In their book, The Enduring Advisory Firm, Mark C. Tibergien and Kim G. Dellarocca say the firms that thrive in the future will have mastered the challenges of servicing a new kind of client having new needs and demands.
Moreover, these firms will be able to attract and retain talent in an industry robust with opportunity but a shrinking number of advisors.
Tibergien is CEO of Pershing Advisor Solutions, a BNY Mellon company; Dellarocca is managing director of BNY Mellon.
Serving the financial management needs of women and millennials is at the top of the authors’ list for must-dos. By 2052, trillions of dollars are expected to go from baby boomers (1946-1964) to their Gen X children (1965-1980) and millennial grandchildren (born after 1980).
“Investors under 45 and women are quickly becoming our country’s fastest wealth creators and are poised to receive the bulk of a $40 trillion wealth transfer,’’ they write. “These investors report the highest levels of dissatisfaction and trust in their experience with financial services.’’
Women, who are 51 percent of the population, “have a tendency to leave their advisors when their husband dies,’’ because nearly 70 percent feel undervalued and talked down to.
It’s an equally grim picture with young investors: 86 percent of investors who are under 50 and who control 37 percent of $40 trillion in potential investment assets, say they will not use their parents’ advisors. Clearly, the authors say, firms need to attract these clients, and also develop millennials as advisors.
A study by Pershing LLC found that because women entered the wealth management profession later than men, they have “found it easier to serve the up-and-coming client—other women, younger investors and LGBT clients.’’
The authors identify character traits and needs of millennials and women: millennials, now the largest living generation in the United States, are optimistic, digitally enabled and have a strong sense of entitlement. To recruit and retain them, Tibergien and Dellarocca say, millennials must be given a specific plan for financial goals; they must be encouraged to take appropriate risks and maximize their contributions to savings accounts, and be educated about savings and equity investments.
Millennials prefer dealing with a financial advisor via websites and email, in person and by telephone, but not through social media, the authors say.
Much work needs to be done to meet the needs of women clients, they write.
“If something happens to him, will she call you?’’ the authors say they ask advisors at workshops. “Only about a quarter of the room felt they could unequivocally say yes!’’
When they ask the follow-up question of how many advisors have lost a woman client after death of spouse or divorce, “nearly every hand goes up.’’
Women are 57 percent of the U.S. labor force, and as of 2014, there were 9.1 million women-owned businesses in the United States employing 7.9 million and generating $1.4 trillion of revenue. Women control two-thirds, or about $12 trillion, of annual spending in the United States.
The new face of the woman investor is one who contributes to financial decisions in relationships, and is knowledgeable about money matters. In order to succeed with the woman investor, the authors say, advisors need to understand a woman’s risk tolerance and risk-taking preferences and build a relationship of trust.
Women’s retirement security can be negatively affected because women have a longer life expectancy than men, have more medical costs, earn about 79 percent of what men earn and often care for an elderly parent. The authors recommend counseling in career, elder care, family and savings to help women navigate retirement.
What other trends and developments should advisors be paying attention to right now? Consolidation, the authors say.
“We will see the emergence of super regional advisory firms with a branch manager system, and younger advisors will band together to form smaller, local advisory firms. Super ensemble firms are more productive and more profitable, and are able to attract the best clients and the best talent.’’
They suggest establishing a presence at colleges and universities to recruit new talent for advisory firms, as well as recruiting from other firms.
To retain younger clients, allow them to be in control of communication with their advisor and tailor offerings to meet their needs.
The authors say the future is bright for the advisor who is able to adapt: there are more than 3,000 RIA firms each managing more than $1 billion in assets under management, and the RIA segment of the industry represents nearly $4 trillion, or about 20 percent of the United States’ retail market.
The Enduring Advisory Firm by Mark C. Tibergien and Kim G. Dellarocca. John Wiley & Sons. 182 pages. $60.
Eleanor O’Sullivan is an award-winning freelance journalist who writes for Financial Advisor magazine.
