What an Elite Group of Younger Advisors Has to Say
At the other end of the scale, several advisors had worked with Baby Boomer planners who exhibited three traits that are huge turnoffs for their potential successors. The first is a reflexive defensiveness about office procedures. One advisor told the group that he was genuinely curious about why a variety of things were done in a certain way. But whenever he would ask a question to gain a better perspective, the founder would become instantly defensive, apparently believing that the younger advisor was implicitly criticizing how the firm was being run. Others nodded in agreement and told similar stories.
A second turnoff to younger advisors is an unwillingness to adapt and evolve. The extreme example of this, which the NexGen advisors believe is not uncommon in today's profession, manifests itself whenever the founder says something like: "By the time I have to deal with that, I'll be retired, so I don't have to worry about it." Of course, the successors WILL have to deal with this issue, and you can bet they're worrying about the firm falling behind or letting problems fester.
The third is a rigid adherence to client minimums. This will be discussed more fully in a moment, but for now consider the situation where successor advisors are buying into a practice whose client portfolio is largely made up of people age 55 or older. These younger advisors would like to expand the portfolio of clients with accumulators their own age, but of course few of them have reached $1 million in liquid assets. By the time the successor finishes buying out the owner, the business asset the successor has acquired — due to the rigid policies of the founder — will have a clientele made up of aging decumulators in the later stages of life. Is that an attractive business proposition for the successor?
Creating "Intentional" Practices
What about the entrepreneurs? For them, the work/life conversation took a different turn: the theme was being clear and intentional about the firm you create and the life you want to lead.
Just as advisors need to help clients determine how much is "enough" in their lives, a young advisor starting a practice needs to decide, from the very beginning, how much monthly income he or she needs to support his or her desired lifestyle — first. The goal is to create your own financial life plan around that. This is an alternative to what some younger planners regard as a "more is never enough" mentality at some established advisory firms, which is what so many founder/owners to become a 60-hour-a-week slave to their practices.
The difference in generations could not be more profound. Baby Boomer founders created a planning practice and organized their lives to accommodate the needs of the business as it was nurtured into profitability. In order to be intentional about their work environment, Generation X and Y advisors believe they need to start living the life they want to live and organize their business life, to the extent possible, around that. That means taking regular trips and working remotely. Indeed, one young practice owner talked about her visit to the Peruvian villages near Machu Piccu, where she was surprised to discover excellent Internet connections. It means attending children's soccer games even if they coincide with traditional work hours.
Then, working backwards from these magic numbers, advisors can factor in their ongoing business expenses and determine how many clients they need to attract and how much they will need to charge per client to build a lifestyle practice with enough checks and balances that it never has the opportunity to enslave its founder.
A Wide Spectrum of Business Models
What, exactly, does that business model look like, serving younger clients who haven't accumulated large portfolios? The discussion of the business model of the future suggested that NexGen advisors are considering a creative spectrum of possibilities:
- The employee benefits model, in which a CFP advisor take a staff position in a company's employee benefits department and offers planning services to the company's employees. An example is Richard Gable, the resident salaried CFP advisor on staff at the Houston Police Officer's Pension System.
- The hourly planning model, which some of the younger planners were doing on the side for clients referred to them, and which is employed by members of the Garrett Planning Network.
- The "subscription" model, in which clients pay for ongoing advice through a monthly fee auto-paid just like their clients' cable TV and phone bills. This is favored by members of the XY Planning Network, who receive turnkey access to a subscription-based planning model. Some staff planners are also gaining permission to work with their age group peers based on a retainer model — and these younger clients include the grown children of existing clients.
- The hybrid quarterly fee and AUM models, which some younger advisors are experimenting with as they convince their founders or owners to let them work with below-minimum clients.
Staff advisors, of course, are mostly still working in firms with pure AUM models where clients may or may not pay an up-front fee for the financial plan.
Interestingly, none of the attendees identified commission-only (or, for that matter, fee + commission) planning as a desired career alternative. Indeed, based on the throwaway comments I heard during the sessions, it's clear that this sample of younger advisors are not interested in product sales activities. One representative of a regional brokerage firm noted that he was part of an experimental team that was providing full-service financial planning under the AUM model — and he was told that his firm was at least two steps behind the curve.
Non-Traditional Service Models
That led to a conversation about the service model of the future. It seemed like all of the NexGen advisors had bought into the life-planning model, customizing their advice based on a deep understanding of a client's goals. Beyond that, I noticed one huge difference between the mainstream Baby Boomer planners and their potential successors. Many younger advisors — especially the entrepreneurs — question the value of actively managing client portfolios, especially when compared with what they regard as the much greater value of providing customized advice. The word "commoditized" could be heard in a variety of contexts.
So how do they handle the (generally smaller) client portfolios? The entrepreneurs are either outsourcing portfolio management altogether (potentially to the robo-advisory firms, where they get inexpensive rebalancing and tax-loss harvesting) or simply giving the client advice on how to set up a discount brokerage account that can be checked a few times a year. Nobody at NexGen fears the robo-advisor competition; many see it as a validation that asset management has become a commodity.
So what do the NexGen planners focus on with their clients? Those who work in larger firms appear to be doing traditional life planning, and because so many of them are university-trained, they are called into cases whenever a client needs detailed tax or estate-planning advice, taking on the role of in-house technical expert supporting the older advisors who run the client meetings.
