A thoughtfully constructed relationship with the next generation can be a powerful growth driver and a key lever in maximizing firm valuation.Paper Trident/iStockPhoto / Getty Images
The conversation around multi-generational financial planning often focuses narrowly on client retention.
While preserving assets under management across generations is critical, advisors and practice owners miss a substantial opportunity when they treat these efforts as merely defensive. Instead, a thoughtfully constructed relationship with the next generation (commonly called G2) can be a powerful growth driver and a key lever in maximizing firm valuation.
Client loyalty doesn’t always transfer with the family’s wealth. Studies have claimed that as many as seven in 10 widows switch financial advisors within 12 months of their spouse’s death, and advisors often struggle to hold onto younger clients after their parents pass – perhaps influenced by those Questrade ads focused on higher fees charged by “Dad’s advisor.”
Firms that fail to build meaningful connections with spouses and children risk seeing their practice value diminish as their client book grows older, resulting in the loss of assets under management.
How valuable are multi-generational relationships?
Any advisor considering an eventual exit should know that succession-ready firms command a premium when it’s time to sell. A critical part of that is demonstrating client relationships aren’t limited to one generation. Buyers pay attention to the presence of family investment accounts, however small, and whether clients’ children are engaged in the financial planning process.
A robust G2 presence within the client book isn’t just good business – it de-risks your revenue stream. Buyers are seeking a client base they can grow, not just retain. Evidence of multi-generational stickiness could be the difference when seeking a premium valuation for your firm, particularly if the average client age is on the older side.
Turning risk into opportunity
The good news is that, if executed well, strategies that mitigate risk can lead to practice growth.
Advisors who invest in relationships with the next generation gain access to a new pipeline of potentially affluent clients: siblings, spouses, friends and peers who are often navigating their wealth decisions for the first time. These individuals are typically more open to advice, eager for education and willing to explore holistic planning options.
Here are two ways advisory firms can connect meaningfully with the next generation:
Curate a rising gen community: Younger clients often feel alone with their questions and challenges around wealth. Knowing this, advisory firms that provide clients with peer learning opportunities – through educational workshops, for example – will reap the benefits of a more connected and engaged rising-gen client base.Family meetings: Governance is about communication and decision-making. A thoughtfully designed annual family meeting or retreat allows the time and space for bonding and to build trust between generations and with the advisory team.Building a G2-friendly practice
Firms that recruit, train and promote younger talent within their practices send a powerful signal to clients: “We understand your world.”
Younger advisors relate more easily to younger clients and often bring different perspectives on impact investing, digital engagement and family legacy planning. Creating internal alignment between your team and your clients’ next generation can catalyze firm-wide momentum.
Here are some actionable steps to make your firm more G2-friendly:
Develop mentorship and reverse-mentorship programs that build mutual understanding between generations on your team.In client engagements, include G2 team members focused on transition or succession.Incorporate G2 advisors into the firm’s planning and governance process as a means of continuity and growth.
Some client families are stuck or even overwhelmed with the succession planning process. By showing families that G2 advisors have real responsibility and that lead advisors are creating space for the next cohort, firms send a strong message: “We want to do this right to serve your family for generations.”
Families seek guidance, and providing a live example of succession planning is a powerful bonus.
Joe Millott is founder and principal of Acquatio, a Toronto-based company that specializes in wealth management mergers and acquisitions.
Vincent Valeri is founder and managing director of Valeri & Associates in Hamilton, a firm dedicated to helping family enterprises create enduring legacy strategies for their family and their wealth.