Although many financial advisors have hitched their wagons to prosperous baby-boomer clients, there could be busi-ness opportunities ripe for the picking by shaking the branches of the family tree, both above and below this generation.

“The baby boomers are known as the ‘sandwich generation’,” says Richard Worzel, president of Toronto-based consulting firm Future Search. “It’s important for advisors to examine all layers of that sandwich.

“A lot of advisors are ignoring the opportunities that exist outside the baby-boom generation,” he adds. “What is important to the boomers is their parents, kids and grandkids. If you start thinking along those lines, that leads you down the path to new business opportunities.”

Bernard Salt, a partner with consulting firm KPMG in Australia, maintains the drawbacks to ignoring other family members go beyond overlooking opportunities; there can be severe consequences. He predicts a significant shift in Canada around 2015, when changing demographics will result in slower growth in financial assets.

“The fodder provided by baby boomers coming through the system will dwindle,” says Salt, who spoke recently in Toronto at the annual meeting of the Investment Counsel Association of Canada. “Financial managers need to look up. There is a great hole coming in the next decade, unless they change course and engage with younger generations.”

So, how do you build a business that engages all four generations of your clients’ family trees? While the basic need for financial management crosses all generations, there are significant differences among the age groups, depending on where they are on the life-span continuum. Tolerance of risk, spending priorities, health and lifestyle are all affected by age and generational bias — and financial strategies need to match each generation. It will be up to you to tailor your offering to meet those needs.

“One of the best ways to anchor a client,” adds Worzel, “is to get involved with other generations within the family.”



> Parents Of Baby Boomers.

With today’s baby boomers between the ages of 42 and 61, based on birthdays between 1947 and 1966, their parents are typically in their 70s or 80s and facing issues of mental and physical infirmity, giving baby boomers a good look at what lies ahead.

“Beyond 75, you’re looking at the ‘frail elderly’,” Salt says. “And people who are part of this age group tend to be a frugal generation with modest lifestyles.”

Yet, with longer lifespans, even elderly clients may have many years ahead of them, says Joanne Dereta, a partner with Stonegate Investment Counsel LP in Toronto. Their health care can be expensive, which may erode savings that will trickle down to the next generation.

“If aging parents need help with their financial affairs, this is a big opportunity for the advisor to step in,” Worzel says. “It must be done delicately, but the advisor is in a position to take some of the load off the shoulders of the baby-boomer clients who are trying to manage their parents’ affairs in addition to everything else in life.”

And by all accounts, this help is needed. According to a survey conducted by Bank of Montreal, one-third of boomers in Canada are currently assisting aging relatives and another third expect to be doing so in the future.

Some of the big banks have been at the forefront in reaching out on a multi-generational basis, particularly to their high net-worth clients. To provide support to clients, BMO has partnered with BEST in CARE of Toronto, an independent service offering elder-care information and caregiver support. The service, which is available through BMO investment advisors, connects clients to a network of support services as well as phone and e-mail consultations with experts.

BMO Harris Private Banking, a division of the bank that targets high net-worth clients and their families, is taking these late-life services a step further through a service called enCircle. Launched by the private bank in 2005, enCircle advisors work with clients and their families to develop a plan for seniors that can include cash management, bill payment, investment management, philanthropy, estate planning, filing of tax returns, travel insurance and banking abroad. The service includes a help line, allowing clients to tap into the expertise of Toronto-based counselling firm Sheppell-FGI for assistance with health- and home-care issues.

“The enCircle advisor is the point person for all the senior’s financial needs and is specially trained in working with seniors,” says Jean Blacklock, vice president of BMO Harris in Toronto.

@page_break@As well as having an understanding of seniors’ issues and the appropriate contacts, advisors also need to have a working knowledge of insurance solutions. Long-term care insurance, critical illness insurance and life insurance are products that could be of interest to senior clients, as well as to baby boomers looking ahead to their senior years. Because of the high cost of health care, seniors’ residences or nursing help in later years can erode the inheritances of the next generation, so life insurance may be used as a form of “inheritance insurance,” Worzel says.

