Build your book with your clients’ children


By Michelle Schriver

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Building your book can eat up a lot of valuable time: advisors spend up to nine hours per week looking for new clients, according to U.S. research. One way to be more time-efficient is to onboard the children of current clients — though efficiency is likely the least important reason to approach this ready-made client source.

Making an effort with clients’ children is also a way to deliver expected client service. According to Vanguard Canada research, high-net-worth clients leave their advisors for failing to proactively contact them and to provide advice or ideas. Talking to clients about their children circumvents both shortcomings, assuming the discussion happens early and often, and in a manner that identifies and solves the children’s needs.

Focusing on clients’ children will also help advisors manage attrition risk amid the next decade’s intergenerational wealth transfer of an estimated $1.1 trillion — the largest in Canadian history. Young beneficiaries could easily ride off into the sunset with those assets if they decide to leave advisors who ignored them while serving their parents.

Ignoring client’s children is a real risk given the younger generation’s different milestones, or timeline for reaching their parents’ milestones. For example, compared to older generations, Canadians aged 18 to 34 are more likely to say that being well-educated and having a well-paying job are important to success, and that being in a relationship is less important. The Deloitte Global Millennial Survey 2019 found that less than half of respondents aged 25 to 36 want to own a home (49%).

“The lifecycle looks different for this emerging generation,” says Bob Dannhauser, head of global private wealth management at the CFA Institute in New York City. As result, “there’s a good argument to be made for establishing relationships pre-need.”

Advisors can do that by suggesting to their clients (the parents) that, since the children have a stake in the advisor-client relationship being successful, a family meeting would be beneficial to explain the relationship and the advisor’s services.

“It’s helpful within the context of the parents’ relationship to talk about the full scope of services” so the children can begin to think about which services may apply to them, Dannhauser says.

A “pre-need” meeting — taking place before the children actually require advisory services — also allows the advisor to facilitate family conversations and start new relationships with the next generation in a way that doesn’t feel commercial.

“Everyone is a little suspicious of being sold to too quickly, before there’s any basis of trust, awareness or knowledge,” Dannhauser says.

Ron Haik, senior financial advisor and regional manager for Ontario at Nicola Wealth in Toronto, says regularly asking clients about their children and any concerns the parents may have about them helps lay the groundwork for relationships with the next generation. If the children are young, these discussions might lead to educational goals and RESPs. If a child is older and has their first job, the advisor can congratulate the parent and offer to meet with the child to talk about planning.

While it’s never too early to talk to clients’ children, sensitivity is required, says Sarah Rahme, wealth advisor at BDO Canada in Ottawa (and a millennial). Advisors looking to incorporate the next generation into their books should initiate a family discussion only when the parents want to include the children, and when the children care about financial education.

Some parents don’t perceive their children as hardworking or responsible, she says, making parents reticent to share financial information. While that perception might be accurate, it could also be evidence of a generational divide.

“These two generations are facing different realities,” Rahme says, and parents’ expectations for their children may not be realistic.

Parents may be critical of a child’s track record with saving, for example, without allowing for the unique generational challenges of rising costs for education and housing, or the changing nature of work. StatsCan found that those aged 26 to 34 in 2016 had more debt than did gen X at the same age (in 2016 constant dollars), despite having higher incomes, assets and net worth.

Advisors can help parents understand the factors affecting their children’s finances by facilitating annual group discussions or seminars, Rahme says.

Advisors can also assure parents that a family meeting can proceed without including financial figures, such as net worth, with the discussion instead focused on the children, Haik says.

 

What to do when they’re just not that into you …

Even if advisors are sensitive to generational challenges and recognize the value in engaging clients’ children early, a quality advisory relationship won’t automatically transfer to the next generation. At initial family meetings, advisors may be met with skepticism.

Millennials’ typically negative perception of financial institutions, informed by the financial crisis, is an impediment to relationship-building, Rahme says. Add in unique generational challenges and the result is “a sense of mistrust and a need to figure things out by themselves,” she says.

Clients’ children who are high earners can be overconfident and assume they can google any information they need, says Meagan Balaneski, investment advisor at Manulife Securities in Vermilion, Alta. (and also a millennial). On the plus side, access to information provides a way to assess advisors.

“It holds all advisors accountable,” Haik says. Clients “should be able to benchmark the advisor in terms of the quality of information they provide.”

Personalized information provided to clients digitally is particularly appealing, if not a must. A 2018 CFA survey of high-net-worth investors (over $1 million in investable assets) found that those aged 25 to 39 are twice as likely as HNW investors overall to be interested in tech that provides a “what if” analysis of their holdings and tracks progress of their financial goals.

Many firms aren’t delivering on digital. Capgemini’s latest world wealth report found that about 40% of younger HNW clients worldwide weren’t satisfied with their primary firm’s online and mobile platforms.

Yet, information — however it’s provided — doesn’t equate to client action. Young clients “might not understand how much they need to do to meet their goals,” Balaneski says.

