This post is inspired by the always informative Michael Kitces this whose recent post on this topic is something I discuss with many of the advisors I work for.
Should you try to retain your clients’ assets when they pass away and leave those assets to the next generation by recruiting your clients’ kids now? My recommendation, and Michael offers the same advice, is no.
We all know that it is far easier and cheaper to retain a client than it is to obtain a new one. And that, of course, is the thinking behind developing relationships with your clients’ kids. Have your clients bring them in, start a relationship with them while they are still young, and when they inherit their parent’s assets the portfolio will stay with you. On the surface it makes a lot of sense. But dig into the idea even a little bit and marketing issues become apparent.
Your clients’ kids are probably not attracted to your value proposition. What differentiates you from other advisors is not what those kids want. Many of the advisors I work with have sophisticated financial planning services and high account minimums. If you run a family office with the feel of a private bank, that’s not what those kids need or are looking for. They want Oxygen Financial – a firm designed for their generation. The analogy Kitces makes is the nursing home that attempts to replace the residents who pass away by making the facility attractive to the residents’ kids. But, the kids don’t want to live in a nursing home. There is a big enough stream of people getting to the age where it becomes attractive to sell their home and move into an elder care community to keep the facility at capacity for a long way into the future. It makes a lot more sense to work on attracting those people then to replace their current residents with the next generation.
Some firms are utilizing younger associates to service their clients adult children. In some ways it is a good match. That next generation is closer in age to the associate and their needs do not require the sophisticated planning skills of a partner. But there is still a problem: those younger associates will not be delivering your firm’s value proposition to that next generation. A successful referral marketing strategy is enhanced when every client of your firm gets the same nature and quality of service. When some clients, whose parents happen to be clients of the firm, get “planning lite” it dilutes your brand. When they talk with their friends about what you do for them it is not what you want to be known for. You don’t want referrals from the kids.
Regardless of your target market, there will likely be people in or entering that niche for years to come. Even if you work with people transitioning into retirement, members of the baby boom generation will be hitting that retirement age in very large numbers for at least the next 15 years. You want referrals to those people, not to the next generation down.
Now it may be that you have not been attracting many new clients or referrals over the past few years. And that makes you a lot more nervous about your clients passing away and the assets leaving your management. But that is still not a good reason to attract their kids as clients. The better response to that would be to create a successful business development discipline as a strategic priority.
You may still feel you must have a service offering for your clients’ children. I hear many participants at client advisory board meetings express a strong desire to be able to bring their kids in to get started. If you feel you must have something to offer them, create something different. One firm I work with is setting up a subsidiary with a similar but separate name, separate staff, and an explicitly different service mix. Scaled-back planning. Fewer face-to-face meetings. If a client of that division becomes successful or inherits their parents wealth, they can “graduate” to the main firm. As advisors in the subsidiary gradually gain more knowledge and experience, they may get promoted to the main firm. But it is separate by design, and established to answer the demands of their clients to provide a resource for their kids without contaminating the firm’s brand.
If your clients want to introduce you to their kids or if you feel like you need to bridge to that next generation to retain assets, think twice. You might be making it harder to attract your ideal clients.
