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Does Your Wealth Management Business Scale?

Terry Mullen
Apr 4, 2017

To survive and prosper, your wealth management business must be prepared to not only nurture existing clients, but also attract and secure new clients at a rate that is unprecedented in the history of our industry. We must learn ways to scale our business that have never been tried before. In the new wealth management marketplace, competition is going to be tougher than ever.

Many firms cannot seem to acquire new business without increasing the costs of acquiring that new business. That is not scaling; it is breaking even. The wealth management industry stands on the threshold of a new era, with new ways to scale, and new opportunities to grow in ways we have never imagined. The coming years will sort out the doers from the laggards, and that sorting will be based on a willingness to change how we do business. The question is no longer whether we must change; it is how quickly can we change to respond to the rising tide of new investors that is moving toward us.

Present and Future Opportunities in Wealth Management

Short-sighted wealth management firms are already dismissing millennials, saying they don't have enough wealth to make it worthwhile to go after their business. Brushing off millennials is a fatal mistake. This is the largest generation that has ever existed, and as baby boomers transfer wealth worth around $30 trillion to millennials, the new generation will be making demands that few wealth management businesses are prepared to meet.

The first thing we must understand about millennials is that they are "digital natives." That means they grew up in the digital age and expect to do business through apps, the internet, email and social media. It is second nature to them. They are not going to respond to the old, slow method of face-to-face meetings and phone calls. They want information online, at their fingertips. They do their research. The know what they want and don't want, and they seek transparency.

Millennials are extremely aware that they can make more with their money by keeping administrative costs down. Your firm cannot even dream of scaling unless it can effectively address the millennials' desire to cut expenses for managing their money. In addition, millennials are willing to sacrifice some returns for socially and environmentally responsible investing. They are practically allergic to certain types of fees, and they prefer at least a partial do-it-yourself approach to taking care of their money.

These new paradigms mean we must change not only our marketing methods, but our actual products if we are going to attract millennials.

At the same time as these new investors come online, your existing clients have growth opportunities that you can use to grow their assets. The economy is expanding, and oil prices look like they may be on the rise. Interest rates and inflation seem to be fairly tame, and restrictions may be relaxing in industries from banking to energy. Stock markets appear to be resilient, and we could be in for a cut on capital gains taxes. If the bulk of your current business is baby boomers and older clients, you have the opportunity to grow the value of assets you manage in ways that were unavailable just a few short years ago.

These two trends--new investors coming into the market and stellar opportunities for existing clients--do not add up to scaling by themselves. However, they do create an environment where you can scale your wealth management business if you adjust to new methods.

A New Business Model

Let's look at several recommendations for refocusing your wealth management business. These include:

  • Expanding Your Digital Footprint
  • Creating Customer Service Teams
  • Focusing on One-to-Many Marketing Techniques
  • Offering a Holistic Approach to Investing
  • Maintaining Current Operating Costs
  • Eliminating Transaction-Based Fees

Out of necessity, we will examine each of these tasks in order, but keep in mind that they must be implemented simultaneously, as a single effort designed to revolutionize the way you operate. 

Expanding Your Digital Footprint

A company web page is not enough. Millennials use a wide variety of social media and other online channels to get their information and make their decisions. A broad online presence is no longer an extra. Your Internet messages must be the centerpiece of your marketing. 

Millennials are very likely to use fintech. Don't look at this as competition; look at it as a tool you must have in your arsenal. Understand and embrace applications that allow investors to check their balances and performance or even transfer money and see analytics. Keep up with fintech so you will know what you are talking about when dealing with millennials.

Stay abreast of social media and make sure you have active accounts on multiple platforms. The usual suspects, such as Facebook and Twitter, are not enough. Young people pride themselves on discovering new social media sites. Your appeals to millennials regarding wealth management must be repeated through several outlets at once.

The irony is that you must be prepared to offer personalized advice using online applications. It is common to think of the internet as impersonal, but young people see it as very personal. There are numerous applications such as WhatsApp and Facebook Messenger you can use to chat with your clients. Millennials expect to be able to connect with you online, and failure to make this communication channel available can cost you customers.

The catch is that online users are skeptical of anyone they don't recognize. You must spend a great deal of time and effort touting your track record, connections, partnerships, and clientele. Anyone can put their business online. Potential clients for wealth management will be much more likely to respond if they understand your reputation. 