In fact, they may not even have goals. Clients’ children may require insights on saving and investing to “realize long-term aspirations they may not have crystallized,” Dannhauser says. Or charitable giving might be of interest but never considered, Balaneski says. Advisors can further help these clients with behavioural insights, she says.

Dannhauser suggests advisors communicate their value propositions to the younger generation within the first couple of family meetings — especially since the younger generation likely doesn’t know what advisors do. Be clear about how you help clients and why that help is valuable, he says.

However, he warns that advisors shouldn’t show off their smarts.

“Advisors want to demonstrate their value pretty quickly and, for a lot of them, that translates to ‘Let me demonstrate how much I know,’” he says. An approach that includes “constructive inquiry” to identify concerns, along with client education, is preferable, he says.

Asking effective questions also helps advisors assess whether their client’s child fits well within the practice, Haik says. His suggested questions include: What keeps you up at night? What’s most important to you? What questions do you have for me?

These can be followed with questions that help reveal goals, he says, such as inquiring about the client’s life and how it will change in five years: Will they be in the same job, earning more or less, married or partnered, raising children? In a world where information is easily accessed yet overwhelming, a good advisor listens to the client’s answers and identifies areas on which to focus, Haik says.

By focusing on client concerns, advisors downplay their own smarts while setting the stage for clients to flaunt theirs. Balaneski says she provides young clients with information so they don’t succumb to “fear of missing out.” With investments, for example, clients learn about what they hold and why, so they’re ready with a comeback when their friends hype trendy investments like weed stocks.

If the advisor-client fit isn’t right, advisors should be open to other advisors working with clients’ children. “If you’re working in a team environment, you’re setting yourself up for greater success,” Haik says, because one advisor likely won’t appeal to every family member. Where the firm fit is poor, the advisor can refer to another firm.

… and you’re just not that into them

For millennials with few assets, firm fit could be poor more often than not.

Advisory services can be “retirement-centric and a means for financial institutions to gather assets,” Rahme says, underserving younger clients with fewer assets who need planning and guidance.

With margin compression, firms tend to aim upmarket, with hundreds of thousands of dollars in investable assets required as a minimum, Dannhauser says.

When firms have asset thresholds, smaller clients are sent to the bank branch or the call centre level. In such cases, advisors might have to make a business case for taking on a client’s child.

Haik says basing the potential of a long-term client relationship on a person’s current assets is short-sighted, especially when young clients who are professionals will build substantial wealth over time. Further, these clients will eventually refer family and friends to an advisor who serves them well.

Since smaller clients typically don’t have extensive planning needs, modular plans can be provided, says Balaneski. Where planning needs are simple, she sometimes meets with clients’ children for an hour as a courtesy.

To effectively serve smaller accounts usually requires a different service model, Rahme says: for example, fees could be monthly subscriptions, and planning services could include debt repayment of student loans or saving for a home. “Cater to those topics that are important to the younger generation that may not be important to the existing clientele,” she says.

Dannhauser says progressive advisors can accommodate clients’ children through reduced fee schedules, bundling of family fees (a certain number of advisory hours can be allocated to a client’s children) or a digital solution.

Millennials are special — just like everybody else

Though extensive research has been conducted on millennials’ preferences, needs and perceptions, Bob Dannhauser, head of global private wealth management at the CFA Institute in New York, cautions advisors “not to get too attached to any single data point.”

For example, a 2018 CFA survey of high-net-worth investors in Canada and the U.S. found that the advisor attribute of “good listening skills/ability to understand my needs” was ranked lower by those aged 25 to 39 — a demographic that drives customization — than by other respondents.

Younger people are also assumed to be tech-obsessed, but research indicates all clients typically want access to digital offerings, as well as face-to-face advice, Dannhauser says.

Ron Haik, senior financial advisor and regional manager for Ontario at Nicola Wealth in Toronto, says data can provide insight on generational trends, but it can’t be the basis on which to build relationships. “When I’m sitting across from someone in any demographic, I have to remove bias [inferred from data] and say, ‘What’s important to you?’” he says. Answers to that question differ depending on the client.

What doesn’t differ is clients’ desire for help as they navigate overwhelming life events. For example, Haik says clients of his who are in their twenties, buying a home and starting a family have similar concerns as he had when he was their age.

Keeping the caveat of client individuality in mind, a generational trend that’s likely here to stay is interest in environmental, social and governance investing. Though ESG has sometimes been erroneously treated as a fad, says Dannhauser, the data overwhelmingly indicate it’s “of real, fundamental interest to younger investors.”

The CFA survey finds that high-net-worth (HNW) investors aged 25 to 39 are almost three times as likely as HNW investors overall to say ESG factors are an investing priority (30% versus 11%). A 2019 Deloitte survey found that 42% of millennials globally said they’d start or deepen a relationship with a business that positively impacts the environment or society.