How Young Advisors Can Serve Their Peers within Existing Firms

6 min read
March 24, 2016

Please welcome Matt Cosgriff to the XYPN blog! We know Matt as an "intrepreneur" for his innovative work in developing a specialized branch of a financial planning firm within an existing firm. He was able to create a part of the business that serves Gen X and Gen Y clients, while the firm as a whole focuses on other types of clients outside those demographics.

Today, Matt shares his advice to young advisors who want to follow the same model -- or at least convince older firm owners of the value of serving next generation clients.

“I want to serve Gen X and Millennials!” said the young advisor to his boss.

“Yeah, that’s a bad idea. Get back to work,” said the firm owner.

Now, that’s not exactly how it plays out when young advisors try to pitch the concept of working with Gen X and Millennial clients—or in our case at Lifewise Advisors, serving young professionals—but it’s also not that far off in many instances either.

Gen X and Millennial consumers are no longer the next big thing, they are the big thing in the eyes of many brands. But as these two generations move into the driver’s seat as America’s primary consumers and as many industries evolve to serve their needs, that hasn’t changed the thinking of the old guard inside many of today’s top wealth management firms.

So how does a young advisor go about actually serving the next generation within an existing a firm if there is no interest in doing so among firm decision makers?
There’s no one right or wrong answer, and the outcome in your situation will depend on the structure of your organization. But there are definitely some buttons to be pushed that resonate more than others.

Below are four potential pitches that can be made to support why your firm should consider serving Gen X and Millennials inside your existing organization.

It Can Improve Client Segmentation

Many firms are guilty of trying to plug the square peg into the round hole when it comes to serving clients they know will be in their sweet spot in the future, but just aren’t there yet today. The easiest example is the young doctor.

He or she is likely making good money, but has few investable assets and a mountain of student debt to tackle.

Now what happens next certainly doesn’t happen at all firms, but I’d venture to guess it happens at more than people care to admit. The firm offers to help the young doc despite the fact they don’t fit into their target market -- oftentimes anyone with $1 million of investable assets, which we all know really isn’t a niche -– because they don’t want to lose out on the opportunity to turn them into a great client years down the road.

To get started, the firm charges the traditional 1% to 1.5% on the small $40,000 account the doctor’s amassed in his first few years of working.

The advisor rolls the money over, sets up an asset allocation, and then sends out a quarterly newsletter to keep his new client up-to-date on market movements.

Then, radio silence.

At the end of the day this situation is lose-lose. The firm takes on a non-ideal client that is likely unprofitable and subsequently ends up being underserved with virtually no value being provided.

So for those young advisors looking to serve their peers inside a firm, look for examples in which a separate service model could be beneficial to serve. By creating a separate service model that requires clients to pay for planning and then subsequently providing exponentially more value than the alternative is a win-win for both client and advisor.

You achieve both a valuable and profitable engagement.

Improve Sustainability with a Growing Revenue Stream

It’s been well established that the industry’s supply of advisors is aging (enter XY Planning Network to the rescue!) but the oftentimes overlooked corollary to that stat is the simple fact that most advisor’s clients are also aging at a brisk pace.

According to Fiduciary Network, over 90% of the industries firms are practices, which means there’s very little sustainability to the company if the founder gets hit by the proverbial bus or simply retires.

Enter the second angle young advisors can look to pitch when trying to promote serving Gen X and Millennials within their organizations: sustainability.
In an effort to improve the long-term sustainability of a firm, it can help to add strong accumulating clients that are serious about planning and comfortable paying for the invaluable guidance a qualified and well-intentioned advisor can provide over a lifetime. By serving young professional clients at Lifewise, we hope this expanded niche will help complement our graying book of retired clients.

On a quick side note, on top of adding sustainability to a firm, it also makes the practice more attractive to future buyers. What young advisor wants to buy a shrinking book of business?

The Ability to Test Innovative Technology in a Less Threatening Business Segment

One of the biggest risks advisory firms face in today’s rapidly evolving FinTech world is picking the wrong technology. The cost of implementation and training on a new technology, only to realize two to three years later that the solution is inadequate, is huge and as the pace of innovation across advisor technology picks up, this risk will only increase.

One of the ways a next gen service model within a firm can help is to serve as a testing grounds for innovative technology. Take robo technology for example.
Moving to increased automation with a robo platform like Betterment Institutional is a big step, especially if implemented immediately with a robust book of long-time clients that have been served by customized stock and bond portfolios. But the risks are substantially less if this technology is first tested with a less risky book of young clients.

That’s not to say that young clients should serve as sacrificial test dummies on behalf of older clients. Instead it simply means that when implementing and striving for perfection in the launch of innovation and possibly disruptive technology, the risks are far less in implementing with young clients paying a couple thousand dollars a year in planning fees (as opposed to the more established book of business that might be paying a multiple of that amount).

On top of that, many young clients like engaging with the brands they love. If you implement robo technology that makes their life easier, they will likely provide candid feedback about areas that they’d like to see improved or adjusted, as well as the areas that they find beneficial.

This can serve as valuable feedback when exploring a more full-scale launch of the technology with the broader advisory business.

Train and Engage Top Young Advisors

There is arguably no bigger issue for firm owners across the country than succession planning and subsequently how to recruit, engage and retain young talent in an industry starving for it. Which is precisely why launching a solution geared towards young professionals, Millennial doctors, or whatever niche you choose within Gen X and Gen Y is so important.

Young advisors want to have impact and they don’t want to wait a decade to do it. But that’s what so many firms end up doing by making someone be a paraplanner for half a decade and then an associate for the remainder.

And most young advisors get it. Business owners can’t risk jeopardizing a key client relationship because young advisor screwed up.

But there is a large middle ground between throwing a young advisor into the fire with a firm’s top client and relegating them to the back of the office to spit out spreadsheets at a nauseating pace for five years. That middle ground is serving next-gen clients.

What better way to allow young advisors to have impact on people’s lives now, in a less-risky environment, than allowing them to serve a niche within their peer group? And as far as the experience goes, who’s likely the most qualified to talk budgeting, student loans and saving for a child’s education?

Probably the young advisors learning to navigate those exact challenges.

On top of being able to serve next-gen clients, it also opens up the doors for advisors to learn how to develop business, which is one of the common complaints of firm owners: “my young people don’t bring in any new business.”

Well, no sh*t, my closest 25 friends don’t have combined investable assets to meet our company minimums. In this model young people can cut their teeth on how to build strong relationships and develop business.

Ultimately, whatever pitch you choose to try and convince your firm’s owners why they should start serving next-gen clients -- it’s important to look first at your firm’s business to determine how it is unique and what challenges might exist.
Each firm will have a different answer to “why serve next generation clients?” and ultimately it’s up to you to determine the keys to building buy-in among firm owners.


About the Author

Matt Cosgriff is a CERTIFIED FINANCIAL PLANNER™ and personal finance expert for young professionals. He is also the intrapreneur behind Lifewise, a Minneapolis based financial planning and investment solution for busy young professionals. When he isn’t helping people navigate the ins and outs of personal finance he is an avid hockey fan, foodie, and loves to read. You can reach him on Twitter @matthewcosgriff  or connect with him on LinkedIn

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