Financial advice to younger clients can be profitable – that was the surprisingly convincing argument I heard a few weeks ago from a young American financial planner who clearly knew what he was talking about. His name was Alan Moore of the XY Planning Network and the occasion was the even-better-than-usual Nucleus annual conference for financial advisers who use the platform.
His aim was to help advisers work successfully and profitably with younger clients – people under the age of about 40. Moore was clear that he wasn’t saying that advisers should be in the market, just that they shouldn’t automatically dismiss it as unremunerative.
Financial advisers normally work with people in their 50s and over, with plenty of money or existing investments and an assets under advice charging structure that’s geared to this. Their normal responses to younger people who ask for advice and have high incomes but little capital could be one or more of the following unsatisfactory approaches:
- Tell them to go away because they are too poor for now. Come back when they have more money.
- Try to sell them something they don’t need – such as life assurance for a single person with no dependants.
- Work for free on a charitable basis and create a longer-term sense of obligation that might pay off eventually.
- Offer a cut-back cheaper service.
None of these really work. The most usual – come back when you have more money – invites more entrepreneurial advisers to cultivate clients and hold on to them into the glory days of their future prosperity.
In any case, the sort of advice business that is geared up to look after older clients, who are approaching retirement or have reached it, probably isn’t set up to deal with younger people’s issues. Alan Moore likens it to trying to adapt a nursing home to a rental property for 30-year-olds; it won’t work. The whole business needs a redesign from the bottom up to succeed in the much younger market.
The financial planning process and outcomes for the two markets are different – not so much about estate planning, retirement and pensions, and investment income generation, and much more about debt management, particularly mortgages and student debt, developing savings habits, financial protection and perhaps starting businesses. The service should be based on building the foundations of future success for individuals who haven’t thought much about financial planning issues.
And the business model for the financial advisers has to be different. It isn’t possible to charge these clients based on their assets under advice, because they mostly don’t yet have any financial assets of which to speak.
There’s no point setting minimum asset levels. Advisers need to think about setting minimum fees of say £1,000 or perhaps £2,000 a year, depending on their proposition and business ambitions. A rule of thumb guideline might be 2 per cent or 3 per cent of income, with a significant proportion paid through monthly bank payments.
Tune into the young
Advisers in this market will have to adapt their working practices to fit the habits and requirements of this younger demographic, who are very time-poor and reasonably tech-savvy. Skype meetings, electronic document handling and reporting will be the main ways of communicating and conducting these relationships.
Marketing to this generation uses blogging, social media, podcasts, e-newsletters and, above all, a website that really engages with them. Word-of-mouth recommendations may still be the main source of business, but this other marketing collateral is essential to reinforce the messages.
Recruit suitable advisers
Advisers with existing conventional businesses who want to get into this younger market almost certainly need to recruit and develop new specialist advisers and staff for the purpose. They should probably be under 40 but, more importantly, they should specialise in these very different areas of financial planning – with the right knowledge and mindset.
Alan Moore’s suggestion is to use a mission statement along the lines of: ‘We help clients to discover and live their great lives. We help you achieve what you want out of life.’
Perhaps that’s not a bad aim for financial planning businesses directed at clients of all ages.
Danby Bloch is chairman of Helm Godfrey and head of editorial strategy at Platforum.
You can follow him on Twitter @danbybloch