The need to satisfy younger investors is becoming increasingly clear, especially with Spectrem Group’s newest research report, Advisor Relationships and Changing Advice Requirements.
“While relationships between investors and their financial advisors have healed since the 2008-2009 timeframe, with satisfaction levels increasing for the past few years and now leveling off, there are still issues for financial advisory firms to worry about,” the report’s media executive summary says.
The report, which discusses the depth of the investor-advisor relationship for three wealth segments (mass affluent, millionaires and ultra-high net worth or UHNW), found that younger investors in all three wealth segments expressed less satisfaction with their advisor than older investors, many of whom have long-term relationships with their advisor.
“For the majority of situations in which a financial advisor is used, younger investors have a very different viewpoint compared to their older counterparts,” the summary says.
Take the mass affluent segment, for example. The report defines “mass affluent” as those with a net worth between $100,000 and $1 million.
Overall among the mass affluent investors surveyed, 69 percent reported satisfaction with advisors, which, according to the report, has essentially remained flat over the past several years. That percentage drops to 56 percent for the mass affluent between the ages of 36 and 44.
“The implication is that some amount of advisor switching can be expected as mass affluent investors determine what it is they really want from an advisor and seek out an individual who can deliver that,” the summary says.
In order to change this, the report suggests that advisors need to establish loyalty with their mass affluent investors under age 54.
“Many of these investors are not as satisfied with their advisors as older investors,” states the summary. “They are also more likely to use online brokers and bankers than older investors. This may provide opportunities for other advisor types to reach out to these younger investors.”
While those surveyed in the millionaire category are slightly more likely to be satisfied, at 74 percent, the report cites a “dramatic drop-off” in satisfaction among millionaires age 36 to 44, with less than half of this group saying they were satisfied with their advisor.
Millionaires under 45 are also significantly less likely to be satisfied with their financial plan. The report found that 47 percent of those under 35 were satisfied with their financial plan and those age 36-44 were marginally more satisfied at 54 percent. Whereas, millionaires 65 and older reported being 92 percent satisfied with their financial plan.
Some of this difference may be related to the differing viewpoints among generations.
“Younger millionaires are more likely to compare their advisor’s results to their own investing, to rely less on an advisor and make more of their own financial decisions and to rely on an advisor only for specific types of investments, such as real estate,” according to the media executive summary.
This opinion doesn’t change much for the UHNW investor, which the report defines as those with $5 million to $25 million net worth not including primary residence.
“Higher expectations and shorter relationships make younger UHNW investors more likely to switch than older investors,” states the summary.
Almost half of the UHNW investors surveyed say they rate their advisor on whether they outperform the market, which the report says could create “a danger of switching if performance drops off.”
To increase the rate of satisfaction among UHNW investors, the report says advisors need to focus on broadening and deepening their relationships with clients while the clients are younger.
“Advisory firms need to reassess how they communicate with investors and improve their tools,” says the media executive summary. “Younger investors are more likely to stay with an advisory firm that provides interesting information via blogs, social media and other communication tools. Even face-to-face meetings need to be improved as investors begin to recover from their shock over the recession that occurred five years ago.”
The overall report is based on information from the 2014 millionaire, UHNW and mass affluent investor reports, which are fielded each month with the rotation of questions changing on a quarterly basis. The third quarter’s reports addressed the advisor-investor relationship.