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Retirement Planning > Saving for Retirement

Add millennial clients before they get wealthy

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Advisors know that millennial clients are where the market growth is. But the biggest growth market of all may be one often overlooked by RIAs: millennials with high earnings but who are not yet wealthy.

These investors are more likely than millennials who are already wealthy to choose their own advisor, according to a new study released Tuesday by TD Ameritrade, and many don’t have an advisor but would like one.

Indeed, TD Ameritrade said that tapping millennials may be critical to the investment advisor business. Consider that 10 percent of current clients are under 40, and half are older than 60.

As well, millennials can expect to inherit trillions of dollars from the baby boomers who have long sustained RIAs. A recent report said that ultra-wealthy individuals would transfer $16 trillion over the next three decades.

TD Ameritrade based its study on a survey conducted in January and February 2014 by The Pert Group of 536 investors ages 18 to 39, as well as a comparison group of another 273 investors 40 years and older.

“Advisors can’t wait until this next generation is wealthy before they start rolling out the red carpet,” Tom Nally, president of TD Ameritrade Institutional, said in a statement.

“Our latest research shows RIAs would be well-served pursuing young investors who may not have great wealth yet, but who have high earnings potential and are eager to work with a professional advisor.”

Here’s why.

The survey found that among high-potential millennials — those with less than $500,000 to invest but who earn more than $150,000 a year — 55 percent had hired their own advisor, while 29 percent planned to retain the incumbent family advisor.

This compared with 63 percent of high-net-worth millennials with an advisor who said they had kept the family’s advisor and did not plan to change.

TD Ameritrade considered high-net-worth millennials those with more than $500,000 in investable assets.

The study found that although 65 percent of wealthy millennials used an advisor versus 33 percent of their high-potential peers, some 70 percent of the latter said they wanted an advisor to help manage their finances. And, importantly, 62 percent in this category were women.

The two groups differed on the desirable age of an advisor, with high-net-worth millennials preferring a contemporary and high-potential ones wanting someone older.

The survey found that mass-affluent millennials — those who earned less than $150,000 and had less than $500,000 to invest — worried about accumulating enough savings, meeting health care costs and having to work longer.  

They were less likely to hire an advisor, instead looking to family and friends for financial guidance.

What they’re thinking

The survey found that wealthy millennials thought success meant not depending on a job for income, being able to afford luxury items and setting aside money for retirement and education.

In contrast, high-potential and mass affluent millennials were more concerned with having enough money saved for a “comfortable” retirement.

Some two-thirds of potentially wealthy millennials were optimistic about their financial prospects, compared with half of those who were already wealthy.

High-net-worth millennials were much likelier to be pessimistic about achieving their goals than the potentials, according to the survey.

All millennials said “making smart investments” and “hard work” were keys to acquiring wealth.

The high-potential and mass affluent respondents said being frugal was a top factor, while the wealthy cited family connections and owning a business.

The potentially wealthy said they expected to work longer, with an average retirement target age of 60.1 years, compared with 56.8 years among their already wealthy peers.

Potentials anticipated needing to save $5 million before they could retire, versus $4.5 million among the high-net-worth segment.

All millennials in the survey worried about outliving their savings, needing to work longer and meeting health care expenses. True, the wealthy were less worried, but were still mindful of the cost of caring for an elder.

About one in five high-potential millennials said they expected to inherit $100,000 or more, while nearly two out of five wealthy millennials had a similar expectation.

See also:

In 5 years, millennials will make up 50% of the workforce 

What’s your money story?


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