By Vic Ruth

Vic is the co-founder of Estplan Pty Ltd, a visionary firm which educates and guides advisers offering family wealth management services. He has had a stellar career spanning 30 years and gained national recognition amongst financial advisers.

Statisticians have been documenting this, population experts are looking at the trend with growing concern and economists are developing strategies to assist combat the financial threat that an aging population poses. In 5 years time 16 % of the population in Australia will be over 65 (and 1 in every 4 of these will be over 80). And, this is likely to be a major portion of your client base!

One of the biggest challenges facing the financial services industry is an ageing client base. Due to the compounding effect of wealth accumulation, many clients become part of the A and B base only when they are in the ageing category. The threat then is natural attrition which will have a direct impact on your longevity and ultimately the capital value of your practice.

If the bulk of your fees come from an ageing client base, you need to develop a long term strategy to combat this threat. Be assured that you are not alone. Most practices are faced with a client base that is terminal, particularly as the baby boomers age.

I want to explore the threats that these clients pose to your practice:

As your client base diminishes due to ageing and death, it becomes increasingly difficult to replace that revenue. The next generation is in a different phase within the wealth accumulation cycle. If you have no “in” within this group, it becomes very difficult to attract younger clients. Perception and referrals diminish, because frequently referrals occur within peer groups who are of the same generation.

More alarmingly, a potential buyer is likely to view this trend with alarm and subsequently discount the value of the practice if the average client age is high and revenue continuity is threatened. For example if a practice is valued at 2 to 3 times total revenue, the threat of a terminal client base to future revenues of  the buyer could reduce values by half and also negative impact professional achievement for the retiring professional.

My recommendation is to adopt an intergenerational client and staff management strategy, which will lessen the problem. Well structured estate planning strategy can build client continuity between generations. There are sound reasons why an estate needs ongoing management by the professional closest to the family normally the accountant, financial planner or lawyer. This benefits the adviser and enables them to develop a long term relationship with inheriting generations. These intergeneration strategies make good commercial sense and should form part of every practices plan, particularly those with the aging client bases. Don’t let your client base become terminal!

In Summary

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