When it comes to investing, safety and income are the priorities for boomers’ parents. Dereta says her largely senior clientele appreciate Stonegate’s conservative investment-management approach, which places a higher priority on preserving assets rather than on aggressive growth. She finds that people in the over-60 age group also appreciate personal contact through phone calls and face-to-face meetings. They will often dress up for a meeting in her office, and she makes sure she, too, is also wearing a formal business suit.

“Once people have accumulated money, they make a point of returning phone calls and coming in for regular meetings,” she says. “It’s serious business.”

Suitable products for this group could include bonds, dividend-paying stocks and GICs, as well as structured products such as notes that offer guarantees on principal and link their returns to equity markets. Segregated funds may also be appropriate, because of their principal-protection guarantees after 10 years or upon death, and the ability to transfer assets to beneficiaries upon death without going through probate.

These added features may appeal to boomers’ parents and their need for security, justifying the higher cost of PPNs and seg funds.

“The world doesn’t cascade off a cliff after retirement,” says Earl Bederman, president of Investor Economics Inc. in Toronto. “But clients’ needs change, and advisors must connect to those needs. There is a need for investment income, and people want the appropriate products.”



> The Echo Generation/Generation Y.

The “echo” generation, also known as Generation Y, are the children of the baby boomers and are typically between the teenage years and their early 30s. According to Salt, many Gen-Yers have been shaped by their position as children of well-off and indulgent parents. Because boomers often came from big families, they understood at a young age such concepts as sharing bedrooms, wearing hand-me-down clothes, delayed gratification and waiting their turn. But the boomers haven’t instilled these values in their children, who tend to be voracious consumers.

As the first generation growing up in two-income households, the Gen-Yers have been lavished with material comforts by guilt-ridden parents with lots of money and not so much time. Gen-Yers have known only a world of rising economic prosperity. With little exposure to hardship, they tend to be confident, highly educated, technologically savvy and global in their thinking.

“Generation Ys believe the future will be as good as the past,” Salt says. “If things don’t work out, they can always come home to Mom and Dad. They have no fear of authority. Because of small families, they are accustomed to negotiating directly with their parents for the things they want, and getting them right away.”

Gen-Yers are not making commitments to marriage, mortgages, children and careers until their late 20s or 30s, and are, therefore, coming late to financial responsibility. They live at home for longer than previous generations, and may rely on parental support — even after they do leave the nest.

According to Salt, Gen-Yers like being close to Mom and Dad and the access to meals, cars and other comforts of home. He refers to them as “KIPPERS”: kids in parents’ pockets eroding retirement savings.

As boomers’ contributions to RRSPs and other savings vehicles diminish, many in the financial services industry recognize they should be building relationships with the young people following on the heels of the baby boomers. However, many are confounded by Generation Y.

A recent KPMG study written by Salt, entitled Beyond the Baby Boomers: The Rise of Generation Y: Opportunities and Challenges for the Fund Management Industry, found that 78% of fund industry respondents in five countries have failed to take definitive action during the past two years to target Gen-Yers and educate them on fund industry products.

Moreover, during the next five years, only half of respondents intend to direct resources to cultivating this demographic group. Only a third of respondents view Gen-Yers as their future client base. Respondents to the survey were based in London, New York, Tokyo, Frankfurt and Sydney.

“The financial services industry is currently focused on Generation Y as a source of employees rather than customers,” Salt says. “While advertising is seen by the industry as the best way to reach Generation Y, the truth is that the industry does not know how to connect with them in ways that are relevant. The industry, to some extent, has been blinded by the boomers.”

Those that do deal with the children of boomers often find Gen-Yers make difficult clients. “We run a family practice and are open to dealing with family members,” says Dereta, “even if they don’t yet meet our minimum account requirements. But dealing with 20- to 30-year-olds is challenging. They often don’t return phone calls or e-mails, even if they’re already clients. They put off doing the paperwork necessary to open an RRSP or a registered education savings plan.

“There seems to be an expectation that the advisor can somehow magically complete the work,” she adds. “They also have different financial priorities, and their biggest financial focus seems to be on buying a house.”

But the fact is that Gen-Yers will inherit wealth from parents and grandparents. Advisors who plan to be in business in 10 years, or who would like to have a healthy book to sell to a successor, need to think about planting the seeds of a relationship with this generation — now.

