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How Advisors Can Earn Next-Gen Investors’ Trust

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An emerging market of younger investors is shaping the future of financial advice, demanding complete transparency and expecting a holistic approach built on digital solutions augmented by guided advice, Jefferson National reported in a study released Tuesday.

“Our industry’s success is reliant on advisors’ ability to meet the needs of Gen Xers in their prime earning years and millennials launching their careers — and our research shows how the most successful advisors are more proactive at working to bridge the divide and meet the distinct needs of the next generation,” says Mitchell Caplan, Jefferson National’s chief executive.

Harris Poll conducted an online survey within the U.S. on Jefferson National’s behalf in March, using a sample from the Harris Poll panel of financial advisors and investors. The financial advisor cohort comprised 440 independent RIAs and 243 broker-/dealer reps.

Among the investor respondents, 167 were mass affluent, 184 emerging high net worth, 199 high net worth and 183 ultra-high net worth. Researchers defined generations as millennials, 18 to 35; Gen X, 36 to 51; baby boomers, 52 to 70; and matures, 71 and older.

Jefferson National said its research showed that year over year, the pursuit of profitability was advisors’ single most important practice management issue, and adding new clients was the top driver.

The most successful advisors in the new study were focused on the next generation of younger investors. Advisors who managed $250 million or more said Gen Xers were their primary target, and those who earned personal income of $500,000 or more said millennials were their main target.

The study, citing Pew Research Center data, said that with some 10,000 boomers per day moving into retirement over the next 19 years, advisors should focus on Gen Xers who are entering their prime earning years.

This generation’s net worth is projected to increase from $11 trillion in 2015 to $37 trillion by 2030, according to a Deloitte report referenced in the study. Yet only 42% of Gen Xers currently work with a financial advisor.

Likewise, millennials’ net worth is projected to increase from $4 trillion in 2015 to $20 trillion by 2030, and just 52% are currently engaged with a financial advisor, according to the study.

Missing an Opportunity

Younger investors know what they want when selecting an advisor, the study found. But advisors have yet to address their needs.

Consider the differing priorities of younger investors and advisors in the study.

When asked to name top priorities for choosing to work with an advisor, Gen X investors listed these:

  • Years of experience — 43%
  • Personalized advice for a holistic financial picture — 37%
  • Fee-based fiduciary standard, instead of a commission-based sales model — 22%

Millennial investors’ priorities:

  • Reduced fees for younger clients — 32%
  • Years of experience — 31%
  • Socially responsible investing — 23%
  • Personalized advice for a holistic financial picture — 20%
  • Fee-based fiduciary standard, instead of a commission-based sales model — 17%

Yet, when advisors were asked to name their top three priorities to attract the next generation of investors, 36% cited working with a client’s family and children, another 36% said increased use of social media and 26% cited increased use of mobile technology.

By failing to address younger investors’ chief priorities, the study said, advisors were missing an opportunity to connect and build trust with a growing market that is building more wealth and demanding increasingly sophisticated financial solutions over time.

Investors’ vs. Advisors’ Perspectives

The study showed how investors’ top financial concerns over the next 12 months largely reflect their stage of life. Advisors can better serve existing clients and attract new ones, the study said, by understanding what matters most to each generation and knowing how those preferences will change over time.

Saving for retirement was a priority for investors across every generation, but both Gen Xers and millennials had very different concerns compared with their older counterparts.

For 31% of millennial investors in the survey, the top financial concern was financing a large expense, for 30% financing children’s education and for 26% saving enough for retirement.

Forty-seven percent of Gen X investors cited saving enough for retirement, 30% taxes and 22% financing children’s education.

Boomers’ priorities reflected their advanced age. Forty percent cited the cost of health care as their main concern, 35% protecting assets and 30% generating reliable income during retirement.

In contrast, 40% of advisors asked to list their clients’ top three concerns cited saving for retirement, 34% protecting assets and 31% managing volatility. They ranked other client concerns lower: Taxes rated sixth at 22%, saving for children’s education and buying a home tied for eighth at 13% and saving for large expenses came in ninth at 8%.

Clearly, advisors will have to shift their perspective, the study said. Failure to understand where Gen X and millennial investors are in their financial life and what keeps them up at night could adversely affect advisors’ efforts to attract new clients, drive growth and enhance profitability.

Technology + Guided Advice

The new study looked at how the future of financial advice depends not only on innovative technology, but also on access to unbiased advisors.

Gen X and millennial investors in the survey rated technology — such as enhancements to an advisor’s website, robust cybersecurity and mobile technology — as a more important factor influencing them to work with an advisor than did older investors.

Likewise, 45% of millennials said they were confident that robo-advisors and other digital advisory solutions could manage the volatile market, compared with only 19% of Gen Xers and 14% of boomers who felt this way.

Asked what level of hands-on involvement they wanted their advisor to provide, 51% of millennials investors preferred a more “low-touch” level of engagement, while just 19% preferred a “high-touch” level.

The balance shifted for older generations: 43% of Gen Xers preferred low-touch and 24% high-touch, while 41% of boomers preferred low-touch and 38% high-touch.

Age aside, however, investors’ preferred method of communication with their advisors involves one-on-one engagement.

Twenty-two percent of millennial investors chose face-to-face as their preferred method of communication, while 21% chose email and 18% phone call. Thirty-six percent of Gen Xers wanted a phone call, while 28% preferred face-to-face and just 13% email. Both phone call and face-to-face were the preferred method of 40% of boomers, while only 11% favored email.

The study said advisors should not ignore innovative communications channels, such as text messages, social media and video chat, as their use is stronger among millennials and will likely increase in popularity among younger clients.

“Financial advice, and the way in which it is distributed and consumed, can be materially different for each generation of investor,” Laurence Greenberg, president of Jefferson National, said in a statement.

“Changing the business model into a mutually beneficial partnership between advisor and client, using the right combination of innovative technology and guided advice, and providing the right services for the client at the right stage in their life, can create greater value for investors at every level — and also create greater value for advisors at every level.”

— Check out Millennials and Boomers Are More Alike Than You Think on ThinkAdvisor.


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