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Retirement Planning > Retirement Investing

What Do Young Near-Millionaires Need? Advice. What Don’t They Have? Advisors.

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Most RIA firms have an ideal high-net-worth client in mind, and the easiest way to classify them is as millionaires, those with at least $1 million in investable assets.

Practices are structured so as to attract and to retain those clients, the majority of whom would likely be of the baby boom generation. But what about the next generation of millionaires, those whose investable assets and high incomes place them firmly on the road to becoming millionaires? What are the traits of those younger prospective clients, and what are they looking for in terms of advice?

A survey by Fidelity Institutional Wealth Services goes some distance in providing the answers to those questions and in suggesting what the opportunities are for advisors who structure their offerings to attract that next generation of millionaires. 

Fidelity took a slice of the data from its 2013 Insights on Advice survey (see previous article on Fidelity’s Millionaire Outlook study)to produce new research on investors who average $800,000 in total assets and annual household income of $150,00, finding that 77% of these “millionaires of tomorrow” did not have a financial plan, and only 49% currently have advisors, said Bob Oros of Fidelity. The respondents in the overall study ranged in age from 21 to over 69; 6% were Generation Y (21-32 years old), 43% were Gen X (33-48 years old; 35% were Boomers (49-68 years old) and 16% were 69 years of age and older

In an interview Tuesday, Oros said there is a “different demographic for the emerging millionaires,” with 49% of them being women, and 49% coming from Generations X and Y.

“These are savers, not investors,” said Oros, the executive VP at Fidelity IWS responsible for the RIA channel, “which speaks for the opportunity for advisors” who tend to favor big savers as clients. “They have the right attitude, not the right execution,” he said.

“They know what they’re spending, have control of their debt and retirement is high on their list” of priorities, Oros said. They tend not have “much comfort with risk, or investment strategies,” with cash and money market funds high on the list of their current investments.

So the opportunity for advisors is to show these prospective clients, who average $800,000 in investable and retirement assets, how to “accumulate wealth faster by taking on more risk” in their investing. “With the right education and planning,” Oros said, “they’ll take on more risk.” However, 46% of the sampling believed that advisors weren’t interested in them as potential clients due to their relatively low level of investable assets.

So how to reach these near-millionaires who “lack an investor mentality?” Oros suggested that advisors should lead with financial planning, showing them “the roadmap to get to the finish line,” then introduce investment management “as a tool to help support “ that goal, though he cautions that “it will take time and planning to get them to take on more risk.”

Advisors should be “talking about delivery: these folks are digital, so the ability to deliver” planning and education “in a media that’s comfortable for them is important,” Oros said. In addition, “this group is fee-sensitive,” he said, so advisors need to “demonstrate creativity about fees.” One example of that creativity, Oros said, would be to offer a discounted fee for the next-gen millionaire’s first two years of engagement with the advisor, which would help “eliminate the hurdle” to using an advisor. Another approach, he said, would be to use flat fees, which would make it easier for these new clients “to draw the value conclusion.”

What about the fact that nearly half of these “millionaires on the cusp” are women? “Women do have unique perspectives as it relates to money and wealth,” Oros said, noting that the women in the survey “were more likely to rate saving for retirement as their top concern” while also showing a “greater interest in their investments: they want to understand” what they’re investing in, and are also less likely, he said, “to embrace a technology-based solution.”

As for the robo-advisors, or what Fidelity calls “digital advisors” that are web or mobile-based planning and investment applications, Oros said they represent an opportunity for RIA firms as well, whose offerings should be “not just technology-based,” but also should “bring some human touch into it…they will become more appealing” to this population while also helping to meet their fee sensitivity.

“The more progressive advisors get it,” said Oros, that “you need to attract younger people who will be clients for a long time.” The flip side of attracting those younger clients is for RIA firms to become “a training ground for younger advisors” who can speak to this clientele, whose financial lives tend to be less complex than their older, wealthier counterparts.

Check out Young Millionaires More Optimistic Than Boomers on ThinkAdvisor.


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