7 Best Practices of Successful NextGen Advisors


This is a summary of a panel from the Money Management Institute’s 2014 Annual Convention.  The panel included representatives from a wide range of distribution channels, including a wirehouse, insurance broker-dealer and an online advisor.

Moderator: David Berkowitz, President, Lincoln Financial Network
Panel:   Eli Broverman, Co-Founder & COO, Betterment, LLC
James J. Detterick, Managing Director, Corporate Client Group Director, Morgan Stanley
Andrew J. Wigzell, Senior Financial Planner, Barnum Financial Group, MetLife

How important is it to establish relationships with children of Baby Boomer clients?

Over the next decade, Baby Boomers will be retiring at the rate of 10,000 per day.  Since Boomers make up a large percentage of most advisors books, if they don’t reach out to their children, eventually they won’t have clients left at all, Wigzell pointed out.  As a 41 years old advisor, Wigzell will be retiring sometime in 2037.  He said that he plans to keep adding clients who are younger than he is so that he will have clients to manage when he retires.

Wigzell is used to working with clients in the 49-65 year age bracket, so he recently added a Gen Y’er to his team to focus on reaching younger generations through the use of technology. 

In sharp contrast to the other panel members, the median age of Betterment clients is a mere 35 years old, Broverman reported. The firm’s methodology of engaging with investors through digital means is the primary reason for this, he stated.

Broverman quoted a statistic that 71% of Gen Y’ers would rather visit the dentist than go to a physical bank branch.  (He didn’t mention who came up with that unusual question or how many people were surveyed, but I would imagine they have very healthy teeth)  While it’s well-known that younger people are more inclined to use technology, another statistic he cited was that 4 out of 5 people across all demographics prefer to bank online.

What are some of the ways that your firm leverages technology to grow your business?technology-icons-surrounding-brain

Betterment takes a different approach from traditional offline advisor roles, Broverman stated.  They offer a self-contained web experience that walks the client through the entire wealth management process on their website.  This includes discovery of the client’s financial situation, recommend of financial goals, selecting a model portfolio and personalizing it for each client, he said.

Broverman, who oversees account management and trading operations for his firm, explained that they are always looking to broaden their conversation with clients.  They do this through social media as well as finding new ways to insert content into traditional client communications.

Blogs and other social channels are used to distribute content and develop an online following, he said.  Additional content is embedded in quarterly performance statements and trade confirms to turn them into additional client touch points.

Technology is table stakes in the advisory industry, Wigzell proposed.  It doesn’t need to be the best, but must be efficient such as online document vaults that clients can access from anywhere, he said.  (See 5 Ways a Web Portal Can Excite Your Clients)

What are some of your methods of client acquisition?LinkedIn

Morgan Stanley has a program to train advisors on how to use social media for client acquisition, Detterick stated.  This includes LinkedIn and Twitter, which Detterick recently learned to use himself.  The firm also uses customized e-newsletters for targeted communications to clients and prospects, he added.TwitterTwitter logo

According to Broverman, around 1/3 of Betterment’s new clients come through referrals, 1/3 comes from direct acquisition and 1/3 through digital marketing strategies such as advertising spots in podcasts, internet radio or web display ads.

Should you change investment vehicles to better manage the risk from increased market volatility?surfer-wipeouts26

It’s less about changing products and more about how we communicate with clients Detterick proposed.  Educating clients about investment analytics and and how volatility affects their portfolios so they fully understand the risks they are taking on is more important, he stressed.

Wigzell believes that advisors should take advantage of volatility since it encourages client engagement.  Clients are more interested in communicating with their advisor during periods of high volatility than when the market is on a steady upswing. 

While it is not necessary to change products when volatility increases, it is possible to make better use of existing products to help manage it, he noted. 

Betterment doesn’t focus on volatility since they follow a passive-investment approach, Broverman responded.  They work to educate their clients about the advantages of a long-term approach using a diversified portfolio.  Broverman, who oversees the firm’s legal and regulatory requirements, said that their overall investment objective is to build the best globally-diversified portfolio using only ETFs, he insisted.

How do you adjust your pricing model against competitors that don’t charge fees?

By leverage technology for their online model, Betterment is able to deliver investment advice on mass scale, Broverman insisted.  This enables them to charge lower fees, although people will pay for a service that they perceive is providing value, he said.  Even though they only charge between 15 and 35 basis points, they are not far from profitability due to their low cost model, he declared.

Do you provide goals-based wealth management?

Everyone on the panel said that their firms included goals-based wealth management as part of their standard offerings.

Barnum Financial Group uses eMoney Advisor for financial planning and data aggregation, Wigzell informed us.  His favorite feature is an online thermometer that provides a visual representation of where every client is versus their goals.

Detterick suggested that on each client’s home page should be the amount of the monthly check they would receive when they retire, based on their current investments and contribution amount.  This is more important to them than other analysis such as asset allocation pie charts, in his opinion. 

Every account at Betterment has an investment plan is based around goals, Broverman explained, with 50% of clients having more than one goal.

Do you have any transition planning recommendations for advisors?Baton Generations

Every RIA should know who they need to hire and what they need to buy in order to improve their overall value for prospective buyers, Wigzell stressed.  His firm partnered with FP Transitions and Kolbe Corp to assist advisors with transitions.  These companies provide a range of consulting services on such topics as firm development, growth assessment and continuity planning.  They recommend creating a business succession plan and a buy\sell agreement with any existing partners to avoid problems in the future.  You should also do your research on the market rate that is being paid for books similar to yours, he advised.

A high retention rate is one of the keys to a smooth transition, so retiring advisors should consider how they will transition their clients, Detterick suggested.  Advance planning will help reassure potential buyers as to the value of the book, he said.

“How do you keep your client base young?”, Broverman asked.  This seemed to be a leading questions, since Betterment’s client base skews younger than most firms.  They are preparing to launch an Institutional Platform, which will allow advisors to manage accounts through Betterment, allows a level of engagement, good place for younger advisors since there are guardrails in place.

How does Betterment compare to other online advisors such as LearnVest and Personal Capital?

LearnVest is mainly in the financial planning space and Personal Capital provides connections to offline advisors through online tools, Broverman mentioned.  Betterment is an investment advisor and has their own broker-dealer.  They have grown AUM 500% in the past year and are on pace for solid growth in 2014.  With over 30,000 clients now and are growing fast, their model enables them to provide services that clients could only access with $1M in AUM at other firms, he charged.

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