Gen Xers: The Optimal Client?

The best new clients for advisors may be high-net-worth Gen Xers, but the trick will be luring these young millionaires away from the banks. That’s just one of the findings revealed in the recently released 2007 Phoenix Wealth Survey. In its eighth year, this year’s survey found that high-net-worth consumers are optimistic about their financial futures, with 56% of respondents feeling their long-term wealth is “extremely secure,” and 81% reporting they feel wealthier than they did last year. However, wealthy young millionaires are less optimistic about their future than baby boomers and members of the older Silent Generation, the survey found. Despite the fact that Gen Xers have more money at a younger age than the older generations, these young millionaires are “the most bearish for the future,” the survey concluded, because they’re uncertain about how they will finance their retirements without traditional pension plans and Social Security.

The study, conducted by the Phoenix Companies and Harris Interactive, consisted of online interviews with 1,800 households with a net worth of $1 million or more, excluding their primary residence. The study also cites data from the TNS Affluent Market Research Program from TNS Financial Services, which found that the number of high-net-worth households has just about doubled in the past decade, and stands at an all-time high of 9.3 million, which represents 8% of all U.S. households. The affluent market, meanwhile, which encompasses households with a net worth of at least $500,000, have jumped more than 50% to 14.7 million during the same 10-year period, the TNS research revealed.

The Phoenix survey also found that as the wealthy have become more optimistic about their financial well being, they have increased their appetite for investment risk. Sixty-one percent of the respondents say they plan to invest as much or more than they did last year in mutual funds held outside of retirement plans.

As for using a financial advisor to help guide their planning decisions, the survey found that more wealthy consumers say they’ll go it alone, despite the fact that a growing number of them–14%, or twice as many as only four years ago–admit they know “little” or “next to nothing” about investing and financial matters. A third of the respondents said they don’t have a primary financial advisor, “and the number of the wealthiest consumers who receive advice from a full-service broker has dropped 25%–the lowest figure in the period that the Phoenix Wealth Survey has been conducted.” One in ten of the respondents, however, say they’re investing online or over the phone with a discount brokerage.

The Appeal of Banks

The overwhelming majority of the wealthy respondents in the survey lack a written financial plan, and one third do not have a primary financial advisor. However, those high-net-worth folks who do have a primary advisor “tend to be satisfied,” the survey found, with only 7% saying they plan to look for a new advisor this year. The bad news for independent advisors, however, is that the wealthy–particularly Gen Xers–are more interested today than in the past in attending educational seminars about wealth management, financial and estate planning, college savings accounts, and retirement planning at banks.

Why this growing interest in banks? Steve Gresham, executive VP of Phoenix Investment Partners, the investment management arm of The Phoenix Companies, says that the banks are providing the “essential services” that the young millionaires need. “Financial advice is a lifecycle issue,” Gresham says, so that means consumers are “going to go with the people that they need in the moment that they need them.” The banks are providing the two essential services young millionaires need: a place to put their money and a loan that will help them buy a house, he says, so “the bank scores twice before any brokerage firm or other provider.”