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Gen X, Y Hungry for Advice, but Advisors Don't Satisfy

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Younger investors are more likely to feel their advisor isn’t really working for them, less likely to recommend their advisor to someone and more likely to spread their assets among multiple advisors, according to a report from Market Strategies International, a global market research firm.

The firm conducted an online survey of more than 4,000 affluent investors with at least $100,000 in investable assets, including retirement accounts but not real estate. Respondents were asked to rate on a scale of one to five how strongly they agreed with a series of statements, with a higher score indicating greater agreement.

When asked to rate their agreement with the statement, “I trust my financial advisor is working in my best interest,” most responses were positive.

“About two-thirds agreed overall; 68% either gave a four or five,” Meredith Rice, a senior director at Market Strategies International, told in late January. “They’re very likely to agree, but among Gen Y and Gen X, it was actually less than six in 10. Gen Y was 59%, Gen X was 57%, whereas we see the level of agreement going up among the boomer and the silent generations.” Rice said that among the first-wave boomers, 76% agreed. Of the silent generation, those born between 1925 and 1942, 78% agreed. “There were very different feelings in terms of trusting their advisors, feeling their advisor was working in their best interest, when you looked at it by generation,” Rice said.

Younger investors were also giving a smaller share of their assets to their primary advisor, the survey found.

“Among Gen Y, they’re giving about 35%, Gen X about 46%, and it keeps going up to the silent generation having their primary advisor manage nearly 70% of their assets,” Rice said. “We also found that the younger Gen Y investors are more likely to be working with multiple advisors compared to some of the older generations.”

The survey found younger investors were less likely than boomers to offer a referral, too. Rice suggested that’s because the industry is still catching up to the needs of these young investors. “The industry has been so focused on the boomers that some of these younger investors just haven’t been getting as much attention. Something else we saw with Gen Y is they’re really hungry for information. They’re using all sorts of different tools to get that information and are more reliant on online tools.”

Young investors might have more complex needs than advisors realize, too, Rice said. Over a quarter of Gen Y respondents said at least part of their assets are from an inheritance, compared with 17% of respondents overall.

It can’t be ignored that advisors with a long history and a good relationship with certain clients will naturally give them more attention, even if unintentionally.

“The older customers, they have many years history of working with that advisor through thick and thin, through all different kinds of environments, whereas the younger investors don’t have as long of a history [with their advisor],” Rice said. “The advisors, most of their time has been taken up by the boomers and the silent generation, particularly the boomers transitioning into retirement.”

She stressed, though, that even though younger investors have a long time until retirement, it “doesn’t mean they aren’t hungry for advice or information. They’re trying to have more of a concrete plan of how to reach their short-, mid- and long-term goals.”

Although young investors differ from boomers in several ways, they are similar in one important way, the survey found: risk tolerance.

“They have very low risk tolerance,” Rice said. “For instance, Gen Y has 25% of their assets in low-risk investments, which is about the same risk profile as a 50-year-old. They’ve had more limited investing experience, and a lot of it has been post the 2008 market meltdown. We asked some other attitudinal questions and found that they are definitely worried about what the effect on their savings could be if there was another market meltdown.”

In fact, millennial investors are the most fiscally conservative generation since the Great Depression, a study released by UBS found.

Though 21- to 36-year-olds describe their risk tolerance as either conservative or somewhat conservative (34%), their average asset allocation is extremely conservative, with the average portfolio dedicating 52% to cash versus 23% cash for other investors, the study found.

“Millennials seem to be permanently scarred by the 2008 financial crisis,” said Emily Pachuta, head of investor insights for UBS Wealth Management Americas, in a statement that accompanied the study. “They have a Depression-era mindset largely, because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviors.”

A good number of millennials, 45%, see saving money as crucial to success versus 39% of other investors. Most, however, do not see long-term investing as important (28% versus 52% for other investors).

In terms of where to turn for investment advice, only 14% of millennials point to advisors, while 40% of other investors say they are open to working with professionals. In contrast, 62% of millennials are likely to turn to a partner or spouse for advice versus 55% of other investors.

The Depression Era mentality of younger investors, combined with advice they get from family members, is turning them into “a generation of savers who are skeptical about long-term investing and market chasing,” the UBS study said. “Only 12% of millennials said they would invest found money in the market.”

Still, money seems to matter to millennials, who say a household income of $220,000 defines success, and that increased funds would notably improve their happiness, specifically an additional $1 million.

“Conventional wisdom has categorized millennials as ‘entitled’ and ‘lazy’ because they have more than their parents and grandparents did. But this study counters that hypothesis,” Pachuta noted. “They’re conservative, similar to the WWII generation coming out of the Great Depression, not resting on their laurels, but rather working hard for their wealth and success, making sacrifices because they believe their goals are achievable.”

Although millennials have a similar risk profile to older investors, Rice of Market Strategies International noted that the environment has changed.

“This generation is a little different from older generations where there was more of a three-legged stool,” Rice said. “They could rely on the government, Social Security, they could rely on pensions. I think this generation’s very cognizant that they have more personal responsibility for their savings, and they’re very focused on it.”

She suggested that to reach out to younger investors, advisors change the way they engage with them to meet young clients’ expectations. “We do see that online tools are increasingly important to them, using social media and other ways to engage,” she said of the survey results. “It’s a little bit of a different relationship compared with the older investors who might be reliant on print mail or in-person visits or phone calls. Part of it is communicating with them in a way that works for them, just letting them know that the firm is there to meet their needs and is focused on them, even just making them feel important.”


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