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BUILDING SUCCESSFUL BUSINESSES BY TAPPING INTO THE NEXT GENERATION OF ADVISORS

Reprinted by permission for specific use in 2015 by The 401K Study Group.

Amy Webber, President Jeff Vivacqua, Senior Vice PresidentBusiness Strategy

Dependent on how long a professional has been in an advisor capacity, undoubtedly every generation served has required an adjustment in the practice to some degree. Baby boomers are arguably the largest generation in history, and for more than 20 years they have remained the primary focus. Now, a change strategy is essential to bridge the gap between this generation and the next.

The abundance of information on the Next Gen offers many suggestions on different directional strategies to implement in practice. While it is important to keep those in mind, at Cambridge we believe that one of the most critical aspects of Next Gen demands should come from the thought leadership of one’s own advisor partners. For example, the New Century Council, an advisory council of mid 40-somethings and under, was formed in 2009 to provide definition and direction specifically for Cambridge. Together with this advisory council, Cambridge began defining what needed to be done and what should be offered to be relevant to the Cambridge Next Gen advisor, and therefore empower those advisors to be relevant to the Next Gen investor.

At Cambridge, we believe a one-size-fits-all approach does not work for individuals, and a single strategy is most likely not suitable for every generation. It is important for advisors to recognize the different segments of clients within their practice scope and develop a tailored approach. Much of the following information comes directly from the New Century Council, as well as other advisory councils at Cambridge.

First, Younger Clients and Older AdvisorsThe 60-something advisor should start with assessing his/her personal goals for the practice in terms of succession planning, as the answers to that question will provide some key drivers behind how to structure the plan to engage with younger clients. For instance, if the advisor is prepared to personally build a marketing plan and a team around the concept of Next Gen, the action items are potentially very different than if he/she is more attracted to simply selling the business to someone else who would deal with those things. Either way, for the practice to have value to the Next Gen client, the advisor will need to adapt.

In the more immediate future, it seems much of the required change encompasses a marketing plan to build a relationship with the Next Gen within the households that an advisor already serves.

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BUILDING SUCCESSFUL BUSINESSES BY TAPPING INTO THE NEXT GENERATION OF ADVISORS

Longer term, the changes are more dramatic and need to incorporate a different client experience.These differences range from various communication strategies to accessing information via numerous technological tools, as well as varied pricing structures and engagement models. The service model must have a customized design that is highly flexible and comes at a low cost. To deliver various levels of service, an advisor should be aligned with partners that possess expertise and visionary insight on these topics, as well as a commitment to remain ahead of the curve.

Children of Clients A typical advisor, regardless of their age or length of practice, most likely has clients in the boomer realm. It is important that they also start building a relationship with the children of their existing clients, because if they fail to do so, the advisor may miss out on what is being referred to as the biggest transfer of wealth in history. Various industry data indicates as much as 80 percent of those children will not stay with their parent’s advisor when they inherit wealth1. Some of this is service model related and speaks to the opportunities just mentioned, but much of it is due to a lack of relationship and trust building.

Older Clients and Younger AdvisorsNow, consider the million dollar question: Where are the younger advisors coming from? Another question that may come to mind: How is this segment of fiercely independent advisors going to survive the upcoming changes? While Cambridge doesn’t have all of the answers, we do have a few strategies built around these challenges.

First, as a broker-dealer we give our clients, the advisors, the freedom to build their business the way they see fit. Many competitor firms have established minimum production criteria that by default reject the young advisor – as most of them come into the system without a book of business of their own; and therefore, don’t meet those production requirements. Cambridge supports its advisors if they desire to bring in a “new” advisor. We encourage and guide these efforts through our Cambridge continuity and succession programs.Second, Cambridge has taken a step further and created an advisor facing internship program called The Next Step®. Through The Next Step® we strive to locate the potential Next Gen advisor, inspire them to choose a career within our industry, introduce them to our successful offices across the country based on best fit, and assist the advisor with implementation of the program and training of the intern.

Female InvestorsAnother immediate opportunity within the investing population is in regards to the amount of wealth that women control – over 50 percent today, with projections to grow to almost 70 percent by 20202. The majority of these women do not have a gender preference when it comes to the advisor that they choose to work with. Instead, and similar to the Next Gen segment, women do have a preference for particular service and engagement models, and investing is much more about the “how” and not the “what”.

