From the September 2007 issue of Investment Advisor • Subscribe!

The Perils of Ignoring Gen Y

Should advisors be going after Generation Y--today's twenty-somethings? A new global study by KPMG says these young folks, who are the next generation of wealth accumulators and inheritors, are being ignored by the fund management industry.

The study, Beyond Baby Boomers: The Rise of Generation Y, found that despite the profound demographic trends--which show that the number of people pushing into the "wealth accumulation" stage of the life cycle (those aged 40-59 years) begins to contract in the United States from 2013 onwards--those in the fund management industry, including advisors, intend to stay focused on serving baby boomers.

Gen Y includes those born in the 15 years from June 1976 to June 1991; they are the children of today's baby boomers.

Only 28% of fund management businesses, the study reported, say they will develop a relationship with Gen Y as clients over the next five years. This adds to the 22% that have been focusing on Gen Y as clients over the last two years, resulting in "only half of the funds management industry . . . focusing on this key market group."

The study was written by Bernard Salt, a partner with KPMG Australia, and included responses from 125 fund management executives from 17 countries, including one-on-one interviews with senior executives from the U.S., UK, and Germany. Focus groups were also conducted with members of Gen Y in London, Frankfurt, Sydney, New York, and Tokyo.

The study asserts that the fund management industry's short-term mindset is ruining its chances of capturing Gen Y clients. Most in the industry believe they don't need to think beyond three years, the study says. "Remuneration is based on immediate results as opposed to long-term strategic positioning," the study says. "This factor is driving the focus on boomers as they move beyond the workforce and into retirement. But the success of this industry in the past owes as much to the notion of demographic uplift as it does to the nimbleness of its players," the study continues. "With the boomer bandwagon slowing down, it's appropriate to consider establishing a dialogue with the next generation of wealth accumulators, Gen Y."

The survey also reveals that while the industry agrees on what types of investment products Gen Y wants--equities and mutual funds--the industry is divided on how to approach these people. "This is an industry that knows its products far better than it knows its future customers, or how to engage them," the study chides. Only 2% of survey respondents thought self-managed products would be attractive to Gen Y, the study says. However, the focus groups in all of the cities reinforced the point that Gen Yers "want to look at their portfolio every day."

Besides being potentially good clients, Gen Yers also make good employees. "Gen Y has an even greater role to play in ensuring the long-term success of the fund management industry," the study says. Yet the industry has a terrible track record in retaining these young people. "A quarter of businesses have over 30% churn in [Gen Y] staff. Some respondent firms have implemented dedicated Gen Y recruitment strategies. However, when results were cross-tabulated with staff turnover, it was found that recruitment and retention strategies had no discernible impact on the retention of Gen Y staff."

What all respondents, regardless of age, agreed is that Gen Y needs education and information about financial planning. Respondents noted that the industry should consider lobbying governments to get programs about financial education into the schools and possibly the workplaces.

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