The business model of many financial advisory firms revolves around serving clients who are able to pay a certain minimum in annual advisory fees, which reflects not only the value that the advisor can provide for the client, but also the amount that the advisor must charge in order to provide the level of deep planning and investment management that higher-net-worth clients expect (while also earning enough profit to make the venture worthwhile).
However, because many next-generation clients such as those who are Millennials and Gen Zers are still building their assets up, paying $10,000 or more in advisory fees each year may not be feasible for them… at least not yet. This can create tension with the traditional advisory firm business model, because that minimum fee is often necessary for the firm to break even. As a result, serving next-generation clients may require adjustments to the firm’s business model to deliver the services younger clients need while also remaining profitable.
In this guest post, Stacey McKinnon, Chief Operating Officer and Partner at Morton Wealth, shares a new business line her firm developed to serve younger professionals, the challenges that the firm faced in developing a sustainable business model to serve next-generation clients at lower cost than retirees, and some of the lessons her team learned from the experience that could be valuable for advisors who want to develop their own next-generation offerings.
At a high level, the challenge of serving next-generation clients is that, although they may not be able to afford higher fees, their financial needs are just as complex – if not more so – than those of retired clients. Importantly, serving next-generation clients effectively doesn’t mean just offering fewer or more automated services (e.g., robo-managed portfolios) at a lower fee. Instead, it involves focusing on what clients value most and delivering that value efficiently, without adding unnecessary services that the client may not need or want. For example, most Millennial and Gen Z clients can open their own investing account and buy index funds online with only minimal guidance from their advisor, so full-service investing might not offer enough value to a next-generation client to justify an ongoing planning fee.
However, many next-generation clients have their own unique planning needs – ranging from equity compensation and tax planning to managing debt and even addressing ongoing anxiety about money and wellbeing. Advisors who can focus on and help resolve these issues for clients can prove incredible value to their clients. This, on one hand, requires deep expertise, meaning the firm may need to ensure its advisors have adequate experience and training to handle complex planning strategies that may be beyond the capacity of a relatively junior advisor. On the other hand, by focusing on a few key planning areas, the firm can deliver value more efficiently than one that tries to be “everything to everyone”.
The key point is that while serving next-generation clients profitably may be more challenging in the short term, there’s significant long-term potential in working with clients who are still accumulating wealth – and who may eventually inherit wealth from their parents. Because ultimately, many of today’s high-net-worth retirees were once part of the ‘next generation’ themselves. Which means that advisors who can deliver value, build trust, and maintain strong client relationships today are positioning themselves to serve the high-net-worth clients of tomorrow!
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