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Technology > Investment Platforms

The Next Page for the Investment Advisory Industry

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The dramatic changes occurring in financial markets around the world will have a significant impact on the future of the financial services industry. But there is an even more significant long-term factor that will shape our industry’s future that we cannot ignore: demographics. Not only does the aging of America affect our clients and their needs, but it also foreshadows a coming change in the profile of investment advisors. And these changes may drastically impact the investment advisory industry, the way financial professionals run their businesses and even advisors’ behavior toward their clients.

As baby boomers begin to enter their twilight years, a new group of younger investment professionals is beginning to emerge. This group, commonly known as Generation X and Generation Y, are those under the age of 44. With the mean age of investment advisors hovering around 56, we decided to take a closer look at Gen X and Gen Y (also known as “NextGens”) investment professionals who sometimes feel alone in amidst their grey counterparts. What have Gen X and Gen Y advisors learned from “industry pioneers” and what do they do differently?

Targeting a younger client base

The majority of investment professionals focus nearly all (85%) of their attention on the same old market segments–baby boomers and their preceding generations–ignoring the untouched growth opportunity in investors under the age of 46. However, younger financial professionals are much more likely to foster relationships with younger investors, with nearly a third (31%) of their clients being in the NexxtGen camp.


Serving the Middle Class

While most of the market pursues the high-end mass affluent and high-net-worth group, younger advisors are more open to less affluent clients. These NextGen advisors appear to think that the best way to establish themselves in the market is to reach out and serve middle-class clients. According to the most recent Rydex AdvisorBenchmarking survey, younger investment advisors are nearly twice as likely to serve the moderate net worth investor market (those with investable assets of less than $500,000) than the “average advisor”–”–51% versus 27%. Because traditional AUM fees may not provide enough income, young advisors are more likely to charge project management fees in addition to the AUM fees to make up the difference. This allows younger advisors to spend more time serving clients, and offer hourly as-needed financial planning and advice to anyone regardless of income. Table “Revenue Mix” below shows the difference in composition of income for both advisor groups. A case in point is the decreased reliance on asset-based fees as a source of revenue: retainer and fixed fees comprise 35% for an average advisor compared to 43% for NextGens.


Revenue Mix

Firm’s Variable NextGen Average RIA
Percentage of Revenues from AUM 56% 64%
Percentage of Revenues from Retainer and Fixed Fees 43% 35%
Commissions 1% 1

Stronger Reliance on Technology

Having grown up with technology, NextGen advisors are very comfortable with this medium for streamlining processes and communication. Nearly all NextGen advisors market their services through web sites vs. 65% for the average advisor. They are also more likely to utilize email to communicate with their clients. One-hundred percent of NextGen advisors surveyed indicated that they use e-mail, compared to 80% of average advisors.

One of the major challenges investment advisors have in today’s environment is how to market their firms and create a sustainable process for attracting new clients without relying solely on referrals. Younger advisors might be in a better position to capitalize on their own skills and position themselves to younger and moderately wealthy clients.

Financial Summary

Firm’s Variable NextGen RIA Average RIA
Profitability 18% 24%
Number of Clients 81 356
Number of Staff 2 6
AUM $38 Millions $155 Millions

Maya Ivanova is a market research manager with Rydex She can be reached at [email protected].

About Rydex AdvisorBenchmarking, Inc., an affiliate of Rydex Investments

AdvisorBenchmarking is a free practice management program designed to help RIAs better manage and grow their firms. The analysis on Rydex is based on the number of completed surveys and reflects only information from those surveys. This information is intended to be general, and these overviews are no substitute for professional, legal or consulting advice. This information should not be construed as advice from Rydex Investments or any of its affiliates.


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