize advisers to bring on younger clients, the report said. Offering an example, the research showed a 40-year-old client with $150,000 in assets will produce $1,900 in current annual revenue but will grow at 7% a year, compared to a client between 55 and 70 who has $500,000 in assets and produces $5,100 in revenue, but grows at 3.8% a year. Of course the average age of advisers — 52, according to this study — delivers its own problems. (More: Finding a young adviser for your team) Older advisers grow their businesses more slowly than younger advisers. After an adviser is about 40, their growth begins to gradually decline until retirement, the study found. "The impact of the aging adviser base and client base is talked of in terms of what's going to be an issue in the future, but really it's affecting growth rates of these firms today," Mr. Kennedy said.

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