Surprise, surprise: members of Generation X have little faith in financial firms and financial advisers, according to a study recently released by Charles Schwab.  Titled Gen X Money Mindsets, I was not surprised at all by the results.  Below is a short comment from this article.

Many Gen Xers do not believe financial firms can help them. More than half (51 percent) think that investment firms don’t care about people like them — those who don’t have a lot of money. And 46 percent feel that by turning to firms and advisers, they might end up spending more money than they make.

Much of the commentary is fairly in-line with what I’ve read before and experienced anecdotally through the lives of those around me.  But what financial advisory firms need to consider is the overwhelming lack of faith this generation has in financial service providers.  Why do you suppose that is?

I believe the glaring reason is the view that servicing this segment of the population is unprofitable to established advisory firms.  I’m talking about firms that are typically fee-only or fee-based where some amount of minimum assets are required to become a client.  These firms simply choose not to work with Gen X.  Yes, it’s true that in most circumstances a firm will lose money servicing a Gen X client that has a “small” amount of investable assets but experiences many life changes that require attention to financial planning.  Still, at what point do these unprofitable clients make the transition to profitable, or even better, ideal clients?

Smaller firms are at risk of distancing themselves from this potentially loyal segment of clients.  Here brokerage firms and independent reps of broker-dealers do have a competitive advantage.   These firms can leverage the tools provided by the parent company and/or the B/D to funnel a Gen X client into a relatively simple investment strategy and provide basic financial planning (all under a fiduciary relationship, of course, as one must be a registered investment advisor to be compensated for financial planning). 

However, as the Gen X client matures and seeks more comprehensive and complicated planning, brokerage firms and B/D IARs may not provide the service that the client is seeking.  What then will the client do?  Will they seek out service from a firm that refused them in the past because of their low asset level?

So on my soapbox here, it is imperative that the boutique firms develop standardized and efficient models to deliver basic financial planning and advisory services to Generation X and beyond.  If they don’t, they risk turning off potential clients due to the barriers to entry.  The key is to cultivate the relationship early on and provide a value incentive where a Gen Xer would be hesitant to leave.  Suitable clients (e.g. one with sufficient assets) start out somewhere, and it’s in that somewhere phase where the connection needs to be made.

Enjoy FPPad.com? Subscribe to the RSS feed or subscribe by Email

This entry was posted on Friday, February 15th, 2008 at 9:42 am and is filed under Practice Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.