Today, investment advisors are facing an inflection point. The primary cause of attrition for high net worth financial advisory practices is beneficiaries taking assets elsewhere following the death of a client. To address this challenge, advisors must proactively establish an intergenerational planning strategy to build relationships with next-generation clients, who often have different views on wealth and want to work with advisors who truly understand their priorities.
Two members of Capital Group’s RIA Advisory Board — Katherine Fincher, director of financial planning and innovation at Mason Investment Advisory Services, and Michael Novak, president and CEO of Wellspring Financial Advisors — share their perspectives on steps advisors can take to build strong relationships and retain next-gen clients for the long term.
Today, as the investment industry is experiencing the greatest generational transfer of wealth in history,1 investment advisors are facing an inflection point. The primary cause of attrition for high net worth financial advisory practices is beneficiaries taking assets elsewhere following the death of a client. In fact, according to recent data, more than 80% of investors select a different financial advisor than their parents.2
Advisors and firms have the opportunity to retain this business, but they must proactively establish an intergenerational planning strategy to build relationships with next-generation clients. The children and grandchildren of today’s clients have different values and views on wealth, and they want to work with advisors who understand and reflect their priorities.
Two members of Capital Group’s RIA Advisory Board — which was created to identify, examine, debate and provide objective perspective on how RIAs can better satisfy their clients’ expectations and build robust practices for the future — share their perspectives on steps advisors can take to build strong relationships and retain next-gen clients for the long term. Katherine Fincher is director of financial planning and innovation at Mason Investment Advisory Services, and Michael Novak is president and CEO of Wellspring Financial Advisors.
Next-gen clients have very different attitudes toward wealth
Fincher: There are pronounced differences in the ways the next generation views the issues connected with wealth. Many of them have strong opinions on everything from investment choices, environmental considerations and sustainability to philanthropy and estate planning. The next generation is generally more socially conscious and concerned about the impact their investments will have on society. They want to do good while they do well. These clients tend to place a higher value on experiences and want to see their values reflected in the way they invest.
Novak: This new generation of clients is much more educated and less likely to place the same level of trust in advisors as their parents did. “Trust but verify” is the next generation’s typical approach. They want immediate access to information, and they want that information made available in formats they are comfortable with. Their comfort with technology means they look for apps and digital solutions to obtain investment information, so there is a clear need for advisors to invest in these capabilities.
“ ‘Trust but verify’ is the next generation’s typical approach. They want immediate access to information in formats they are comfortable with. Their comfort with technology means they look for apps and digital solutions to obtain investment information, so there is a clear need for advisors to invest in these capabilities.”
Michael Novak
President and CEO, Wellspring Financial Advisors
Building relationships that will last with the next generation
Fincher: It is vital to start building personal relationships early. We begin the relationship-building process through annual or bi-annual visits to the family home. We tend to start slowly by getting to know the next generation while they are still relatively young. Regular visits help to establish familiarity and build trust with all members of the family. By the time the next generation reaches adulthood and takes on more financial responsibility, they should have a solid understanding of your value proposition and why their parents have chosen to work with you.
Novak: As children mature, family meetings can play an increasingly significant role in relationship building, as the advisor can help facilitate conversations not only about finances and investments, but also about family values that inform investment decision-making, philanthropy, estate planning and the family’s legacy. Maintaining open lines of communication while focusing on values and education can prepare the next generation to be responsible stewards of family wealth. Importantly, next-gen clients want to know and trust that you are their advisor, too — not simply their parents’ advisor. You must make it clear that parents and their children are separate clients, and any information will be held in the strictest confidence and will not be shared across generations. It is all about building trust.
“By the time the next generation takes on more financial responsibility, they should have a solid understanding of your value proposition and why their parents have chosen to work with you.”
Katherine Fincher
Director of Financial Planning & Innovation and Financial Planner, Mason Investment Advisory Services, Inc.
Balancing service with revenue
Fincher: Within the high net worth segment, many young adults will be included under the umbrella of their family’s advisory relationship and may have already been gifted some family assets. Whether or not this is the case, the focus while they are young isn’t on their profit and loss (P&L), but on a longer term investment in building the future relationship.
Clients who are just beginning their financial lives typically don’t require the same level of services as their parents. A simple financial plan based on standard financial products, model portfolios and rules of thumb is likely to meet their needs early in their careers. These clients value advice on managing their cash flows while budgeting for emergency funds and retirement savings contributions in 401(k) plans and IRAs. Calculators and other tools that project hypothetical results under different scenarios offer valuable and actionable insights.
