Follow the data to ID the best prospects

Advisers who want to build successful advisory practices have long followed a tried-and-true formula: Follow the money.

But forward-thinking advisers may want to contemplate an updated version of that popular saying: Follow (and advise) the future money.

Focusing on high-net-worth individuals from Wall Street or wealthy clients such as doctors and lawyers is not enough of a strategy to succeed in the modern economy. With the rise of the millennial generation, advisers need to adapt to a changing client base that increasingly is skewing toward a younger and more diverse group that still has a great need for smart financial advice.

SAVVY CONSUMERS

That’s where the advisory community plays an important role in grooming the next generation of savvy consumers, which can be a win-win for clients and advisers alike. As Washington reporter Liz Skinner pointed out in a recent article, in addition to identifying prospects who are likely to increase their wealth, advisers can coach clients who show the same behaviors as those on the wrong financial path. That is an important role advisers should play that contributes to society and is in the best interests of their clients.

Not only is it the right thing to do, it can be the smartest move for one’s practice. “As advisers start to focus on adding younger individuals and couples to their client mix, choosing prospects with the genuine potential to grow their assets will be important to running prosperous businesses,” Ms. Skinner writes, citing Sarah Stanley Fallaw, president of Data Points and author of a study that includes an assessment the firm claims can predict wealth potential.

SHINY NEW CAR

In studying the signs that predict future wealth, experts note that the wealthy are different than most people. Research based on the best-selling book “The Millionaire Next Door” by Thomas Danko and William Stanley (Gallery Books, 1998) argues wealthy people have similar traits that influence their financial success. Keeping and sticking to a budget, tracking spending and living below their means are common habits of the wealthy. So forego that shiny new car and invest initially in the more modest house.

But what may be of interest to financial advisers is that data commonly accepted in identifying the best prospects, such as current net worth or even income, are not enough to predict which clients are destined for a high-net-worth future.

Grant Webster, senior wealth manager for AKT Wealth Advisors, provided perhaps the easiest tip, recommending that advisers simply “look for younger versions of their favorite, more successful clients.”

“This generation of young professionals are much better off than most advisers think,” he added.

Millennials, or Generation Y, or as Time Magazine called them, “The Me Me Me Generation,” often are maligned for being too focused on instant gratification. The next generation gets a bad rap for being narcissistic and overconfident, entitled and lazy, and yet, Time concluded, “they just might be [the] new Greatest Generation.”

Indeed, the cream of the crop often exhibit the same habits of the most successful clients from previous generations.

So what are those characteristics? Putting in the time, for one. Those who report they spend a significant amount of time planning for their financial future are likely to be high-value clients down the road, according to the Data Points report.

A few other statistics of note:

• About 85% of those with high-net-worth potential rarely or never have to tap savings to pay monthly bills;

• About 32% of those estimated to be at a low potential for generating wealth rely on savings to pay bills;

• Knowing how much you spend on food, clothing and shelter boosts your chances to attain great wealth.

So look for these traits to determine the best prospects for your practice and develop the next generation of smart savers. As our story reported, John Grable, a financial planning researcher at the University of Georgia, is already using some of the report’s conclusions as the basis for his own studies on what mindset and habits prepare a client to generate and retain wealth. That sounds like a smart habit to be prepared for future generations.