4 affluent Gen X, millennial investor profiles

Financial advisors need as much information as they can get about younger investors, if for no other reason than to better anticipate the huge transfer of wealth from baby boomers to their children.

Millennials are inundated with media coverage. But what about Gen Xers, or the generation of people roughly born between the late 1968 and 1979? This rising sandwich generation receives much less media attention.

Global X, an exchange-traded-fund provider, recently studied investors in these two demographic groups and found several distinctions between and within each one in terms of their understanding of investing and their approach to saving.

According to these researchers, Gen Xers can best be broken down into “cautious consulters” and “knowledgeable Xs,” while millennials are seen as “builders” and “adrenaline techies.”

These attitudes feed directly into each group’s investment styles.

“We believe this survey can serve as a helpful guide for many financial advisors who seek to better understand their future potential clients and what makes them tick,” said Global X’s research director, Jay Jacobs.

Key commonalities emerged when investors were grouped by age and wealth bracket, Jacobs said. “While the ‘builders’ and ‘adrenaline techies’ are both technically considered millennial investors, understanding their behavioral nuances are essential for an advisor seeking to help an investor better save for his or her future.”

ORC International conducted the retail market survey late in the second quarter with 2,250 Gen Xers and millennials (21 years and older, born from 1980 to 1995), with minimum investable assets of $100,000.

Keep reading for a closer analysis of these affluent young adults…

Gen X lags in saving for emergencies

(Photo: iStock)

Builders

Millennials with $100,000 to $250,000 in investable assets have just begun to save and invest. Indeed, savings do not yet significantly figure into their financial plans, as they are 26 percent less likely than other investors to have a plan to save for their children’s education.

Investors in this group tend to be ignorant of some financial strategies, such as smart beta ETFs. And they prioritize low fees over other features of investment vehicles.

In addition, they are 30 percent less likely than other investor groups to use a financial advisor’s services, and 49 percent less likely to obtain financial information from an advisor.

Financial advisor opportunity:

Show commitment to educating these investors on financial concepts
Help them plan for future expenses, in particular their children’s education
Become expert in and use digital communication

Adrenaline techies

Wealthier millennials with more than $250,000 in individual investable assets trade frequently — they’re 125 percent likelier than other investors to trade at least 10 times a month — and they strongly prefer to use robo-advisors and get their information via apps and podcasts.

This group likes ETFs; they’re 38 percent more likely than other investors to find ETFs appealing and 43 percent likelier to consider smart beta ETFs in a portfolio. They’re also 28 percent more likely to grow a nest egg.

However, their frequent trading — trading as a hobby — and strong comfort level with investing in a variety of financial instruments suggest short-sightedness in their quest to quickly acquire wealth and a degree of overconfidence.

Financial advisors can educate these investors about the pitfalls of frequent trading, and use smart beta ETFs to show them the potential of plain vanilla investing over robos and apps.

Cautious consulters

Gen Xers with $100,000 to $500,000 in individual investable assets are not frequent traders; in fact, they’re 55 percent less likely than other investors surveyed to trade as a hobby.

At the same time, they’re 38 percent more likely to save for retirement than invest for pleasure or short-term purchases, and 33 percent likelier than other groups to use a broker/advisor.

When it comes to investing, they’ll need extra “hand-holding” in explaining portfolio construction. They will hesitate in making changes to their portfolios.

Financial advisors can increase these investors’ financial knowledge and comfort levels and create a long-term, low-turnover and low-risk portfolio strategy for achieving their retirement goals.

Knowledgeable Xs

Wealthier Gen Xers, those with $500,000 or more in investable assets, are the most sophisticated investors in the survey, thanks to their higher net worth and longer experience investing.

They have a better understanding of various investment vehicles, being 15 percent likelier to be knowledgeable about ETFs and 12 percent more likely to know about smart beta ETFs.

As well, they use advisors/brokers rather than technology for their investments, and rely on their advisor for financial information. The survey found them 45 percent less likely than other groups to use a robo-advisor, and 17 percent likelier to get information from an advisor.

They prefer mutual funds, but more than other investors surveyed also want low management fees, the ability to trade throughout the day, transparency and tax efficiency.

This suggests they may benefit from a more ETF-centric portfolio.

The financial advisor can reinforce the benefits of ETFs, and recommend converting a mutual fund portfolio to one based on these vehicles. Regularly providing these clients with high-quality insights is also important.

Advisors can gain a competitive advantage by demonstrating their knowledge the value of their firm compared with the competition.