Steve Gresham
Steve Gresham
NEXT CHAPTER
Advisory firms tilted toward Gen X and millennial clients still in their accumulation phases will command higher valuations than those firms top-heavy with older boomer clients .
the corners in clients ’ lives this way are actively requesting engagements with family members before most of the critical life moments come up . This effort pays dividends as situations develop and the family already knows and trusts the advisor and team .
Such practices are also good at managing more of the moving parts in a client ’ s life than a straight investment shop would . Such firms are “ longevity savvy ,” and boast several attributes :
They have a dedicated team on the professional staff to meet the unique demands of longevity planning . Such professionals can pay heed to their clients ’ critical life moments without disrupting regular business .
A mindset of proactivity . Such practices are not just ready for action . They facilitate it . In the classic family office model or the ethos of a private bank , connecting with surviving spouses and partners and the next generation is part of the business objective . It ’ s not an ancillary activity .
The practice measures success in opportunity , not by absolute financial returns . This metric is different for most advisory practices and becomes more powerful as the size of the organization increases . Another essential trait of these firms is that they prioritize high-level service for “ the other 80 %” of the clients who are not typically the firm ’ s biggest revenue generators . The narrowing of engagement is a natural development over time as clients that are not ideal or not fully connected may slide off in part , attracted by other products , different ideas or lower fees . Underlying the “ full opportunity ” objective is a dedicated plan to earn back those clients and “ held away ” assets by learning why they are not engaging with the practice and determining what it would take to get them back . This is the true mindset of creating and maintaining organic growth . value — by getting help to expand the existing relationships .
Group Two takes more time . Essentially , those in this group want to recruit a junior partner to earn out their equity stake by re-engaging tenuous clients and their families . We recently saw the daughter of a primary owner over time refresh most of her firm ’ s relationships , nearly doubling the practice revenue . She took advantage of the first-generation connections but really focused more on the nextgen kids , who she said were “ learning a lot ” seeing the issues faced by their aging parents . With those lessons running in real time , the new advisor got the kids to the table investing in retirement income and long-term care , and that added an immediate bump to the firm ’ s margins .
It ' s a bit easier for those in Group Two if their will is genuine . So many advisors and firms are running so fast that it is difficult for them to find the time to add longevity services . The additional needs of aging clients and their families can creep up on us , and all of a sudden everyone seems to need everything . That ’ s the real challenge of those major life events — they don ’ t come with advance warning .
Group Two firms first need a strategic “ time-out .” They should resist the temptation to treat longevity planning as just a bolt-on to their existing capabilities . This is a different business requiring different services … and likely even dedicated personnel . The most effective model we have seen is one in which a firm acquires a specialist , someone to not just meet the current expectations of current clients but also oversee the practice ’ s “ expansion ” into longevity planning and the aligned capabilities , such as references for caregiving needs , the execution of estate planning and help reducing risks of fraud .
A senior wirehouse advisor we know , whom we ’ ll call Linda M ., joined an existing practice of four professionals at a competitor in Northeast Florida . Linda says , with a smile , “ I do the soft stuff .” She now oversees most of the firm ’ s financial planning capabilities in addition to coordinating support capabilities such as fraud
So Growth Doctor , What Now ?
Back to Group One . Their perspective that there is “ no problem ” may be inaccurate if they have the wrong exit strategy . Just like your family ’ s home when it ’ s for sale , your firm ’ s value has a lot to do with your view of the result . A practice that has been depleted by withdrawals from aging clients , assets not replaced with those of G2 children or new Gen Xers or millennials , is truly a wasting asset . Not surprisingly , we see greater scrutiny of the “ age-weighted ” revenues when buyers approach firms .
Organic growth is the metric — retention plus the addition of new clients combined into net annual cash flows — and this measure has become top of mind for buyers , including more savvy private equity firms . And the buyers ’ education is improving after they approached earlier acquisitions with too much optimism . A dilapidated house just won ’ t fetch the same premium that a well-maintained structure will . For similar reasons , advisory firms tilted toward Gen X and millennial clients still in their accumulation phases will command higher valuations than those firms top-heavy with older boomer clients .
Group One usually see a couple of options , depending on their time horizon . If the owner of a firm wants to leave sooner , one option is to align their firm with another and help transition relationships on a time line that ’ s transparent for everyone . This is the best way to increase Continued on page 62
26 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2024 WWW . FA-MAG . COM