Wealth advisors offering education cost planning grow rapidly

Financial Advisors


Trade as a Registered Investment Advisor Become slow, is gaining attention as a way to promote “organic” growth. One effective strategy is to talk to more clients about paying for their education, according to a new research paper.

This is one of the key takeaways from this new study. organic growth A strategy recently released by researchers at investment management firm Dimensional Fund Advisors. The paper, What Drives Growth in Financial Advisors? 87% of them are independent advisors who pay only fees.

Among record deals in recent years, the report found that a focus on planning for clients’ education expenses as part of a holistic approach to wealth management was the biggest driver of company growth. . This emphasis also opens the door to engaging with the next generation of customers, who are often their parents, and attracting younger customers is another big growth engine, the study found.

“A 10 percentage point increase in clients under 40 is associated with an increase in assets under management for the same year, and another 3 percentage points increase in the next,” the report’s authors wrote.

However, most of the companies surveyed had an average age of over 50.

in the meantime Mergers and Acquisitions not yet make a headline In the industry, “we know it won’t last forever,” said Caitlin Hendricks, a senior researcher and vice president at Dimensional, who co-authored the paper. Posted May 2nd at SSRN.

“This is an opportunity to gain insight into getting back to basics. Does serving more customers help build the business, or does that make it too broad?” Research suggests there is value in diversifying “In fact, if he offers four more services, his AUM increases by 2.5 percentage points,” Hendricks said.

This research was conducted by dimensional researchers and Marco Di Maggio. Professor Data taken at Harvard Business School from 2016 to 2020, with each year’s data representing year-over-year company growth. Most of the respondents were based in the United States, had approximately $100 million in median assets under management, had 125 clients, and data was collected for six weeks beginning in April each year.

Wealth management was the most common service respondents provided to clients, but the services with the greatest current and future growth potential were education planning, account reconciliation and retirement planning, according to the Times.

“Education planning appears to have the strongest impact. Coefficients for education planning services are consistently positive in all tests in terms of AUM, revenue and customer growth,” the authors wrote, which We completed the survey adding that it does not apply only to the first year of incorporation, but the same applies if you respond within the next year or two years.

“Expanding our education planning services to an additional 25% of our customers could boost our asset and earnings growth by about 2 percentage points next year and the year after,” they wrote.

college is expensive
The cost of higher education in America is expanded in the last 20 yearshas more than doubled since the early 21st century, according to Education Data Initiative. The group found that college costs in the United States increased at an average rate of about 7 percent each year during this period. Considering the reduced income, interest payments on student loans, and non-tuition expenses, a bachelor’s degree could already cost him over $500,000.

“Some tools are better for people to start using sooner, like the 529 plan, which is a really smart financial plan,” said Katherine Williams, vice president and chief care administrator at Dimensional.

However, competing financial needs such as Nursing care expenses To prepare for aging families and stress, Saving for retirement amid rising inflationoften pulls the focus of today’s young parents, who are growing wealthier and represent the industry’s next generation of customers.

Enter Advisor. “Especially when working with clients who are in wealth accumulation mode, how do you get them to think about those mechanisms as quickly as possible?” Williams said.

Advisors can demonstrate value And she adds that she will involve those parents and their growing children, who may be potential customers, in actively planning for the cost of both higher education and lifelong learning. . There could also be honest discussions about whether alternatives to college education, such as more affordable vocational training, are better suited for some children in families, Williams said.

Mr. Williams said wealth managers training their young advisers on such services could bring double benefits. That means you can gain a competitive advantage as they try to build their own books and leverage their ability to build relationships with younger customers.

The success of some companies toward college and career planning reflects the likely trend of companies in the RIA world going “upstream,” Williams said. “As clients grow in size and complexity, they need more.” added that it includes

Career planning for next generation clients
But the issue of education planning needs to extend beyond college admissions, Williams said. Younger generations in the workforce reskill and change careers more frequently than baby boomers, so advisors need to be prepared to make these changes a broader and ongoing financial planning topic.

“When you talk to your customers and think about their education plans, they may want to go back to school for another degree or change careers,” she said.

Given the pace of workforce disruption across the industry, Angie Habers, managing partner and CEO of advisor consultancy Habers & Co. is career planning,” he said.

“We can’t even imagine what impact AI will have on the workforce,” says Habers. “But the opportunity here is for financial advisors to help real people … help them plan their careers and find other jobs in case they lose their jobs because of technology. ”

The Dimensional paper also notes that in addition to client referrals, having multiple sources of referrals, particularly from “centres of influence” such as CPA and real estate attorneys, outweighs other advisors and referrals through digital marketing. also revealed to be a strong engine of strong growth. .

According to the survey, the biggest obstacles to growth are uncertainty over business succession plans and exit strategies, and too many old customers. Fundamentally, clients over the age of 70 are often retired and have run out of assets, in contrast to those under the age of 40 who are increasing their assets and need more services such as education plans. We have young customers.

But companies may kill two birds with one stone by investing in such in-demand services. In doing so, Williams said, it will foster “the next generation of up-and-coming advisors who are potential owners of the future who also contribute to the growth of today’s business.”



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