Best reasons to plan downstream

August 30, 2018 by Patrick Meyer

About the author

Patrick Meyer

Account executive

After graduating from the University of Wisconsin-Madison, Patrick helped individuals with their insurance needs. Now in the FinTech world, Patrick is driven by his desire to help advisors adapt and profit from the ever-changing financial landscape.

You’ve likely heard of the Pareto principle before, which states that 80 percent of the effects are produced by 20 percent of the causes. In the advisory world, this is often true, where 20 percent of clients will result in 80 percent of a firm’s business.

For many firms, this creates a conundrum. Do you focus exclusively on your most profitable A-level clients or cater to a wider-range of business? Instead of making this choice, there may be a middle ground solution: offer financial planning to B and C-level clients. By doing so, you create an image of white glove service to smaller clients, while maximizing your personal time with larger clients.

Let’s take a look at some of the best reasons to begin offering financial planning downstream to these B and C-level clients.

Preparing for the great wealth transfer

We have all read some articles about the upcoming great wealth transfer. However, its message of doom is longer-term and not a disruptor like robo-advice has been.

Instead, the generational wealth transfer will be a slow erosion of your book of business. It won’t put you out of business overnight but it will definitely cut into margins over time. This is the most apparent reason to provide scaled financial plans downstream: to obtain your clients’ children for future business.

Using the appropriate level of sophistication, creating a save more / spend less financial plan will allow you to engage and create a relationship with the next generation of wealth. Then, when these younger clients have greater assets, they are more likely to work with the firm they know.

Efficient non-AUM revenue

Though many independent advisors are moving to the assets under management (AUM) model, there are other ways to profit from financial planning including unique models such as the retainer model, charging for the plan, or based on AGI. Still, the most common is through insurance sales.

These methods make financial planning for smaller-asset markets more profitable and time worthy. Also, considering that plans for these clients typically take less time to create, this will be an efficient revenue stream.

Securing HENRYs

Alongside younger clients that will inherit through the great wealth transfer, there is the market of HENRYS, or high earners not rich yet. These are typically individuals like young doctors or lawyers. They have a high amount of student debt, but after paying that off; will quickly increase their manageable assets.

Performing a debt-restructuring plan or simple needs analysis will set your business up to secure these young professionals for additional services as their assets increase.

Held-away assets

Though some clients may be perceived as low-net-worth, be on the lookout for held-away assets. Some clients, especially those in the younger generation, have a distrust of the financial industry as a whole. Instead of jumping into a relationship with an advisor headfirst, they may test the waters first. This can often lead to an underestimation of their true amount of investable assets.

Financial planning allows advisors to naturally discover this situation without sounding greedy. Then, once deeper trust is established with a thorough plan, the probability that a client invests the rest of their assets with you skyrockets.

To learn how a major U.S. broker-dealer doubled their assets under management and reduced inefficiencies by implementing NaviPlan, click here.