No one knows how much of their estimated $90 trillion in assets the older generations will fork over to their children over the next couple of decades. According to a study released in August by Northwestern Mutual, baby boomers may not be as generous as their millennial children had hoped. But family money is already flowing downstream and independent financial advisors are taking proactive steps to retain or acquire those assets.
“I’ve been hearing about wealth transfer for so long, and I didn’t really always feel like I was seeing it,” said Mary Beth Hofmeister, a registered principal and financial advisor with Sage Financial Associates. Now “I’m seeing 28-year-olds inheriting a million and a half dollars. And suddenly, that’s a lot for a 28-year-old who maybe — maybe — has a Roth IRA.”
Hofmeister was one of three advisors who spoke on the advisor panel at the Financial Services Institute (FSI) Forum in Washington D.C. on Sept. 17.
As part of its growth efforts, Sage Financial, based in Latham, N.Y., is looking to buy a practice that would come with a junior advisor, said Hofmeister. The firm is also trying to find more ways to have books of business for younger advisors and it’s looking to form a team to serve new clients who need education, including new accumulators of wealth. “People sometimes need a lot of time, but aren’t necessarily the key clients,” she added.
Making Assets ‘Stickier’
Panelist Christine Byrne, a partner and wealth advisor with Back Cove Financial in Falmouth, Maine, acknowledged she has probably been thinking about growth in a similar way to Hofmeister. “Everyone’s really worried about that generational wealth transfer,” said Byrne.
“About 10 years ago, I realized that my clients were starting to ask me to sit with their kids, and as I was sitting with them, I’m like, ‘I look too much like their mother for them to listen to what I’m saying. I need to find a younger advisor,’” she said. “I mean, it’s just the truth, right? Because I want these assets to be sticky.”
So, six years ago she hired a younger associate. And then she hired a few more. “We’re multigenerational and we are really proud of it,” said Byrne, noting that Back Cove Financial’s six advisors now include two baby boomers, two Gen Xers and two millennials. The administrative staff has a similar age split, she said, and the firm is about to hire two Gen Z relationship managers.
“That’s by design, and that’s important because we want to have those voices and we want to know how they’re approaching financial planning so that we can pivot or grow those services,” said Byrne.
Subscription Craze Forecasted
Two-and-a-half years ago, Back Cove Financial established Perennial Plan, a subscription service that’s run by the firm’s two 30-something advisors.
“They say, ‘We’re going to put you on Perennial ’til you have your $150,000 in assets and then you’re going to become an A-1 client,” said Byrne. “I don’t know if it’s them or if it’s the generation or the messaging, but they’re able to keep those clients through all that. You send them away to Fidelity and they come back, or you send them to Vanguard and they come back. And those clients are appreciative.”
“It’s small but it’s very well received,” Byrne says of her firm’s subscription service. And in general, “there will be a spark that will set that [model] ablaze throughout our industry,” she said. The panel conversation then turned briefly to how the younger generation grew up with subscriptions for music and more.
Hofmeister said her team has considered adding a subscription-based approach. “We haven’t gotten too far yet, but it seems like that is a logical extension — using technology, having modules on our website, maybe having coaching calls or things like that,” she said.
A Multigenerational Win
Working with young investors is different than it used to be, noted panelist Mary Steele, managing partner of Freehold Wealth Management in Landrum, S.C.
“They are smart and they have done their research before they get to your door, so they’re not knocking with total ignorance anymore, which I think is fantastic,” she said, referring to her clients’ children.
They say things like, “Here’s my income, here’s what I’m doing with my 401(k), can you help me get the right start” she said. “That’s huge for the parent clients because they feel like their kids are being looked after.”
“But it’s also amazing because you realize that what you helped the parent client with had that pass-through effect where they [the kids] saw their parents make the right decisions,” she said. “They said, ‘Hey, you know, I really want to follow that trajectory they’ve set up for me.’” .
Steele knows what it’s like to follow a parent’s lead: She joined her parents’ wealth management firm in 2014 after moving back to the U.S. from overseas. Steele, who holds a master’s degree in biology, anticipated doing a brief stint at the firm and describes her wealth management career as “a happy accident.”
Meeting Millennials (and Gen Z) Where They Are
She also spoke about the importance of “leading with content” [which can be helpful with clients of all ages]. Steele sends them articles on topics that come up during client calls. “You want to keep them talking because it just helps you figure out where that’s going and where their minds are and what they’re consumed by,” she said
Hofmeister sees more of a mix of younger clients. “Certainly, there are those that come in well prepared, coming from strong family [financial] planning situations,” she said. “But I see the reverse as well — I see a lot of young people struggling for hope. I think that they feel afraid of the cost of raising a family, one income covering childcare, struggling to save for retirement.”
Preparing Next-Generation Advisors
The panel also discussed the importance of working with younger advisors to, as Hofmeister described it, “give them some chops.”
“I’m starting to think more about the senior advisors who have a certain skillset, the junior advisors who have a certain affinity with some clients, and how do you work together cohesively?” said Hofmeister. She also notes that she expects to see a lot more “scaling up” at the practice level, similar to what’s happened to the industry as a whole.
Byrne, who acquired several practices from retiring advisors, projects that an important component of industry growth over the next five to 10 years will come from retiring advisors looking for a home for their clients and junior colleagues.
“Those people need to go somewhere,” said Byrne, “and to be building up the talent for the people younger than us, it’s just imperative for us to be successful.”
Jerilyn Klein is editorial director of Rethinking65.
