The Power of a Multigenerational Strategy

Wednesday, July 13th, 2011

by Norm Trainor, The Covenant Group

The fol­low­ing is based on one of The Covenant Group’s clients, Frank. All of the names and telling details have been changed to pre­serve client pri­vacy. Spe­cial thanks to my client, Michael Wein­berg, for pro­vid­ing the solu­tion included in this case study.

Frank could make a lot of money as an advi­sor, but only for stretches at a time. Peri­ods of pros­per­ity in his busi­ness sand­wiched droughts, some­times last­ing weeks or months. Frank, 42 years old, became an advi­sor over ten years ear­lier, after spend­ing seven years as a finan­cial ana­lyst. He had made the career change because he saw finan­cial ana­lysts as an untapped mar­ket for the advi­sor indus­try. Too many advi­sors ignored ana­lysts and oth­ers in the finan­cial ser­vices sec­tor assum­ing they took care of their plan­ning needs them­selves or already had a strong rela­tion­ship with an advi­sor. Frank quickly proved his hypoth­e­sis by mak­ing a six-figure income in his first year. He con­tin­ued to develop his niche in this mar­ket, and ten years later, still attrib­uted over ¾ of his income to young, rea­son­ably afflu­ent 30-something analysts.

Frank enjoyed work­ing in this mar­ket, but was trou­bled by the wild fluc­tu­a­tions in his rev­enue. Dur­ing fall and early win­ter, ana­lysts tended to work 12 to 16 hour days for weeks and months on end and were nearly impos­si­ble to reach. Sum­mer wasn’t much bet­ter as many dis­ap­peared to their cot­tages. Con­se­quently, Frank tended to make his money dur­ing a few cru­cial weeks. On top of this annual sea­son­al­ity, Frank had to con­tend with mar­ket cycles. The cur­rent down mar­ket and the con­sol­i­da­tion trend were shrink­ing his pool of prospects.

To smooth out his rev­enue line, Frank planned to expand into new mar­kets, and was con­sid­er­ing tar­get­ing com­puter pro­gram­mers, another mar­ket char­ac­ter­ized by young, rea­son­ably well-off indi­vid­u­als. “Frank,” I said, “I agree with your strat­egy to move into new mar­kets, but I’m not thrilled with your choice of mar­ket because I don’t think it will solve your prob­lem.” Frank asked why. “A suc­cess­ful advi­sory busi­ness depends on the man­age­ment of five levers: prod­uct mix, case size, # of cases, sea­son­al­ity and cycli­cal­ity. Your focus on one mar­ket doesn’t allow you to effec­tively man­age these five levers. Because you’re work­ing with peo­ple who have the same or sim­i­lar needs, your range of prod­ucts and aver­age case size are lim­ited. To test the via­bil­ity of your new mar­ket strat­egy, you need to judge it against these five levers. And while com­puter pro­gram­mers will give you some breadth, you’ll find that, because ana­lysts and pro­gram­mers have com­pa­ra­ble incomes and age ranges, you’ll be address­ing sim­i­lar needs, mean­ing your aver­age case size and prod­uct mix won’t budge much. In the end, because your new mar­ket won’t have much affect on your abil­ity to man­age the five levers, you won’t be solv­ing your problem.”

Frank asked what mar­kets he should look at. I told Frank that his issue brought to mind another client of mine, Michael Wein­berg of Strate­gies for Wealth Cre­ation and Pro­tec­tion out of New York. “Michael,” I said, “has devel­oped an effec­tive solu­tion for your prob­lem. Sim­i­lar to your­self Michael made a suc­cess­ful liv­ing focus­ing on insti­tu­tional traders and ana­lysts. But to grow his busi­ness and pro­tect it from the spe­cific risk of a sin­gle mar­ket focus, Michael has adopted a multi-generational mar­ket­ing strat­egy. He took his exist­ing clien­tele of well-to-do 30-somethings and used them as a spring­board to access both an older and younger generation.”

