I recently served as a facilitator for the annual NexGen conference, this year held on the campus of Augustana University in Moline, IL. This gave me a terrific opportunity to reacquaint myself with the luxurious living conditions of a campus dormitory. More importantly, I was able to gain insight into the very different way that the financial planning landscape looks through the eyes of younger advisors just starting their careers — and in many cases, from the bottom end of a planning firm's organizational chart.
NexGen is a community of professional advisors under the age of 36. It was founded independently, but in recent years NexGen has become affiliated with the Financial Planning Association, which now has operating control over its discussion forum. The first thing you notice at NexGen is that the FPA has quietly — and, of course, strategically — introduced certain rituals that somehow became part of its annual Retreat some years after the Retreat moved off-campus into luxury hotels: most notably a group "circle gathering" at the start and end of the meeting and group discussions that feature a "talking stick." (Holding hands is also involved.)
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In between, the "sessions" could best be described as facilitated group discussions rather than the usual lecture format that you see in many of the other conferences. During the first afternoon, the attendees vote on what topics will be on their agenda, and their choices this year included how to form a productive study group, big mistakes that they've made in their young careers and the future of NexGen itself. The discussions that I facilitated tended to be more general: how to create a better working environment and enjoy a balanced worklife, the professional business models of the future and applied technology, where the attendees shared their favorite personal productivity apps and business software programs and some of the productivity books they're currently reading. (This list can be found at the end of this article. For now, I'll say that I, personally, had not even heard of most of the apps, books and software that NexGen advisors are favoring today.)
The attending advisors could be divided into two basic groups: staff advisors who work primarily as paraplanners or junior planners at existing firms, and younger advisors who are pioneering nontraditional revenue and service models as founders of their own startup practices. The two groups seemed to have very different interests. The staff advisors focused on how to take on larger roles in their firms and broaden their skill sets to become more well-rounded and capable succession options. The young planning entrepreneurs, who attended in significant numbers for the first time this year (roughly 15 out of the 52 attendees), were there to compare notes on how to create a business and service model that can profitably serve Generation X and Y clients who haven't accumulated enough assets to fit neatly under the assets under management (AUM) business model.
Culture and Work/Life Balance
A discussion about creating your ideal work environment thus bifurcated into two very different discussions. Staffers talked about how to integrate their personal travel and entertainment agenda ("balance your passions" was a preferred term) within the boundaries of an established firm. The chief issue was finding ways to effectively communicate the desire for a balanced life to the prototypical Baby Boomer founder. Those founders might have worked 55-hour weeks during their own formative years and measure the value of staff productivity by how much face-time they put in at the office.
Most of the attending advisors (including those now running their own firms) either had worked in this environment or were working in one now. The wide discrepancy between working hours and desired schedule did not always seem to be the fault of the founder or owner. Some staff planners admitted that, when hired, they had simply conformed to a lot of implied expectations in the office without communicating clearly the working conditions they felt would work best for them. Rather than suffer under difficult conditions, some NexGenners said, why not set appropriate boundaries and expectations with the employer the same way the firm does with its clients?
From there, much of the conversation revolved around how to communicate the desire for a balanced life in a way that would resonate with the founder or owner. Solution one was to simply address the topic directly and ask for the work hours you want. If that failed, solution two was to make a business case for why you can add your full value during normal work hours, without punching the time clock on Saturdays.
If that failed, solution three was to get a year or two of experience and look for employment elsewhere — with confidence that you won't be waiting long for that next job offer in a market that is visibly starving for experienced talent.
This led to a conversation about the many different office cultures in the planning profession, which is clearly a much-discussed topic among younger advisors. Founders and owners should recognize that their younger staffers compare notes with each other on great (and, sometimes, lousy) places to work when they get together informally or at local chapter meetings. Attracting talent may be as simple as giving your younger employees the chance to tell positive stories about a collaborative culture where the software tools are updated regularly, younger advisors are given client-facing opportunities and work/life boundaries are respected.
Cultural Turnoffs
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/)
and books:
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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