Reverse-Mentoring: You Asked, the Millennials Answered

Oct 17, 2017

mentoringA few weeks ago I sat down with Alan Moore, Co-Founder of XY Planning Network, to discuss millennial investors during SEI’s monthly webinar. One of the key points we both made then (and one that I’ll make again today) – this was not just about how to engage and serve millennial investors. Everything we discussed on the webinar from marketing, to fees, to service models can all be applied to any emerging wealth or mass-affluent client, regardless if they’re a millennial, Gen Xer, or Baby Boomer. This is really about how advisors can shift from their traditional, asset-based business model that truly only works with HNW clients who actually have assets you can invest and charge on, and move toward a service model that can enable them to profitably serve clients without substantial assets. Because if you want to build a sustainable business that’ll be around over the next 10-12 years, you are going to need to expand your client base beyond just the top tier of wealthy retirees and pre-retirees who are distributing their assets. You will need to complement those clients with some emerging wealth clients who are accumulating and growing their assets in order to develop a healthy book of business. These types of clients might not be wealthy today, but they could develop to become your HNW clients of tomorrow.

So if you are like many advisors from our webinar, who are still skeptical about changing their practice to focus on millennial investors, I invite you keep an open mind as you review the E-book and Q&A below that came out of the webinar. Try to remember that you can apply much of what we talk about not just to working with millennial investors but to any emerging wealth or mass-affluent client you might target.  

Question: For retainer fee models, how do millennials prefer to pay: draft bank account, credit card, invoice, or other?

Answer from Alan Moore: Younger clients need to pay for financial planning services out of their cash flow, not their assets. That’s the biggest shift your firm will have to undergo. We find that for recurring payments, like a monthly retainer, it needs to be automatic so you’ll need to use credit card or bank draft and charge your fees automatically. We built AdvicePay specifically to manage this process in a compliant manner, as having access to your clients banking or credit card information may trigger custody in your state.

Question from Audience: How do established firms add millennial-focused content, through a separate website?

Answer from Missy Pohlig: You’re hitting on two key issues here. The first revolves around how to avoid diluting your existing branding that’s more geared toward wealth management services for HNW Boomers, while still trying to put out content specifically focused on attracting millennials. The second issue is how to avoid turning off younger investors who are drawn to your website by millennial-oriented content, but who are then deterred by the marketing and messaging that makes you look like your more traditional wealth management firm for older, wealthier investors (like their parents). There are methods for navigating around these issues so you can serve all generational cohorts. To do this you can separate out the messaging and content that’s meant for your millennial target market. The easiest way is to establish a separate section or page on your existing website. It should preview your services and resources specifically geared toward millennials. Jim McGowan, of Marshall Financial Group, does this with his MyWealthCoach page on their website, which outlines Jim’s process for working with emerging wealth clients. Alternately, you can take it a step further, by creating a completely separate brand with its own website and content. For example, Matt Cosgriff with BerganKDV Wealth Management did this when he spun off his separately-branded LifeWise program for young professionals. The key is for you to not only understand how to serve this market, but to also make it clear to that market that you have a solution tailored to them.

Question: How do XY Planning Network advisors serve younger clients with high levels of debt (usually from school)?

Answer from Alan Moore: Each advisory firm is different, but if a client is coming to an advisor for financial planning services and have high debt loads, they likely have sizable income as well. Advisors would refer high debt/low income clients to non-profit resources that are available in their area. For the higher income earners that also have high debt levels, they will be analyzing the debt just like you would expect. Should the client pay down debt, refinance, consolidate? Student loans end up in their own bucket simply because they have a lot of rules, and require a high level of expertise and training to properly analyze.

Question: How should an advisor position their current AUM fee structure when introducing a recurring revenue model? In other words, how does an advisor avoid AUM clients asking to become recurring retainer clients?

Answer from Missy Pohlig: There are so many different ways to structure your fees, but generally speaking we see the industry moving to a hybrid model, where advisors provide a mix of retainer-based fees and AUM-based fees to their clients. Many advisors are concerned by this same issue – AUM-based fee clients requesting to move to your new recurring retainer fee option. However, the reality is that most clients do not like the act of physically paying or seeing that bill for their retainer-based fees on a recurring basis. Many of them would much rather choose an AUM-based fee that is drawn directly from their account automatically.

The ultimate goal for many of you who implement this hybrid model will be to eventually transition your low-AUM, retainer-based fee clients to become HNW AUM-based fee clients. To do this, you will want to structure and position your fees in such a way that once a client reaches a certain level of AUM, they are moved to an AUM-based fee model. Many advisors do this by creating different retainer fee levels that increase as the client becomes wealthier and more financially complex to manage. Once that client reaches your threshold – where you would transition them to an AUM-based model – their retainer fee is just slightly less than the AUM-based fee model they’re moving to. The transition won’t feel significant and it enables you to position this as an upgrade to the next level of service that’s necessary based on their AUM and wealth. Many advisors also position automatic withdrawal of the fee as ancillary benefit. The idea is that their new AUM-based fee covers the more comprehensive services necessary at this level AUM, such as tax planning, estate planning, etc.

Question: What kind of time/hours are you devoting to younger millennial clients like these? Do you do yearly, bi-annual, or quarterly meetings?

Answer from Alan Moore: We find younger clients want more frequent, but shorter, meetings than baby boomer clients. Quarterly meetings tend to be the norm, but some clients will need more meetings in the first year. They are also looking for technology, like really solid client portals, to give them access to all of their financial planning and investment management information without having to contact their advisor. They also want to be able to text and/or e-mail their advisor for quick answers to little questions. All in all, we don’t find that advisors spend any more time per year with younger clients that they do with older clients, it’s simply in smaller bites instead of large chunks of time.

The opinions and views expressed herein are those of Alan Moore. SEI bears no responsibility for their accuracy. Alan Moore and XY Planning Network are not affiliated with SEI or its subsidiaries.

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Missy Pohlig

Missy Pohlig

Missy Pohlig is the millennial contributor for Practically Speaking and also serves as Program Manager for the Solutions Team in the SEI Advisor Network.

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