Young Gen X and millennial investors demand a holistic and fiduciary approach to financial planning and appreciate the benefits of merging innovative technology with guided advice, according to new research.
Jefferson National unveils this finding in a new its second annual “Advisor Authority Study.” Conducted by Harris Poll, the report surveyed 1,400 RIAs, fee-based advisors and individual investors. The report identifies top concerns, distinct needs and unique preferences of different generations of investors, to help advisors earn the trust and business of this emerging market.
“There is a tremendous opportunity shaping the future of financial advice, as an emerging market of younger investors continues to grow in numbers and to build their own wealth,” says Mitchell Caplan, CEO of Jefferson National. “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.
“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,” he adds. “Coming of age in a new normal of unlimited access to information and the rapid expansion of financial technology, younger investors demand complete transparency and expect holistic approach built on digital solutions plus guided advice.”
The market opportunity
The report shows that year-over-year the pursuit of profitability is advisors’ single most important practice management issue, and adding new clients is the top driver. The most successful advisors in this study are a step ahead in focusing on the next generation of younger investors.
High asset under management (AUM) advisors who manage $250 million or more say Gen-Xers (ages 36-51) are their primary target. “High-earning advisors” who earn personal income of $500,000 or more say that the younger generation of millennials (ages 18 to 35) are their primary target.
With baby boomers shifting into retirement at a rate of nearly 10,000 per day over the next 19 years according to the Pew Research Center, advisors should pay special attention to the ripe market of Gen Xers who are entering their prime earning years. The Deloitte Center for Financial Services projects that Gen Xers’ net worth is projected to increase from $11 trillion in 2015 to $37 trillion by 2030.
Yet less than half (42 percent) currently work with a financial advisor, according to Advisor Authority. Likewise, millennials’ net worth is projected to increase from $4 trillion in 2015 to $20 trillion by 2030, according to Deloitte. And, just slightly more than half (52 percent) of millennials are currently working with a financial advisor, according to Advisor Authority.
Bridging the generational divide
When younger investors are asked what matters most for choosing an advisor, clear priorities emerge. According to Advisor Authority, every generation of investor says experience matters, while many also value advisors who put their clients’ best interests first.
When asked to name top priorities for choosing to work with an advisor, Gen X investors are more likely to say:
years of experience (43 percent)
personalized advice for a holistic financial picture (37 percent); and
use a fee-based fiduciary standard, instead of a commission-based sales model (22 percent)
Millennial investors are more likely to say:
reducing fees for younger clients (32 percent)
years of experience (31 percent)
socially responsible investing (23 percent)
personalized advice for a holistic financial picture (20 percent); and
a fee-based fiduciary standard, instead of a commission-based sales model (17 percent).
Yet, when asked to name their top three priorities to attract the next generation of investors, advisors cite working with a client’s family and children (36 percent), increased use of social media (36 percent), and increased use of mobile technology (26 percent). By neglecting to address younger investors’ top priorities — including holistic planning, a fiduciary standard, lowering fees and socially responsible investing — advisors are missing an important opportunity to connect and build trust with a growing market that is on the path to earning more, building more wealth, and requiring ever more sophisticated financial solutions over time.
Top concerns at different stages
Advisor Authority reveals how investors’ top financial concerns over the next 12 months, largely reflect their stage of life. While saving for retirement is a priority for investors across every generation, younger investors— both Gen X and millennial — express different concerns compared to their older counterparts. By understanding what matters most to each generation at every different stage — and knowing how those preferences will change over time — advisors can better serve existing clients and attract new prospects.