RIA Generational Shift (Finally) Underway

Over 40 percent of RIAs are changing their marketing and networking to attract younger clients

401k, RIA, advisor, millennialHow are firms moving the needle?

It’s been talked about for some time, and is now actually happening.

According to new findings from the TD Ameritrade Institutional 2018 RIA Sentiment Survey, registered investment advisors (RIAs) say that five years from now, the demographic composition of their clients will start to change dramatically.

Baby boomers, who today make up 46 percent of RIA clients on average, are expected to drop slightly to an average of 43 percent of clients.

Gen Xers and millennials are expected to jump up significantly, averaging 27 percent and 14 percent of all clients, respectively, up from just 21 percent and 9 percent today.

Seniors are expected to fall from 23 percent to 14 percent of clients.

Overall, 42 percent of RIAs say they are working on changing their marketing and networking to attract younger clients.

A growing number of independent RIAs recognize that attracting and retaining Gen Xers and millennials as long-term clients requires a shift in business strategy now.

“In just five years, RIAs expect 41 percent of their clients to be Gen Xers or millennials,” Kate Healy, managing director of Generation Next, TD Ameritrade Institutional, said in a statement. “This should be a wakeup call to those who think that Next Gen wealth is literally still a generation away. 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.”

RIAs say wealth transfer to non-clients remains one of the biggest threats to growth, so future-thinking advisors are using a variety of tactics to attract Next Gen clients.

Nearly 40 percent are advising 401k plan participants. Forty-seven percent are re-evaluating how they charge for services, whether that means introducing flat fees for financial planning and coaching or adjusting pricing and fees in some other way.

Recognizing that this demographic tends to be in the early stages of wealth accumulation, more than 20 percent of RIAs are lowering asset minimums.

Hiring practices also reflect a greater Next Gen focus.

Thirty percent of RIAs are hiring younger advisors, and 24 percent are hiring college interns. One in five plans to hire and train mid-career changers, providing an opportunity for women re-entering the workforce and professionals from other industries or the military.

Still, the pivot to Next Gen is not without its challenges, and some RIAs surveyed are grappling with how to best manage the expected pipeline of younger money. A quarter called out either succession planning or hiring talent as the challenge with the greatest potential impact on their firms this year. And 22 percent named the shortage of young advisors as a threat to growth.

Not all advisors express an urgent need to jump on Next Gen planning.

Forty-four percent of those surveyed are not taking any steps to build a new talent pipeline. Roughly a quarter are not doing anything to attract younger clients. According to Healy, 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 concluded. “Firms that are actively taking steps now to manage for client needs down the road may be better prepared in terms of talent, technology and of course, clients.”

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