As these clients progress in their careers, experience milestone life events and begin to accumulate wealth, they will be well-positioned to transition to full-fee clients who will remain with you for the long term.
Structuring teams to serve next-generation clients
Novak: When structuring a client service team, it is valuable to include at least one team member who can really build strong connections with next-gen clients — someone who is at the same stage in life and can empathize with their experiences. Junior and mid-level relationship managers are vital team members, but they can be difficult to recruit. We have addressed this challenge by creating our own internship program so we are positioned to develop next-gen advisors internally.
Fincher: Next-gen clients want to work with advisors who understand their concerns. At our firm, every family is served by a team, and we ensure that each team includes a junior planner who can bond with next-gen clients and lay the groundwork for a long-term relationship.
“Next-gen clients want to know and trust that you are their advisor, too — not simply their parents’ advisor. You must make it clear that parents and children are separate clients and any information will be held in the strictest confidence.”
Michael Novak
President and CEO, Wellspring Financial Advisors
Ideas of client service differ from generation to generation
Novak: In the traditional model, clients value one-on-one advice, with annual or bi-annual meetings to discuss investment results and potential changes in investment strategy. Next-gen clients tend to be more tech savvy, educated and want access to information immediately. They generally want apps and dashboards that allow them to see their progress as well as self-direct investments, and they desire easy, ready access to advisors. Next-gen clients often prefer a Zoom call, texting or emailing to personal meetings. Delivering information quickly and in the desired format is one of the most important components in the client service model.
“Junior and mid-level relationship managers are vital team members, but they can be difficult to recruit. We have addressed this challenge by creating our own internship program so we are positioned to develop next-gen advisors internally.”
Michael Novak
President and CEO, Wellspring Financial Advisors
Fincher: Next-gen clients need to be served in a way that’s relatable to them. For example, rather than focus solely on the long term, we plan and set objectives for a shorter five-year time frame to establish more immediate relevance.
Two specific areas we focus on for next-gen clients are the gig economy and buying their first home. Many of our next-gen clients have side gigs. We help them stay focused on the big picture and design retirement savings strategies that take these differing income streams into account. For example, we discuss taxes and show the implications of Roth IRA contributions versus contributing to a traditional IRA. Buying a house is a big milestone for many next-gen clients. To help them navigate this milestone, we will have a team member who has just gone through the home-buying process provide advice and perspectives on the process.
Next-gen clients have specific needs related to tools and content
Fincher: Next-gen clients are looking for content that is clear, understandable and relevant to their needs. I often use a piece titled “Financial Guidelines for Young Adults” onscreen to guide conversations with these clients. It is important to avoid overwhelming them with too much information, and the best types of content keep things simple.
Novak: FAQs, guidebooks, case studies and webinars are all valuable resources for next-gen clients provided that the content is presented in a clear and understandable way. Providing content through the touchpoints most comfortable to these clients is also an integral part of a successful content program. Overwhelmingly, next-gen clients prefer to consume content digitally, so we try to meet their needs with digital-friendly content that can be easily shared over email or posted online to review.
For additional insights on your strategy to retain next-gen clients and serve high net worth clients, please see our “Holistic wealth strategy” resources or contact your Capital Group sales representative. Learn more about Capital Group’s RIA Advisory Board and view their recent insights.
1 “The Cerulli Report – U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021.” Cerulli Associates, January 12, 2022.
2 Sources: MarketCast, Cerulli Associates, 2Q 2023.
Katherine Fincher is the Director of Financial Planning & Innovation at Mason Investment Advisory Services, Inc. She assists the Reston, Virginia-based firm in providing concierge, full-service financial planning and investment management to corporate executives and independent high net-worth individuals. Prior to joining Mason in 2019, Katherine worked as a financial consultant at Fidelity Investments in Washington, D.C., and as a financial planner at the Celeste Financial Group, part of the Cetera Advisor Network, in San Diego, California. She is a member of Capital Group’s RIA Advisory Board.
Michael T. Novak is President and CEO of Wellspring Financial Advisors, an independent personal wealth management and multi-family office he founded in 2007. Prior to Wellspring, he was principal at another boutique wealth management firm where he advised multiple family relationships for 14 years. He has extensive experience in the areas of estate planning, charitable gift planning, business succession planning, and family governance and education. As a certified public accountant (CPA), he also has experience in tax compliance and proactive tax planning. Michael is a member of Capital Group’s RIA Advisory Board.
Katherine Fincher
Michael Novak