Calculate the demographics when considering
the value of adding advisers
Apr 19, 2019 @ 11:15 am
By Alex Chalekian
As society becomes more diverse, it's time for
a broader swath of the independent financial advice industry to reflect the
country's changing demographics. Simply put, we need more women, young people
and ethnocultural minority advisers and support staff.
At the same time, these same groups represent
chronically underserved segments of the financial advice market, offering
advisers an opportunity to forge new relationships and grow their businesses.
These dual and largely overlapping initiatives create an opportunity for the
industry to leverage M&A to both increase diversity and enter new markets.
To be sure, advisers can (and should) hire
from a diverse pool of candidates when it makes sense. However, acquiring
practices that already serve diverse groups, often while having key personnel
on staff who are members of those groups themselves, may be the most efficient
way to enter those markets — especially for advisers seeking to expand in major
metropolitan areas.
Most big cities have a high number of ethnic
and cultural minority households that at once have significant wealth but no
relationship with a professional adviser. The industry should recognize the
value and long-term potential of such would-be clients.
There's no question, however, that practices
that mirror society will have an easier time capitalizing on this opportunity,
since prospects from immigrant families or those who speak a different language
often feel more comfortable with teams with similar backgrounds.
If a client or prospect, for instance, prefers
to speak Spanish, having a multi-lingual adviser or someone else on staff who
can facilitate a conversation may help to uncover needs that probably would not
have been revealed otherwise. There are countless other examples where being
armed with an understanding of the sometimes-subtle nuances between cultures
can be relevant when delivering advice, especially during major life events
such as marriage.
Along with life-expectancy factors that make
it more likely for wives to outlive their husbands, the rise of households with
female breadwinners means financial advisers have an incentive to create women-friendly practices.
One way to pursue this goal is to seek out M&A deals with women-led groups
or, at the very least, with groups that have a healthy mix of male and female
advisers.
When merging practices with this purpose in
mind, male advisers ought to make it a priority to learn from their new female
colleagues. What prospecting and client communication best practices have
worked well for them? Which types of women are they most successful in serving,
and why is that the case?
Rather than looking at women-focused M&A
deals through a purely transactional lens, male advisers will enhance their
overall value proposition by genuinely collaborating with the women advisers
they bring into the fold — which means men also should be open to sharing the
secrets of their success.
Most top advisers are either baby boomers or
come from Generation X. To a considerable degree, most clients do too.
But as millennials approach their prime
earning years, practices must get younger. This generation — which grew up in
the Internet era and came of age at a time when everyone carries a smartphone
in their pocket — is typically more comfortable communicating via text or
through social media platforms.
The idea of physically coming into an office
for a meeting multiple times a year will be foreign to them. Because of this,
they will likely seek out an adviser whose client communication model reflects
this generational difference. Moreover, such a client will naturally want to
work with someone whose career arc mirrors their own, versus an adviser who is
counting the days until his or her retirement.
Age-based strategic M&A (i.e., pairing
practices comprised of older advisers with ones in which there is a higher
level of diversity) can help the broader industry stay in tune with the
preferences of the next generation of investors while helping many longtime
veterans transition out more gradually.
At a time when so many practices look the
same, creating a diverse team will not only aid advisers in their efforts to
stand out from peers but the broader independent advice industry to move
forward by growing into underserved markets. Mergers and acquisitions can
ignite that process.
— Alex Chalekian is the founder and
CEO of Lake Avenue Financial.
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