Those Under-50 Clients: Goldmine or Just the Shaft?

As a follow up to my June 14 blog on the dangers of social media for financial advisors, advisor tech guru Bruce Johnston of DBJ Associates in Tuttle, Okla., kindly sent me the January 2011 Cisco Internet Business Solutions Group study “Winning the Battle for the Wealthy Investor: Uncovering Significant Opportunities to Address the Needs of Wealth Under-50 Investors,” which talks about the uses of technology by younger investors, and its implications for financial advisors. Cisco found a number of interesting differences between the younger and older HNW crowds, but the data also has a message for independent advisors that Cisco seems to have overlooked. 

Cisco surveyed 1,000 American investors with investible assets of more than $500,000, with 47% holding under $1 million, 35% with $1 million to $2.5 million, and 18% over that. The high point of the study, to my mind, is that, taken together, 70% of those wealthy investors have at least one financial advisor—and of those, despite the market turmoil of the past few years, only 14% said their confidence in their advisor has decreased, while 26% increased their confidence and 59% had no change in their feelings. 

Then we get to the age segmentation part of the study. Cisco’s conclusion is that the under-50 segment of the “wealthy” market represents a substantial opportunity for advisors, but that they’re a demanding bunch, especially when it comes to what they want in technology interfacing with their advisors. I think the picture the data paints of under-50 investors has an entirely different implication for advisors, but I’ll let you be the judge.

Younger Investors Plan to Switch Advisors, but Why? Here’s what the data shows about the under-50 wealthy compared to their older peers. On the opportunity side of the equation: “Wealthy investors under 50 years of age represented 29% of the survey’s respondents, yet they held 37% of assets.” They also hold 28% of total wealth in the U.S. It’s an attractive pot at the end of the advisory rainbow, to be sure, although Cisco declines to tell us what percentage of those under-50s already have advisors. 

However, the study does tell us how happy the younger generation is with the advisors they do have: 27% of wealthy under-50s switched advisors in the past two years, versus 12% of Baby Boomers and 7% of their [our] parents. What’s more, 32% of the younger investors say

they will switch advisors in the next year. That’s 44% of the under-50s changing advisors in the three years following 2008. Are your antennae going up yet? 

Perhaps they will when you hear why these younger people are dumping their advisors: 25% said it was due to insufficient expertise on the part of their financial advisor (versus 9% of Boomers); and 21% said it was due to disagreements about strategy (again, vs. 9% of Boomers). Apparently, the under-50 folks know this because 38% of them interact with their advisers at least weekly (compared to only 7% of older clients). Oh, and they are also three times as likely to consult about their investments with an accountant, tax advisor, lawyer, banker or insurance agent. 

On the technology side, 54% of the under-50s want webcam conferencing, 59% want screen sharing, 53% want mobile texting, 56% want high-def video and 52% video messages. And 63% would move to another firm to get HD video access to multiple experts. I haven’t seen this many red flags since international investing became hot again. Can you say ‘High maintenance’? 

Apparently, Cisco thinks that the 28% of U.S. wealth is worth the technology costs to attract and keep these “finicky” younger investors, as well as the risk that after you make that investment, they’ll walk across the street because they didn’t think you were sufficiently expert enough to agree with their investment strategy in your weekly videoconference. 

I know a prominent advisor in South Carolina who won’t even take clients until they’re over 50, because “until then, they’re not ready to take advice.” Seems to me, Cisco has provided the data to prove that advisor’s point.

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