November 10, 2010

Why Gen X, Gen Y Don't Use Financial Advisors, and How to Get Them To

MFS study shows that Gen X/Y's need for advice has increased since the downturn

A new report by MFS Investment Management has found that Gen X and Gen Y investors (those under age 46) remain conservative since the recession, and that these two groups of investors are confused about how to invest.

Bill Finnegan, director of Global Retail Marketing for MFS, said in a statement announcing the survey results that many Gen X/Y investors consider themselves to be savers, not investors, and that they are looking to investments “to generate income instead of capital appreciation for long-term goals.” What’s more, he said, while these investors “have accumulated a fairly significant amount of wealth,” they “don’t have a strong affinity for or with financial advisors.”

The main reason that Gen X/Y investors do not have an advisor is perceived cost: 53% of Gen X/Y said it was not worth paying for advice. Other reasons cited: 33% said they did not need an advisor because “they do it themselves or use friend/family member”; 22% cited a lack of trust; 28% felt they did not have enough money to warrant an advisor; 10% do not know how to go about finding an advisor; and 12% reported never being contacted by an advisor.

MFS, through Research Collaborative, an independent research firm, sponsored the survey of 613 consumer investors with $100,000 or more in household investable assets between Aug. 26 and Sept. 1, 2010. The survey found that by more than two to one (49% to 22%), Gen X/Y reported that “now is a great time to invest in the stock market,” but almost two to one responded that “I am overwhelmed by all the different choices available to me” and have nearly an even split (27% to 28%) agreeing and disagreeing that “government bonds are the best place to put your money right now.”

The study found that Gen X/Y appeared to be more “gun-shy” about the stock market than other groups, with 35% agreeing with the statement: “After what has happened in the markets the past few years, I’ll never feel comfortable investing in the stock market.” Older groups surveyed agreed with this statement at about a rate of one in four, the study says. Furthermore, 30% of Gen X/Y reported that generating income was the most important investment objective today vs. approximately 20% for older generations surveyed.

Despite the fact that they have more time on their side, Gen X/Y are just as concerned about retirement as Boomers, the study found, with 58% of both Boomers (those 46 to 64 years old) and Gen X/Y reporting to be more concerned than ever about being able to retire when they thought. Both Boomers and Gen X/Y admit to having lowered their expectations about what life will be like in retirement as well.

Advisors should not be ignoring this cohort of investors, the study warns, as more than one third (36%) of Gen X/Y say their need for advice has increased since the downturn. “The study showed that when compared with their older peers, they are more likely to express an unmet need in all areas of an advised relationship--particularly for portfolio management and account review/rebalancing,” the study states.

Finnegan notes that “considering the median household investable assets of Gen X/Y surveyed was $260,000, their responses about financial advice are staggering--a significant portion of a large demographic group with considerable assets to invest does not understand the value proposition of an advisor.”

Advisors, he continued, need to consider “what motivates younger investors and how they prefer to do business and then develop new strategies to engage them. Failing to engage with Gen X/Y now potentially limits advisors’ ability to sustain and grow their practices and may damage Gen X/Y’s ability to establish both strong investing and saving habits as well as long-term plans for life’s goals.”

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