Young Investors’ Assets and Loyalty Up for Grabs by Wealth Managers

Online capabilities crucial to younger generations, Aite Group study finds

With some $40 trillion expected to transition to younger generations in the U.S. in coming decades, wealth management firms will need to grow their online investing capabilities and provide more convenient service in order to capture and retain younger investors, according to a study released Monday.

The report issued by Aite Group and Scivantage, “The Race for Next-Generation Assets: Can Banks Maintain Their Lead?” said financial institutions that can understand and address the investment needs of this emerging investor segment will be best positioned to capture their future wealth.

“Gen-Xers and Gen-Yers have been far less loyal to their investment providers over the last few years compared to Boomer and Silent Generation investors, indicating that young consumers have yet to find their ideal investment providers,” Sophie Schmitt, Aite Group senior analyst, said in a statement.

The study found that 44% of Gen-X and Gen-Y investors surveyed had shifted assets to another investment firm or switched investment providers owing to the availability of online tools.

Online investing capabilities, now second nature to younger investors, will be a requirement for banks that want to attract future high-net-worth or current affluent members of this segment, Chris Psaltos, vice president for product management at Scivantage, said in the statement.

“As younger, tech-savvy investors look for greater control of the investment decision-making process, wealth management firms—particularly banks—must ensure that their online investment platforms are keeping pace with the latest consumer technology innovations.”

According to the research, 40% of young investors still consider a bank to be their primary investment provider, whereas only 20% look to an online brokerage firm to be their primary provider despite their strong adoption of online trading.

“Banks seeking to maximize their ability to retain and grow share of wallet with young investors should work on growing their online investing capabilities and providing more convenient services,” Schmitt said.

Most young investors—slightly less that 70% of them—trade online more than five times a year. Nearly a third of them trade more than 25 times per year.

But while online services are essential, the top reason clients shift their investments to another firm is fees, such as those tied to accounts, financial advice and asset management.

The report was based on Aite Group’s December 2011 survey of more than 1,000 U.S. investors who held a minimum of $25,000 in investable assets and had access to online trading capabilities. Aite said the sample was representative of approximately half of the U.S. population.

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