A new study highlights how advisors can pursue strategies which take client age, assets and revenues, into account and target individuals who will successfully grow over ttime, while producing reasonable current income.

Advisors of all ages tend to target older clients because this is where the largest concentration of wealth can be found - but they may be doing so at their own peril, PriceMetrix warns in a new report.

The practice management and data services company has found that clients are typically ten years older than their advisor, at 62 and 52 respectively.

It is a trend that is expected to continue as advisors fail to increase the number of younger clients in their books: on average, they opened 3.6 relationships with younger clients (defined as individuals under the age of 45) in 2012, compared to 3.7 in 2014, according to the report, entitled The Fountain of Growth: Demographics and Wealth Management.

Simultaneously, the average age of advisors is creeping up, with many of them at or near a typical retirement age. And, because these advisors control a quarter of assets, most firms are facing a “second, parallel material wealth transfer.” The crux of the issue is that there aren't enough young clients coming in to offset the aging of existing clients, PriceMetrix said.

Striking the balance

Older clients may in many cases have more assets and generate higher revenue, but younger ones are likely to grow their wealth more rapidly and can be more valuable in the long run.  

The question for advisors, according to PriceMetrix, is whether they are growing above the natural asset accumulation rate of clients, or below it.

“Are you unknowingly falling behind in your business because age-related 'easy' growth is really what's driving your business?,” the firm said.

In its report, PriceMetrix demonstrates the tradeoffs in terms of growth and revenue that advisors should consider when they add demographics to their business development strategies.

For example, 40-year-old clients with $150,000 in assets will produce just $1,900 in current annual revenue but will grow 7.2 per cent a year. This compares to a 55- to 70-year-old client with $500,000 in assets who will produce higher current revenue of $5,100 but will grow just 3.8 per cent a year.

“There are good reasons to avoid clients with less than $250,000 in assets,” said Doug Trott, president and chief executive of PriceMetrix. “But adding age to the mix can change an advisor’s thinking. He or she could justifiably decide to take on the 40-year-old with fewer assets because that client will grow so much faster.”

Still, trading higher current revenue for longer term growth can be unappetizing – even if the tradeoff “makes sense.” With that said, PriceMetrix said there are other “significant advantages which should at least ease some of the pain.” Notably, revenue on assets is 25 per cent higher in books with younger clients, and younger books have a higher proportion of fee-based accounts.

“Advisors overall should continue to be discerning about which clients they choose to do business with, but in doing so, should consider the life stage of a client, their own expertise, and the full value of a well services relationship over time,” PriceMetrix said.

The insights are based on PriceMetrix's database of nearly 40,000 advisors and 7,000,000 retail investors.

(This item was republished yesterday; it is reissued today because of a problem with an email not going out to some readers yesterday.)