Creating a Customer Service Team

If you are the lone wolf type, you will miss out on young investors. They want to know there is a full team at work on their wealth management. You will need to make sales personnel, marketing staff and portfolio managers available to provide personalized service to millennials. The era of the single "expert" is ending. No matter how good you are, you will need to publicize the team effort your firm utilizes. The upcoming generation simply expects a lot of attention from a lot of people.

This will become more important as investors mature. They will expect increasingly personalized investment objectives, securities, alternative investments and portfolio mixes. This means that once marketing and sales personnel succeed in making a new investor a client, you must have a plan in place to keep that client through constant monitoring and communication.

Focusing on One-to-Many Marketing Techniques

The best way to scale your wealth management business is to choose marketing strategies where one output reaches many potential customers.

For example, your social media manager can utilize multiple channels with about the same effort it takes to manage one channel. Coordinated messages through several outlets have the potential to meet thousands of prospects. You have one message, but many recipients of that message.

Use events to attract as many people as possible. Product launches are a good way to have potential customers visit your website or seminar to find out about something new you are offering. This gives you the opportunity to sell to hundreds of people, instead of the old face-to-face meeting the wealth management industry grew up on.

You can also scale your business by creating strategic partnerships. Offer discounts or other favorable terms to partners who have larger markets than you can reach. Despite the discount, you will have a cost-efficient way to reach more people than you could by using your own outlets. Work with resellers to extend your reach and grow your presence in the marketplace.

Scale your sales efforts by making them repeatable. If you focus on specific market segments or regions, make sure the process is one that can be repeated. A sales process that works as well in the Northeast as it does in the Southwest will keep costs down while offering you the opportunity to scale your business. Similarly, if your sales process works well for millennials, it may work for baby boomers just as well.

Offering a Holistic Approach to Investing

The new crop of investors that are coming our way is investment-savvy. They grew up during a financial crisis, and they are wary about risk vs. returns. They expect to have choices that are broad in order to protect themselves. Nearly half of millennials are extremely concerned about risk. Young investors are extremely aware of the international scene and want to have the freedom to consider investments abroad.

In addition to providing more diversification than you may have been accustomed to in the past, you need to think about offering socially-conscious investment vehicles, as well as environmentally-friendly ones. Millennials are willing to sacrifice a percentage of returns to invest in ways that align with their values.

Our next wave of investors will also expect you to consider holistic goals for their overall happiness. Be prepared to offer packages that cover concerns from wealth-building to protecting families and preparing for contingencies.

Maintaining Current Operating Costs

Your challenge is to scale your business without increasing costs, or at least by keeping them as low as possible. If you keep the one-to-many model in mind, you will see that not all initiatives require more money, just smarter effort. Find ways to duplicate your efforts without amplifying expenses.

Make cutting costs your overriding principle when considering all of the changes to your business model. For example, when looking for a social media marketer, look first at your current marketing staff. Could they switch their focus to social media without sacrificing other marketing efforts?

Cost-cutting also applies to partnering, repeating sales efforts, making your customer service team available to communicate with clients and offering holistic packages of investments. These need not have any additional costs associated with them. Look for ways to add new approaches without adding personnel.

Implementing New Fee Policies

You won't have much luck getting millennials to pay fees baby boomers readily paid. Young people do not endorse paying per transaction. You are going to have to justify any fees, because Millennials tend to be aware of passive investments that have very low costs. The industry is in upheaval on this point.

Consider charging a fee for your advice, which can include low-cost and passive investments.

You must be transparent about all fees you charge, because new investors simply expect honesty upfront. One hidden fee could send them scurrying.

The Bottom Line

If you are just starting to adjust your wealth management practices to the next generation, you are already behind. If you intend to focus on your baby boomer clients and ignore millennials because they don't have much money, you are missing one of the greatest opportunities of our lifetime.

Wealth management is in for some seismic shifts, and the businesses that don't make the shifts will fall through the cracks. If you don't understand the way millennials think, start learning now, because as demanding as they may seem, they are your next customers.

Here is a vital fact about millennials: they tend to think they need to teach their elders. You can either let that grate on your nerves or motivate you to learn new methods.

You have an extra challenge as you continue to manage the wealth of baby boomers. You may have to change how you charge them as well. You can't expect to charge differently based on age.   

Finally, baby boomers tend to make a concerted effort to be up-to-date on social media and other online tools. They are, in a way, becoming older millennials. This is good news, because it means you will be marketing for scale as you reach two audiences at once.

Yesterday is when you should have started changing your business model. If you didn't do that, make it tomorrow. Do everything possible to make your wealth management business scale, because the winners in this fray will be the ones who can adapt and grow while others ponder.

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