It is potentially more difficult for an advisor to adapt an approach, based on the “how”, than if adjusting to the “what”. It requires self-reflection and adaption of communication style on the part of the advisors to attract and retain women clients. Overall, the industry has not focused on engaging the female investor that is already a client, as part of a married couple. Sadly, over 70 percent of women plan to seek out other advisors when their spouse passes away3. This isn’t a growth conversation, but a retention conversation similar to that of retaining and engaging the children of clients.

The Emerging InvestorA 2013 Fidelity® study reflected that 61 percent of the Gen X/Y group make their own financial decisions but work with one or more financial advisors as sources of information and a second opinion4. A new service model will need to accommodate the rising number of investors looking to “co-pilot” with a financial advisor. This model should offer education to the client, as well as allow them to create and make their own decisions. It is also important to enable them to validate those concluding decisions face-to-face, because relationships and trust are essential.

Developing a change strategy will enable the advisor to successfully adapt to the generational shift, and could potentially bridge the gap between demographics. In developing a change strategy, an advisor must first ask themselves some important questions:

1. What do I need to do to develop my skills and expertise to prepare myself to be relevant in the future, specifically for the Next Gen or female investors?

2. What changes do I need to make as the world moves from an environment where technological tools are used complementary to the service model and relationship, to an interconnected world where technology is simultaneous and expected?

3. Who can I partner with that is already thinking about these issues and has resources that I can take advantage of now for my business as I prepare?

Amy Webber, President With over 25 years of experience, Amy Webber’s commitment to independent rep-advisors is demonstrated in her passion for delivering high level, personal service and leading management solutions. Her personal interest lies with continually refining the independent broker-dealer model to best support the next generation of independent advisors – including creating innovative programs such as the Cambridge Source outsourcing program and the Cambridge Next Step® internship program. Webber serves as a Director for the 2014 Financial Services Institute Board (FSI), an advocacy organization for independent broker-dealers and their affiliated independent financial advisors. In 2012 and 2014, Webber was recognized as a member of the IA 25 by Investment Advisor magazine and in 2011, 2010, and 2009 as one of the Top 50 in wealth management by Wealth Manager.

Jeff Vivacqua, Senior Vice PresidentBusiness StrategyWith nearly 20 years of industry experience, Jeff Vivacqua has an active role in managing strategic issues for Cambridge Investment Research that affect rep-advisors including marketing, sales, operations, business development, and technology and is also responsible for developing strategic initiatives for Continuity Partners Group that address continuity, succession, and acquisition needs for today’s independent rep-advisors. He brings prior experience in advisor-based solutions from his leadership roles at Mutual Service Corporation (LPL), the AIG Advisor Group, SunAmerica Securities, and Charles Schwab. Vivacqua earned a BS in finance from Southern Illinois University and has certificates in Personal Financial Planning and Facilitative Leadership Training programs. He holds FINRA Series 4, 7, 24, 63, 66, and 79 licenses and is a member of the Financial Services Institute (FSI).

About CambridgeCambridge Investment Research, Inc. (Cambridge), member FINRA/SIPC, is among the largest independent, privately owned broker-dealers in the U.S. with more than 2,500 independent registered representatives and over $65 billion assets under management. www.joincambridge.com.

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Reprinted by permission for specific use in 2015 by The 401K Study Group.

1(2014). Women advisors forum. OnWallStreet, 24(1), 16.2Kogen, L. (2013). Engaging women: It’s a business issue, not a gender issue.Financial Planning.3Ackerman, R. (2012). Women & investing: Why many advisers are missingout. InvestmentNews.4(2013). 2013 Fidelity® millionaire outlook executive summary: Gen X/Ymillionaires not sitting idle. Fidelity®, 7.

The information discussed herein is general in nature and provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Nothing in this white paper constitutes an offer to sell or a solicitation of any offer to buy any type of securities. Reprinted by permission for use by Cambridge. All rights reserved.

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, and investment advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. Both are wholly-owned subsidiaries of Cambridge Investment Group, Inc. For broker-dealer use only V.CIR.0115

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Selective advisors choose Cambridge. Contact us at (TheFeeExperts@cir2.com) at 877-688-2369.

Cambridge Investment Research, Inc. | 1776 Pleasant Plain Road | Fairfield, Iowa 52556877-688-2369 | www.joincambridge.com

Reprinted by permission for specific use in 2015 by The 401K Study Group.