The demographic composition of clients is expected to change dramatically over the next five years, suggesting that changes in marketing and networking will be critical to the future success of RIAs, a new study advises.
According to findings from TD Ameritrade Institutional’s 2018 RIA Sentiment Survey, Gen X and Millennial clients are expected to rise considerably, averaging 41% of all clients by 2023, up from 30% today, while Baby Boomers and Seniors are expected to drop.
More specifically, Gen Xers and Millennials are expected to increase to 27% and 14% of all clients, up from 21% and 9% today, while Baby Boomers, who today make up 46% of RIA clients on average, are expected to drop to 43% of clients. Seniors, meanwhile, are projected to decrease from 23% to 14%.
Given these impending changes, a growing segment of independent RIAs recognizes that securing Gen-Xers and Millennials as long-term clients requires a shift in business strategy now to attract these younger clients.
“This should be a wake-up call to those who think that Next Gen wealth is literally still a generation away,” says Kate Healy, managing director of Generation Next, TD Ameritrade Institutional. “Change is coming, which means advisors need to rethink their approach to finding both talent and clients in order to continue on their growth trajectory.”
This impending wealth transfer to non-clients remains one of the biggest threats to growth, so forward-looking advisors apparently are implementing a variety of tactics to attract this next generation of clients. According to the findings:
- 42% of RIAs say they are working on changing their marketing and networking tactics;
- 39% are advising 401(k) plan participants and 29% are managing 401(k) plans; and
- 47% are re-evaluating how they charge for services, such as introducing flat fees for financial planning and coaching (33%) or adjusting pricing and fees in some other way (14%).
In addition, more than 20% of RIAs are lowering asset minimums, recognizing that these demographic groups tend to be in the early stages of wealth accumulation.
Hiring practices are also beginning to reflect a greater emphasis on the next generation. According to the findings, 30% of RIAs are hiring younger advisors and 24% are hiring college interns. The report also notes that one in five RIAs plan to hire and train mid-career changers, providing an opportunity for women reentering the workforce and professionals from other industries or the military.
Some RIA respondents, however, are wrestling with how to best manage the expected influx of younger money. One in four respondents suggested that either succession planning or hiring talent as the greatest potential challenge on their firms this year, while 22% cited the shortage of young advisors as a threat to growth.
Not all RIAs expressed an urgent need to implement next generation planning. The findings show that 44% of respondents are not taking any steps to build a new talent pipeline, while nearly a quarter (23%) are not making changes to attract younger clients.
Healy warns, however, that RIAs ignoring demographic shifts do so at their own peril. “Advisors who are not planning now to ensure the longevity of their firms risk being left behind,” she says.
The findings are based on a telephone survey of 300 RIA participants handling, on average, $161 million in client assets conducted from Nov. 27 through Dec. 7, 2017, by MaritzCX, on behalf of TD Ameritrade Institutional.
