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RIAs Expect Continued Growth: Are They Overconfident?

Charles Paikert

24 January 2022

Financial advisory firms are extremely optimistic about the future and their ability to attract new clients – but is that confidence misplaced? 

Nearly all RIAs expect growth to continue over the next five years, propelled by a 17 per cent average annual increase of net assets, according to Charles Schwab’s just released annual Independent Advisor Outlook Study.

How will that growth be achieved?

By acquiring new clients, according to two-thirds of advisors surveyed by Schwab.

And how will that happen?

By attracting “new investors,” i.e. mostly younger prospects, a majority of advisors answered.

How do RIAs plan to appeal to this cohort?

By speaking to current clients “about their children’s needs,” 70 per cent of advisors responded. In fact, RIAs may want to re-think this approach, say industry observers.

“I don’t want to go to the same barber as my father,” said industry consultant Philip Palaveev, principal at The Ensemble Practice in Seattle. “Younger people want to carve out their own autonomy and it’s better to appeal to them directly.”

Even if an advisory firm only has a few younger clients, their time is better spent deepening those relationships and turning those clients into advocates for the firm, Palaveev said.

“Recommendations and referrals are the key to growth,” Palaveev stressed, “and advisors need to do a really good job of impressing existing clients and turning them into proponents of the firm when they talk to their friends.”

Another mistake advisors make is not addressing the concerns of younger prospects, according to industry consultant Matt Sonnen, chief executive of PFI Advisors.

“Clients of all ages look for an advisor that understands their unique challenges,” Sonnen said. “They want to find someone that truly ‘gets’ them.”

Although Millennials rely more on the Internet to search for advisors, too many advisors aren’t connecting with them, he argued. 

“Where things tend to break down is when advisors write blogs and articles and white papers on the internet, they choose topics like, ‘Top 5 Tips for Retirement,’ or ‘How to Save for College,’“ Sonnen said. “They should be writing articles that appeal to that generation – things like, ‘Landed Your First Job? How to Create a Budget,’ or just basic Investing 101 type topics, like ‘What’s the Difference between an ETF and an NFT?’” 

Advisors tend to complain that they were told if they put content on the Internet they would attract younger clients, Sonnen said. But the problem, he said, is that “they are writing the wrong articles!”

Evan Vladem is himself a 34-year old Millennial and financial advisor who works for Associated Investor Services in Ft Lauderdale, Florida.

“Client acquisition is never an easy task, especially when it comes to Millennials,” Vladem noted. “We’re in an environment today where an overwhelming amount of information is at our fingertips. We’re competing against low cost trading platforms, developing technologies and a do-it-yourself mentality.”

When it comes to younger prospects, “client acquisition is about relatability,” he said. “You have to understand their mindset, their needs. What can you alleviate for them? Is it time? Showing value is always important. Leading with investments is usually not the answer, but in light of the volatility we’ve seen to start the year, a trend I’m seeing is, ‘I need a professional to help me navigate.’”

Younger investors haven’t had to deal with extreme volatility or extended market declines, a situation which could be an opportunity for an RIA looking to attract new clients, Vladem said. “Younger clients are going to need to learn about discipline and diversification,” he said. “It seems like now there is an influx of Millennials seeking advice that may be more in-depth than ever before.”