“Does anybody watch ‘Succession’? Does anybody think that Kendall Roy is going to get a big check when Logan dies?” John Froberg, CFP, asked a roomful of advisors at the Financial Planning Association’s national conference in Phoenix on Sept. 28. No spoilers here for those who haven’t watched the Emmy award-winning HBO series. However, “that guy is miserable,” he said of Kendall, the second-eldest son of a media mogul.
“It’s not enough to make sure that your clients’ kids get a big check. It’s not enough to make sure that their trusts are airtight,” said Froberg, a private wealth advisor with Austin-headquartered IronBridge Wealth Counsel LLC, while presenting the breakout session Millennial Maintenance: How Not to Get Fired by Your Clients Children.
The kids “don’t need you when the check hits their bank account — they need you years before,” said Froberg. “If we’re going to spend all this time making sure that clients’ estate plans are perfect and making sure their kids get the most inheritance possible, it’s essential that we prepare those kids to inherit that money, to know what it’s for, and to know that we cannot promise our clients that their families will be okay financially” if we don’t.
Most parents “want their kids to be okay. They want their kids to know how much they care. They want the kids to have Thanksgiving together,” he said. “We’ve all seen wealthy families where kids don’t have Thanksgiving together after the parents go, in spite of the money, and maybe because of the money.”
Froberg, a millennial himself, addressed the benefits of working with the children of existing clients, the risks of ignoring them, how to serve them profitably even if they haven’t come into money yet, and how to design and deliver appropriate services for the next generation.
Faster pace, less handholding
Clients in their 60s and 70s, particularly those who’ve been with you for 20 years and are now retired, may come in for a meeting and end up staying two or three hours, said Froberg. “They love you, you love them, and that’s wonderful,” but don’t expect that from their children.
Beneficiaries of the great wealth transfer, and perhaps big earners in their own right, are going to want information at a much faster pace than their parents, he said. “If you get a one-hour Zoom meeting with this clients’ kid, his four-year-old is pulling his two-year-old’s hair to stop screaming. And he’s got a conference call about a promotion at work or he’s got a conference call about starting his business. These guys are busy.”
With their parents, “Your job is to dream up all the things that could happen to mess up that plan and then eliminate those risks one at a time,” said Froberg, such as if inflation is higher than expected, investment don’t perform as planned, or they have long-term-care expenses. “At first, your job is to complicate; with their kids, it’s just the opposite,“ he said. “A 35-year-old doesn’t have time for seven retirement models, but that’s fine because those seven retirement models wouldn’t mean anything to them. They don’t know what their base case is and they’re inundated with information.”
“So, with your clients’ kids, the meetings have to be faster, and one way to do that is by simplifying their life,” said Froberg. Think first about the easy things you can do, such as reminding them to maximize their 401(k) contributions, and “drown out some of the noise,” he said, by letting them know what they do and don’t need to pay attention to. You can even “babysit on zoom for five minutes and watch them open accounts,” he said.
And while their parents often “don’t need to know how the watch is made, they just need to know how to tell time,” Froberg said, many next-gens have a different mindset. “At a bare minimum, they want to understand how it works” and how you came up with the numbers,” he said. But don’t be intimidated by their do-it-yourself mindset: “Once you show them how it works, they’ll ask you to take it off their plate.”
How to make it profitable
Getting paid for working with clients’ children can be tricky. “They don’t have their parents’ assets and if we’re running planning practices, they’re probably not going to be willing to pay what their parents pay in fees,” said Froberg.
As a guideline, he pointed to the 80/20 Pareto principle. “If you look at most advisors’ practices, 80% of the revenue comes from 20% of the clients,” he said. If a kid is the offspring of one of your 20% “A” clients, whose assets you don’t want to lose, you may want to help them plan for free. “But one caveat is, don’t forget the framing: don’t let anybody think you’re free,” he says.
Froberg suggests having a conversation upfront when starting to work with the kids to set expectations. For example, “Your planning is covered in the service offering that your parents are paying for. When we get to XYZ point and you need this service or that service, you’re going to go on our normal fee schedule. This is what that offering looks like,” he said.
For children of your non-A clients, he suggests figuring out how to price your services for what you need to earn for your time on an hourly or yearly basis. “I’m not saying you have to work with every client, just like we don’t onboard every single prospect,” he said. “But make sure you have an offering that at least gives them the opportunity to work with you.”
New value propositions and models
“Anybody with an iPhone is six clicks away from a Vanguard target-date fund,” said Froberg, so it’s important to let your clients’ kids, and all clients, know the range of services that you can offer them.
It’s also time to think about more holistic planning if you’re not already doing this, as well as subscription-based or retainer-based compensation models, he said. Just as many people thought that cars would never be available to the masses, he said, showing slides of a horse and wagon and an early Ford, people say these investment-planning models won’t scale.
“I think they will scale and I think your clients’ kids are going to be the ones who demand new skill sets,” said Froberg.
Jerilyn Klein is editorial director of Rethinking65