TRANSITION TALK

Missing Out On SpaceX? Your Clients Might Not Be!

There is an interesting shift happening in the industry in just the last few years where more and more companies are choosing to stay private for longer. There’s plenty of reasons why this happening, but one of them is the ability to easily get funding from more investors than in the past. Gone are the days of companies going public to give their founders / employees liquidity or to raise money to grow. And this shift is a good thing for the independent advisors. Imagine how much you could scale your business if you’re able to offer these private investments such as SpaceX to your clients and to your prospects. Talk about something that makes you different and unique in the crowded wealth management space.

Have any of you ever had a client say they want to invest in SpaceX or Starlink? Or how about any of these new AI companies lately? As I look at where the industry is going, it’s becoming very apparent that offering private investments will become table-stakes and the independent advisor will take the lion’s share of the assets in motion over the next decade. Not because of SpaceX or any one particular investment, but because clients want the ability to invest in private markets if it’s appropriate for them. Especially for your high-net-worth clients / prospects, offering them something that feels exclusive and unique can make the clients very sticky or be just enough to get the prospects to move some money over to you. The bottom line is this: If you’re not offering private investments like SpaceX, someone else certainly is and they have the upper hand.

 INDUSTRY TALK

Democratization of the Family Office

“The great wealth transfer is well underway. This is not a secret, nor am I the first person in the industry to write about it. Still, the numbers are nonetheless staggering: Generation X and millennials will inherit $84 trillion over the next few decades. 

$84 trillion! This is more than half of all the household wealth in the country.

For financial advisors in the independent channel, all of this is both an opportunity and a threat. On the one hand, this can be the impetus for you to develop new skills and prove your worth, which could translate into new business. 

On the other hand, this may seem frightening because a portion of the $84 trillion likely belongs to several of your clients, potentially making it difficult to retain those assets long term. 

Building rapport isn’t enough 

Knowing this, many advisors have tried to make inroads with their client’s children or grandchildren in recent years, whether by inviting them to quarterly meetings or adding younger professionals to their teams to bridge the generation gap. 

After all, this is a relationship-based business, and once you build a rapport with someone, it’s difficult for them to fire you. Yes and no. 

Certainly, it’s difficult to sever any partnership – business or otherwise – if a personal relationship exists. Even so, advisors need to understand that as valuable a dynamic as that is, it only goes so far, especially for clients of the future, who are likely to become more demanding.

A recent CFP Board survey revealed that 72% of millennials are willing to pay more for financial advice as long as it is accompanied by enhanced services and superior experiences. The finding flies in the face of conventional wisdom, which, for years, has assumed that future generations are not only price-conscious relative to older investors but more inclined to use robo-only solutions for planning.  

Family office services – not just for ultra-high-net-worth clients

Additionally, the survey finding should be a wake-up call for every firm and advisor. If a broad cross-section of millennials feel this way, imagine what the high-net-worth investors within this cohort believe. 

It’s, in part, why I believe we are in the early stages of the family office becoming democratized across the industry. Indeed, most clients are likely to soon – if they don’t already – expect the same experiences and services that ultra-high-net-worth investors enjoy today. In many ways, these shifting demands mirror the evolution of alternative products.

Thirty years ago, access was limited to qualified purchasers and institutions. Over time, however, larger portions of the retail market began to crave some of the benefits such products provide. Now, even mass-affluent investors have alternative-based assets in their portfolios, something that would have been unthinkable a couple of decades ago. 

And it’s all because sponsors, asset managers and others adjusted to the shifting demands of clients and responded by carefully crafting customized solutions to satisfy them. You will have to do something similar with your service offerings.

Service expansion, not fee compression  

For years, the industry has wrestled with the notion that fee compression and self-directed money management will devastate advisor businesses. Yet, that phenomenon hasn’t materialized. If anything, the opposite has occurred. 

Last year, Cerulli Associates revealed that the number of affluent investors who work with an advisor went up 5%. Notably, they also found that gaining access to customized investment solutions is a key reason why such investors want to work with an advisor. That’s consistent with the CFP survey cited above, which observed that millennials are willing to pay more for service-focused advice and experiences.  

Accordingly, commonplace offerings found under the ‘to do’ tab on most advisor websites will no longer, by themselves, be enough to keep clients happy. Things like ‘comprehensive financial planning’ and ‘investment management,’ while valuable, will become table stakes in the emerging wealth management landscape. 

Do more for your clients or risk greater client attrition

Therefore, to stand out and remain competitive, you must embrace the ongoing democratization of the family office. That means not only providing expanded services but also offerings that reflect the circumstances, preferences and goals of each household. 

Depending on your practice, that could include everything from behavioral coaching to family governance support to bill pay or more differentiated alternatives. You’ll have to decide that for yourself. 

This, of course, makes it especially important than ever to find a partner that is able to support these types of service enhancements and, as a result, help build long-term equity in your business. Whatever the case, the message should be clear: You must do more. If you don’t, clients will fire you and be happy to pay someone who will.”

OUR TAKE:

This article from AdvisorHub.com highlights the importance of constantly pushing the envelope of what you’re offering your clients. It’s becoming more and more apparent that the next evolution of wealth management is not competing with the robo-advisors focused on retirement planning and investment management, but rather elevating your service offerings to remain competitive and keep/grow your slice of the upcoming $84 trillion wealth transfer.