The NexGen advisors who are managing their own firms, meanwhile, are pioneering a range of new services that you would not find at a traditional planning shop. One advisor said that she counsels clients on which credit cards provide the best travel rewards (hint: switching periodically will gain up-front bonuses and avoid the fees that often kick in after the first year), and manages their "portfolio" of frequent flyer and hotel awards. Other primary services include cash flow-related advice for clients early in the accumulation phase of their lives, career counseling around creating a balanced life (including travel) and tax, insurance or cash flow issues around the important life transitions of marriage, having a baby, buying a home and potentially starting a business.
Niche Marketing and Location Independence
How do you market to the next generation of clients? Both the advisors who are starting their firms and those working inside an established one faced this question, from slightly different angles. The new practices debated whether it is possible to declare a client niche in the fragile early stages of the practice, or whether you have to start out taking any paying client as you try to achieve positive cash flow. The answer seems to have to do with marketing skill; the better marketers (meaning, as nearly as I could tell, the more active bloggers and Youtube video content creators) were able to declare their niches earlier than their peers.
I thought it was interesting to hear the staff planners debating this issue, since, well, doesn't their firm have a target market already? Here, the discussion was more complicated. Younger advisors who have been identified as successors are being asked to round out their skill sets by not just servicing existing clients but by also bringing in new ones. Obviously, the market they feel most comfortable with is primarily made up of people their age. Several attendees work at firms that permit younger advisors to market to their peers. Others don't. Requiring a 30-something-year-old advisor to bring in clients who are approaching retirement age is clearly a recipe for failure, and a few attendees admitted that that's the position they find themselves in today.
So the discussion turned to helping those advisors make a business case for taking on younger professionals or executives, and how to build a personal niche, with a different revenue model, within the larger client base of the company.
This conversation connected with the larger one of whether or not a younger advisor wants to buy into his or her existing firm. If the current ownership is not willing to broaden the company's client portfolio to include younger accumulators, then the younger advisor may decide to pass on buying the current owner's stock over time.
Perhaps the most interesting part of the niche discussion, and the marketing discussions that interspersed throughout the various sessions, came when I realized that younger advisors don't view their market according to geographic boundaries and don't believe that they need to stay in any one location.
Meaning? The traditional planning firm is located in a community and takes clients who live within driving distance. Younger advisors — and the clients in their age group — are increasingly making their practices location-independent. They are comfortable forming close business relationships face-to-face from opposite sides of the country, having their meetings through Skype or Google Hangout, sometimes working remotely from the foreign locations they travel to.
This allows an advisor to develop a very narrow niche that would be impossible if the base of potential clients lived within a 40-mile radius. It becomes even more possible if the NexGen advisors pay attention to each others' niches. Then they can refer any inappropriate clients that they've attracted to peers who happen to service that client niche — a group-sharing process that is already taking place within the XY Planning Network.
NexGen Tools and Resources
During the technology-related session, which attracted the largest audience at the NexGen meeting, advisors went around the room, each offering the name and a brief description of an app, software or an influential book that gave them the most value. In the app/software space, the list included:
ScheduleOnce (an online scheduling tool that allows clients to schedule their own meetings with you, saving the back and forth phone calls or emails that can waste productivity: http://www.scheduleonce.com/)
WordPress (a tool to create your own blogging environment, which is how many entrepreneurial NexGen advisors are marketing their young startup firms: http://wordpress.org/)
Less Annoying CRM (a very flexible customer-relationship management (CRM) program that one attendee described as the Apple Macintosh of CRMs, primarily created for small businesses and not customized for advisors: https://www.lessannoyingcrm.com/)
4G Hotspot devices that create a hotspot anywhere you happen to be traveling; you can find a reasonable list of the many options here: https://www.google.com/webhp?sourceid=chrome-instant&rlz=1C5CHFA_enUS542US543&ion=1&espv=2&ie=UTF-8#q=4G+Hotspot&tbm=shop
Tout (a mobile video publishing platform: http://www.tout.com)
Evernote (a note taking app: https://evernote.com/)
Team Snap (for parents of kids who play sports; it tracks scores and schedules and synchs with your calendar: http://www.teamsnap.com/)
Buffer (a social media management program similar to Hootsuite: https://bufferapp.com/)
TripIt (a travel organizer: https://www.tripit.com/)
Any-Do (a productivity app that helps you track and manage your daily tasks: https://www.any.do/)
Asana (a project/teamwork management tool: https://asana.com/)
Pay Simple (for billing and accepting payments from clients, described as the best monthly payment system by members of the XY Planning Network: http://paysimple.com/)
Boomerang for GMail (lets you schedule emails that you want to send at a later time: http://www.boomeranggmail.com/)
Glympse (lets you show your family and friends exactly where you are and track your progress on a road trip: https://www.glympse.com/)
Less Doing, More Living, by Ari Meisel
The E-Myth Financial Advisor, by Michael Gerber and Michael Steranka
The Four Hour Workweek, by Timothy Ferriss
The Checklist Manifesto, by Atul Gawande
The Behavior Gap, by Carl Richards
Start With Why, by Simon Sinek
By the end of the last circle gathering, after the talking stick had been passed around and hands had been held, it was clear that the NexGen cohort — the under-36 crowd that included many future leaders of the profession — are going to change the planning profession in profound ways. First, the talent will congregate in the best cultures, rewarding and growing the firms that embrace evolutionary change and work/life balance. Then they'll bring entirely new business and service models into the profession, allowing planners to work with a much wider spectrum of clients.
Meanwhile, I think the NexGen meeting is, as of now, by far the best way for staff advisors to acquire the broader perspective they'll need to assume a leadership role and become viable successor advisors. Seldom have I see any group of professionals cover so much ground in so little time, and emerge so much smarter for it.
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