“If advisors don’t have a relationship with the next generation, those kids will walk away with the money,” says Elizabeth Hoyle, president of Toronto-based H2 Central, a marketing and communications firm. “It’s wise to hang on to the business by forging links with the people who are coming along in the future. The money has to go somewhere.”

Hoyle says Gen-Yers have a tribal social structure or pack mentality, and connect to others through technology. Their friends, peers and workmates are important to them, and they are in constant contact through e-mail, cellphones and text messaging. They are also close to their parents, making the parents a logical gateway to their business.

“Generation Y is very much into the opinions of like-minded people,” says Hoyle. “They seek out information from friends and Internet sources such as online reviews. They’re attracted to what’s familiar. What their parents do is important to them, which translates into a tendency to use the same financial institutions as their parents. Advisors should, therefore, be using the parent as a conduit to meet the kids, finding ways to get the parents to bring the kids to an event or meeting.”

BMO Harris recently hosted an investment seminar in Toronto for children of high net-worth clients, bringing in Jim Davis, president of New York-based Wall Street Training Ltd. , as the key speaker. Before Davis became an expert on educating rich kids, he was a partner at Solomon Brothers and a senior executive with the New York Stock Exchange.

Although the seminar was not about products and services, individual investment counsellors at BMO Harris have been following up with attendees, reinforcing the relationship with personal contact and inviting the “kids,” who ranged in age from 18 to 30, to open accounts.

“Dealing with the children of our clients is an extension of our policy of dealing with seniors — they’re the other side of the sandwich,” says Blacklock. “Clients have told us that the education we could provide on estate planning and investments would be of benefit to their children. Parents want their kids to become financially fluent and learn how to manage the family wealth.”

In dealing with Gen-Yers, it’s important to communicate in the ways they appreciate. In the seminar, BMO Harris deliberately used a fast-paced, multimedia approach to garner the attention of a generation that spends more time on the Internet than any other age group.

For advisors, this means communicating by e-mail and having an attractive Web site, possibly with a blog or video content that is interesting to younger people. Online access to account information is essential for Gen-Yers.

Social networking is also important in Generation Y’s world, and a presence on sites such as Facebook and MySpace can also help advisors make inroads with young clients, says Worzel. For advisors who don’t have the skills, hiring a tech guru can be a good investment in communicating with young people who “live and breathe technology,” he says. Gen-Yers tend to have little brand loyalty, but if they like something, they tend to tell all their friends.

For most Gen-Yers, their first financial concern is buying a home, and investment products that help them achieve this goal are useful. Because of the high cost of housing, it may be a while before they have money to invest for other purposes. Nevertheless, they could benefit from making even small contributions or monthly contributions to RRSPs.

Gen-Yers are also highly aware of issues related to social responsibility, the environment and climate change, creating opportunities to sell products such as socially responsible investment funds. Many are going the entrepreneurial route rather than seeking jobs at large corporations or staying with any one company for their entire careers. There is, therefore, a need for disability insurance and, perhaps, dental and supplemental health insurance.

“For many of the echoes, retirement seems a long way off, and saving for it is not their first priority,” Worzel says. “Products that help with more immediate needs may function as seeds that can be planted so advisors can harvest a new crop of clients.”



> Grandchildren Of Boomers.

With the leading edge of the boomers entering the realm of grandparenting, there are opportunities to serve boomer clients by helping them help their grandchildren. RESPs to finance post-secondary education can be set up at grandchildren’s birth to take advantage of long-term growth. In-trust accounts can also be set up for grandchildren, to build investments in mutual funds on their behalf.

These accounts can be added to by parents and grandparents on a variety of gift-giving occasions, including birthdays, Christmas, Hanukkah and other religious celebrations, and graduation. As children get older, in-trust accounts present an ideal opportunity to teach investment lessons such as the value of compounded growth and starting young.

Grandparents can also help pay for extras that could improve their grandchildren’s quality of life, including summer camps, travel and private schools. Grandparents may also wish to help younger generations by buying them disability insurance policies that would help them in the event of incapacity, suggests Worzel.

“With young adults postponing careers, mortgages, marriage and children, there is a smaller window of opportunity for having children — and there will be fewer of them,” Worzel says. “The grandchildren of boomers will be more precious and more spoiled.” IE