As the financial planning profession continues to grow, it also continues to struggle to reach and effectively serve Gen X and Gen Y, as most planners tend to focus their businesses on baby boomers—no great surprise, given that baby boomers control the most wealth in the country, and that most financial planners themselves are baby boomers and simply find it comfortable to serve their peers.
Nonetheless, the reality is that it's actually quite possible to build business models that can effectively serve at least a fairly wide swath of Gen X and Gen Y, whether on an AUM basis by serving the "emerging affluent" clients that larger RIAs reject, an ongoing retainer basis to provide as-needed guidance in an ongoing planning relationship for the cost of a gym membership and cable TV, or even using a more "traditional" comprehensive financial planning business model that simply combines a modest level of assets-under-management with implementing the basic life and disability insurance that those in their 20s, 30s and 40s will need anyway.
Ultimately, the true challenge of building a successful firm to serve Gen X/Y clients is not really about the business model, per se, which can easily produce a healthy personal income at a reasonable 100 to 150 clients, but instead how to grow and get to that number of clients in the first place. In other words, while designing the right business model helps, in the long run the real problem serving Gen X and Gen Y is a marketing problem. However, given how underserved the younger generations are right now, simply differentiating yourself by establishing a niche practice focused on Gen X and Gen Y clients may itself be an effective marketing cornerstone for growing a successful business to serve them.
Financial Planning For the Price Of A Gym Membership And Cable TV
Financial planning retainer models have already been gaining some popularity in recent years, although most commonly as an alternative to AUM pricing for firms that are struggling to manage profitability in the face of volatile markets and volatile revenues. The core value of this business model is to apply the same principle of the retainer model, but simply do it at price points accessible to Gen X and Gen Y.
This business model has the simple goal of providing a retainer-style financial planning relationship for an ongoing cost of $100 a month, which is roughly the average cost that most people pay for a gym membership and cable TV (about $50 a month each, depending on your geographic locale). In point of fact, "financial planning for the price of a gym membership and cable TV" can actually be the tagline for the business, as providing a comparison anchor point for the cost of your financial planning services is an effective marketing technique.
At a revenue price point of $1,200 a year, a target capacity of 150 clients generates $180,000 a year of revenue, a pretty healthy income for a business with very few costs. It may not be a business you can sell for very much, but frankly that's really a challenge most financial planning businesses have faced for years. Nonetheless, it's a healthy living that can grow over time with additional clients and/or by increasing your pricing as your clients increase their income and wealth, too.
Notably, this business model can also be done on a standalone hourly basis, but hourly models make prices highly salient and can cause clients to keep questioning whether each problem or question they have is really worth being "on the clock" for an answer. By contrast, a retainer model encourages clients to keep asking questions and utilizing your services (since it's part of the retainer anyway), helping to ensure that once clients are set up for an automatic recurring retainer charge (either via bank draft or credit card), they remain happy and well-served clients for the long run.
As with a typical retainer arrangement, services would be provided on an as-needed basis with clients, anticipating some busy points at the end of the year (reviewing employee benefits decisions for the upcoming year) and perhaps during tax season. But more broadly, advice will cover all of the cash flow, tax, insurance and (simple) estate planning matters that are common to those in their 20s, 30s, and 40s (Gen X and Gen Y).
