The early part of a year can create opportunity for financial advisors to capitalize on underserved markets. There is no question that the industry is in a period of rapid change right now, not unlike the generation of advisors in the 1980s and 1990s who began charging fees instead of being paid based on actions or products they recommended. Wholesale industry changes caused some pushback in the past and what now is no different.
Fee-based advising was a bright and shiny new concept back then, but it did pay off in the long run. These entrepreneurs completely changed the wealth management industry and many of them are now leading some of the top firms in the country.
Those who made the changes back then, however, are not the leaders driving change in today’s wealth management ecosystem. The environment is more competitive than it has ever been, with the cost of business increasing and a lot of uncertainty going forward. Firms realize that life is about to get harder for small practices, with the future favoring larger firms.
This reality does not mean that the need for wealth management services has diminished, however. Quite the opposite is true, in fact. Demand for prudent financial advisors is healthy and growing at a rapid rate. Here are a few tips that investment advisors can use to add value to their wealth management practices and strengthen their client base:
1) Advise younger clients on retirement using the 50/20/30 rule
A survey completed in 2013 stumbled on the revelation that the youngest working generation, the Millennials, are the generation least prepared, or on track to be least prepared, for retirement. They are not a demographic to which many wealth management advisors have been paying much attention. But they should be. This generation keeps falling further and further behind in their retirement planning, presenting an excellent opportunity to build relationships for investment advisors. It is crucial for this generation to begin saving as much as possible so they can reverse the collateral damage of the economic recession as quickly as they can, and begin preparing for their retirement years.
It’s important to advise this large subsection to save as much as they can, starting now. It’s common knowledge that most people are not in the practice of saving enough money, especially in their younger years, and these clients will need assistance to get back on track before it’s too late.
Enter in the 50/20/30 rule. This is an easy way to begin a savings plan for those who might not be completely engaged in their finances or preparing for the future. The 50/20/30 is an easy one to follow: strive to take 50% or less of earnings for living expenses such as housing, transportation, groceries and utilities, 20% or more of earnings should be put towards the future for retirement, college or emergency funds while the remaining 30% can then be used for life enrichment in the here and now like dining out, traveling, entertainment and clothing. The hardest part of the 50/20/30 rule can be learning to live within a tighter budget, but that is the where the 30% for life enrichment can be most useful.
2) Investing is no longer enough
Not so long ago, an entrepreneurial investor could get by on a solid customer base by solely picking stocks for their clients. Times have changed and this simply isn’t enough to keep a firm going these days. Clients desire full service, a one-stop financial shop, so to say. Therefore, it’s crucial to an advisor’s continued success to offer comprehensive services to their wealth management clients such as estate planning, tax advice, risk management and charitable giving advice among many other facets of financial planning and execution.
Only offering investment strategies and stock packages will put an advisor or a firm in dire straits eventually. If an advisors don’t offer comprehensive financial planning and wealth management packages on their own, it would soon become necessary for the survival of a firm to build a team who is able to handle all aspects of financial management.
3) Explain portfolio returns in comparison with industry benchmarks
All too often wealth management advisors don’t take the time to explain the returns that their clients are receiving with their respective benchmarks. This is a huge mistake, especially with Robo-advisors beginning to take hold. It’s crucial for prudent investment advisors to take the time to explain to clients what the firm’s returns are, as compared to standard benchmarks in the industry. Without this comparison, the risk of losing clients to new technology or to firms that will take the time to do this increases rapidly. It is impossible, otherwise, for a client to understand the value-add both the advisor, and the firm, have provided through sound financial management and advice.
A more broad explanation of portfolio returns versus their industry benchmarks, along with a more complete package of financial management techniques and options are fundamental to the survival and, hopefully, thriving business for investment advisors in the ever-changing marketplace. Convincing younger workers to start budgeting for their retirement and learning to live within the 50/20/30 rule, as a basic guideline, will help bridge the generational gap to attain business with the Millennial generation. These three pieces, among others, will hopefully lead to long-term success and retention of greater assets under management for investment advisors in today’s changing marketplace.