There is a significant opportunity for growth tapping into “Generation Now” - the next generation of clients currently between the ages of 30 and 45 controlling some $3.5 trillion in investable assets, a study shows.

There is a significant RIA opportunity for growth by tapping into “Generation Now” - the next generation of clients currently between the ages of 30 and 45 that control some $3.5 trillion in investable assets, a study shows.

Bernie Clark, executive vice president and head of Schwab Advisor Services, ran through findings from the firm’s 15th semi-annual Independent Advisor Outlook Study at its EXPLORE conference yesterday.

“Nearly 40 per cent of RIA clients are retired, 30 per cent are less than ten years from retirement and 63 per cent of those retired are withdrawing from portfolios, including from principal, according to our survey findings,” said Clark. “With this in mind, now is the time for independent advisors to actively focus on acquiring the next generation of clients and assets – especially given that the majority of advisors tell us they are planning for legacy.”

The insights are based on the opinions of 720 independent advisors representing an estimated $180 billion in assets under management. The aim of the study was to understand independent advisors’ perspectives on the opportunities they see with the next generation of clients, and understand how they are planning to augment their strategies for business growth.

Challenge, opportunity or risk?

Advisors are – unsurprisingly give their aging client bases - increasingly focused on sourcing the next generation of clients but are divided on whether the next-gen investor presents a risk, opportunity or challenge, according to the findings.

When asked about the movement of money to the next generation - estimated by the firm at $16 trillion - and the fact that assets could be dispersed across more people or children, 37 per cent see risk and believe they will need to develop new client relationships to grow their business and maintain asset levels. On the other hand, 40 per cent see an opportunity to develop a model to meet the needs of emerging clients and smaller accounts.

“We feel that the next generation investor is unequivocally an opportunity for independent advisors,” said Clark. “They have significant wealth, and their individualized priorities along with the competing financial needs in their lives can benefit greatly from the customized, client-focused advice that independent advisors can deliver.”

Attracting the next generation of wealth

“It will be critical that everyone, from advisors to office support staff, knows and understands Generation Now and is able to meaningfully connect them at every point of interaction to their firm’s value proposition,” said Clark.

An overwhelming 91 per cent of those surveyed believe that demonstrating their firm’s expertise and services is the best way to attract the next generation. This was followed by three actions tied at 83 per cent: having a strong reputation based on firm reviews and centers of influence relationships; offering a unique service or value proposition; and clearly communicating the benefits and differences of the RIA model. Nearly seven in ten (69 per cent) of advisors believe that cultivating client referrals differentiates their firm.

Interestingly – give the volume of noise on this topic in the industry lately – only 32 per cent think social media will be a vital communication tool with Generation Now, while 68 per cent are of the view that personal contact will remain the crux of their business. That said, 59 per cent believe social media and online resources are used as a marketing tool to sharpen firm visibility, as opposed to be a means of boosting client engagement.

In related findings, 55 per cent of firms reported that they measure staff performance based on the amount of new assets they bring to the firm – meaning 45 per cent do not use this as their primary metric.

RIA firms of the future

A total of 70 per cent of independent advisors said they have plans for creating a legacy firm (one that lives beyond its founders), of which 48 per cent are planning an internal succession or partner buyout. This means that 30 per cent are not attempting to grow the firm’s leadership in the near future.

Among those that are, most are focused on cultivating leaders from within (37 per cent), versus looking externally (14 per cent) – a logical finding given the nature of wealth management.

Meanwhile, looking ahead, 56 per cent of those surveyed anticipate that automated portfolio management – or the use of so-called “robo advisors” - could supplement their current offering and thus help their business grow, versus 44 per cent who regard robo advisors as a looming threat.

In terms of service offerings, many advisors are staying with their core investment advisory business of: long-term financial planning including retirement planning (54 per cent); planning related to clients’ employer-sponsored retirement accounts (47 per cent); charitable planning (37 per cent); estate planning services (35 per cent); and workplace retirement plans for business owners (34 per cent).