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.”

For advisors to make any strides in grabbing some of the Gen-X well-to-do from the banks, they must “achieve the custody of assets at all costs,” Gresham says, meaning “doing whatever you need to do to bring them in.” Advisors let competitors in because “they only want the assets to manage,” he argues. Advisors “don’t need to charge a fee on all [of a client's] assets; they need to get their assets.” Once advisors have gotten those assets, “then you can go after what the bank is not doing.” Advisors, he notes, can compete effectively on providing essential financial services through their affiliations with the brokerage firms they clear through and relationships with other providers.

Advisors can also play up their expertise–which has always been their advantage over banks–when luring clients, Gresham says. Advisors would be popular among young millionaires, he says, because while members of this group have usually done some investing on their own, once they get a sizeable chunk of money, they lack the time and expertise to manage it. The wealthy Gen Xers usually want to secure help with their money first when they get $100,000, Gresham says, and then again at the $1 million level.

Work, Work, Work

When it comes to retirement, a larger percentage of respondents said they would keep working because they “enjoy working, even in a limited capacity.” However, Phoenix believes this may be a rationalization for the fact that, like many less affluent Americans, the wealthy are concerned about paying for healthcare or long-term care, long-term living expenses, and even current debt. This drive to keep working may also be a way for the wealthy to maintain their current standard of living. While experts generally opine that retirees need 80% of their peak income in retirement, 47% of the survey’s respondents believe they’ll need 100% or more of their current income. Gresham, for one, says the 80% to 100% figures are “very high” income expectations, and that most people generally overstate the level of assets they actually have. “What advisors ought to be paying careful attention to is that given the aging of the population, there will be a collective wake up call” when they realize how unprepared they are for retirement, he says. So any advisor who’s worth his salt “will get ahead of the curve and create a risk audit for a client household to help them identify problems that might develop,” Gresham says.

For instance, the ticking bomb for boomers, he says, is the fact that caring for agping parents will occur prior to, or at the same time as, their own retirement. Young boomers and older Gen Xers will face similar issues. Because they are having children later in life, they’ll simultaneously be attending to the needs of adult children (such as boomerang issues–kids returning home after graduating from college) and those older parents.

Gresham isn’t the only one who’s telling advisors to be more proactive in helping their clients deal with unforeseen problems that might crop up. At Genworth Financial’s annual conference in Washington in early June, Wendy Boglioli of Genworth’s Long-Term Care Insurance Division (and a 1976 Olympic Gold and Bronze medalist in swimming), urged advisors to integrate long-term care insurance planning into a client’s portfolio. “Advisors must talk to their clients about long-term care, or someone else will,” she said. LTC is not only crucial for your clients, she said, but it will help advisors “retain assets under management.” She cited a staggering statistic that 78% of those in nursing homes are women. “If you can educate a woman about long-term care, she’ll bring you lots of clients,” Boglioli said.


Washington Bureau Chief Melanie Waddell can be reached at mwaddell@investmentadvisor.com.