Is Your Advisory’s Golden Goose Turning Gray?

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According to the latest TD Ameritrade Institutional Advisor Index Survey, 68 percent of advisors say that the average age of their clients is 55 years or older. While many advisors target this demographic by design, the reality is that for most wealth management, the graying of their client base presents a significant hurdle for growth.

Make no mistake, those in retirement, or on the verge, are attractive to wealth management firms because they have a lifetime of earnings and savings to support the larger portfolios most advisory firms covet. Just as importantly, many of these retirees or soon-to-be retirees are more focused on asset protection than on growth and wealth accumulation.

These clients generally rely on cash flow from their portfolios to meet retirement living expenses, which is the real threat to a wealth management firm.

Many of these older clients are following the traditional rule of withdrawing 3 to 4 percent of their assets every year to support their lifestyle. However, something like a serious illness requiring extended hospitalization can quickly accelerate the drain. Steady drawdowns of income-producing assets combined with potential medical costs leave many firms vulnerable to an aging client’s need to tap 5 percent a year of the assets they have under your management. Talk about a significant and ongoing hurdle to growing your firm!

Complicating the equation, wealth management firms in colder regions also risk losing aging clients to warmer climates. Migrating clients, nurtured by high-touch relationships, might opt to find local advisors in their new hometowns.  Ironically, we at GregoryFCA have helped any number of firms undertake regional public relations campaigns that support expanded geographies simply to stay relevant and visible to high-value clients and client clusters moving to retirement areas of the country.

Finally, there’s the natural attrition of an aging client portfolio. Once gone, it’s unlikely their heirs will continue the same relationship, particularly if you’re unknown to the widow, sons or daughters. Those assets are likely to disappear forever.

You need to protect your practice from this growth-robbing situation. What can you do?

  1. Get younger! How do sports teams react when their starting lineup starts to age? They draft and groom younger players. You should too. Begin by recruiting younger advisors who can appeal to younger high net worth clients whose expectations and networks are vastly different than yours. This will help counterbalance the aging of your practice.
  2. Go digital. Investors of all ages are finding compelling value in dealing with advisory firms via the web. While the value of advice has not waned, how that advice is delivered has changed. Busy working professionals in the accumulation phase want to engage in financial planning on their clock, not during the 9 to 5.
  3. Explore opportunities to attract more assets from your existing clients. Many of your clients are holding assets with multiple financial firms. Bring more of these assets to your practice to offset the constant erosion of clients in “distribution mode.”
  4. Maintain strong “distance communications” with your clients who have moved away. Obviously, they will still see your quarterly statements, newsletters and other communications. Why not engage with them on Skype? The more personal the conversation, the more likely these clients are to stay with you. Travel to visit clusters of high value clients in order to maintain relationships despite distance.
  5. Increase communications with potential heirs. While you may not send them quarterly statements, you can still direct specific communications to them to introduce them your firm, your people, and your approach. You might also facilitate and moderate family discussions about transferring assets to the next generation.

While your firm may have a high percentage of clients in the “distribution phase” of their financial lives, by following these simple suggestions you can minimize the steady drain of assets usually associated with an older clientele.