Frank didn’t like the idea of approach­ing his clients and ask­ing for refer­rals to their par­ents. He was afraid his clients would see this move as purely oppor­tunis­tic. “Frank,” I said, “you’ll find that the oppo­site is true. In Michael’s expe­ri­ence his clients sup­port the idea of him work­ing with their par­ents. They care about their par­ents and are com­forted to know Michael is look­ing after their finan­cial needs. They also appre­ci­ate that Michael helps make their par­ents finan­cially inde­pen­dent — reduc­ing the chance that they’ll look to their kids for sup­port dur­ing retire­ment. Many clients also sup­port Michael’s efforts to cre­ate and pre­serve the estates of their par­ents — estates they are the ben­e­fi­cia­ries of. “Michael also gains the younger gen­er­a­tion, gen­er­ally through his clients’ par­ents, because as grand­par­ents they want to set up insur­ance and invest­ment plans for their grand­chil­dren. Inevitably Michael ends up work­ing with the entire fam­ily tree, includ­ing his clients’ siblings.

Frank was still shak­ing his head. “I have a lot of exper­tise work­ing with peo­ple in their 30s and early 40s. Work­ing with older peo­ple, retirees, or younger kids, putting their edu­ca­tion sav­ings plans together. Well, that’s not me. I know what I do well.” “Frank, I don’t want you to fall into the trap of what I call ‘play­ing the finite game’, where you think of your busi­ness only in terms of what you can and want to do. But to pro­tect the future of your busi­ness, you need to grow, and grow­ing will mean adopt­ing an ‘Infi­nite Game’ mind­set, where you look out­side your­self for answers. “Michael is a great exam­ple of some­one who plays the Infi­nite Game. Though he knew he could access other gen­er­a­tions through his pri­mary clien­tele, he also knew his lim­i­ta­tions when it came to ser­vic­ing the panoply of needs in these other mar­kets. Which is why he uti­lizes a team of experts, such as spe­cial­ists in long-term care, crit­i­cal ill­ness and retire­ment income plan­ning. Michael con­cen­trates on build­ing the rela­tion­ships, and uses a team approach to pro­vide tech­ni­cal expertise.”

Frank was begin­ning to nod with approval. “Address­ing the needs of the dif­fer­ent gen­er­a­tions has allowed him to man­age the five levers of his busi­ness. He has increased his aver­age case size. He’s writ­ing con­sid­er­ably more cases. He’s tripled and quadru­pled his prod­uct mix. And because the gen­er­a­tions are so var­i­ously affected by dif­fer­ent sea­son­al­i­ties and cycli­cal­i­ties, those effects are min­i­mized.” Frank agreed that he should begin diver­si­fy­ing his busi­ness. He spent the next few weeks devel­op­ing a plan to tar­get his clients’ par­ents and their chil­dren, edu­cat­ing him­self on the needs of these mar­kets and acquir­ing a base of tech­ni­cal and prod­uct knowl­edge, and forg­ing rela­tion­ships with spe­cial­ists he could bring in to do case­work. As I had expected, Frank met with lit­tle resis­tance in his effort to move up and down gen­er­a­tions. Within six months, the ben­e­fits were obvi­ous. Frank had acquired a num­ber of afflu­ent elderly clients, increas­ing his case size and breadth of prod­uct. Fur­ther­more, he no longer suf­fered through dry spells when his ana­lyst prospects were unreach­able — instead he focused on these new oppor­tu­ni­ties in his busi­ness. In this way, Frank was able to take com­mand of the five levers that drove his busi­ness and steer him­self toward growth. For Frank, the answer lay in mov­ing, not hor­i­zon­tally to mar­kets with sim­i­lar incomes and age ranges, but mov­ing ver­ti­cally up and down gen­er­a­tions. Doing this gave Frank the diver­sity he needed and opened up his busi­ness to sig­nif­i­cant growth potential.

Norm Trainor is the founder of The Covenant Group, a com­pany spe­cial­iz­ing in prac­tice devel­op­ment for advi­sors. For fur­ther infor­ma­tion, visit his Web site at www​.covenant​group​.com.

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Tags: Career Change, Client Privacy, Computer Programmers, Covenant Group, Droughts, Early Winter, Financial Analyst, Financial Analysts, Financial Services Sector, Fluctuations, Hypothesis, Market Cycles, Michael Weinberg, Norm Trainor, Seasonality, Special Thanks, Stretches, Targeting Computer, Time Periods, Untapped Market
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