FAs Learned the Hard Way About Saying No to Next Gen Clients – And Too Many Industry Experts Didn’t Help
Fear and greed, when misdirected and misled, are two emotions that can drive the worst behaviors in humankind – And the wealth management space isn’t exempt from this fact.
Take my favorite topic these days on the dangers of fear and greed for the wealth management space: Crypto.
While the misguided greed that drove much of the crypto bubble that continues to burst around us has been well chronicled already, the far less expansively told story is the role of fear.
And specifically, I’m referring to the next gen asset retention fears that financial advisors in the high net worth (HNW) segment were blasted with at every turn when it comes to crypto.
But, But, But…They’re Asking For It!
One of the single biggest inflection points in a financial advisor’s relationship with a wealthy family happens when – shocker – the current generation in control of the money passes away, leaving the next gen family members in charge.
Knowing this, financial advisors understandably have been working extra hard to establish relationships with the heirs long before the inheritance is received in hopes of retaining the assets.
So much has been written about the fast-approaching migration of wealth to younger generations given the current demographics of our country, that it really isn’t necessary for me to recap the details here.
Yes, by all means, get to know the next generation of your clients’ families, and build trust and rapport with them.
But it’s also imperative for financial advisors to recognize that members of the Millennial and Gen Z population segments simply do not have the life experience to recognize the inevitability of market cycles.
Absent professional education and training, next gen clients are uniquely susceptible to “this it’s different” arguments…about both the markets and specific financial products.
The Great Crypto Drumbeat was incessant: Financial advisors serving HNW families will lose their business if they can’t align crypto solutions with their clients – Don’t you know that?!
Everybody, next gen clients are demanding crypto! And if they can’t get it with you, whenever they inherit, they’ll take their business to an advisor who is more pliant!
Everybody, Join the Lemming Brigade!
And down the cliff we go together. And it’s not just about financial advisors who actually jumped aboard the burning crypto bus with their clients.
Everybody knows that a financial advisor’s most valuable resource is their time. How many hours have been spent in HNW wealth management practices over the past 24 months, forming due diligence teams, talking to crypto investment managers for potential outsourcing arrangements, poring through crypto educational resources?
Do you seriously believe all of those hours and resources expended on researching and exploring crypto solutions for clients were well spent, relative to the opportunity costs?
The Hippocratic Oath for FAs – Plenty of Failures to Go Around
By now, most – if not all – financial advisors serving HNW families are operating under a fiduciary duty to their clients. This is equivalent to a medical doctor’s Hippocratic Oath, which stipulates “do no harm” as the basis for decision-making.
Financial advisors who caved to the crypto hype in some way, shape or form are learning the hard way that sometimes, regardless of how excitedly a client asks for a high-risk product, there’s just one answer to give: No.
But there’s also a valuable lesson for the broader industry that goes beyond just financial advisors. There were multiple well-established, third-party consultants and solutions providers who bought into the crypto hype as well.
Third-party digital marketing platforms for financial advisors, practice management experts and wealth management consultants all too frequently adjusted their pitches to clients and prospects to capture crypto hype assumptions.
Are YOU engaging effectively with next gen clients on crypto?
Is YOUR business factoring in crypto as an enormously significant asset class going forward?
Upstream and downstream, people with decades of industry experience didn’t forcefully tell the wealth management community: “Let’s take a pause and seriously kick the tires on crypto as an asset class.”
Time to Get Real
Hopefully, firms, financial advisors and third-party consultants will take this as a moment to embrace that fiduciary responsibilities do not change in the face of new products or new markets, regardless of excitement among those who stand to inherit client fortunes.
For those members of the Millennial and Gen Z segments who benefit from the coming generational transfer of wealth, the diversified style of investing that has been generally accepted for the past several decades may not be the style of investing they want from their financial advisors.
These young investors have not grown up in the age of buy and hold – They’ve been raised in a landscape crammed with social media influencers touting the 10X returns that should be expected in the short term from digital assets such as cryptocurrencies, NFTs, etc.
While the recent crash in digital assets may deter some, social media has not slowed down in its exaggerated claims about the future wealth that will be created within weeks or months, versus years.
Doubtless, more pressure from next gen members of client families will continue to emerge about other new financial products with similar hype to what we’ve seen with crypto surrounding these solutions.
So for financial advisors and the experts who advise them, it’s time to remember how to say no – Much more loudly, and much more effectively.
Sander Ressler, WSR’s Expert Columnist, Compliance & Regulatory Affairs, can be reached via ContributingEd@wealthsolutionsreport.com