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Retirement Planning > Saving for Retirement

Keys to attracting millennials: fiduciary model, holistic planning

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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.

Related: Advisors may revamp their practices in wake of DOL rule

“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.

Related: 6 ways to market life insurance to millennials

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.

Related: How to effectively reach the affluent market

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.

Related: Want to better serve your clients? Team up!

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.

Related: Americans’ views on financial security vary by generation

For Millennial investors, the top three financial concerns are financing a large expense, such as a wedding or vehicle (31 percent) financing children’s education (30 percent) and saving enough for retirement (26 percent). Gen X investors cite saving enough for retirement (47 percent), taxes (30 percent) and financing children’s education (22 percent). Baby Boomer investors cite cost of healthcare (40 percent), protecting assets (35 percent) and generating reliable income during retirement (30 percent).

Yet, when asked to cite clients’ top three concerns, advisors say saving for retirement (40 percent), protecting assets (34 percent) and managing volatility (31 percent) are most important.

According to advisors, client’s concerns about taxes (22 percent) are rated sixth, saving for children’s education (13 percent) and buying a home (13 percent) are tied for eighth, and saving for large expenses (8 percent) are rated ninth. This will require a shift in perspective. Failing to understand millennial and Gen X investors — where they are in their financial life and what keeps them up at night — could impact advisors’ efforts to attract new clients, drive growth and enhance profitability, the report notes.

Related: A tale of woes: boomers trying to build a retirement nest egg

Merging innovative technology with guided advice

Advisor Authority reveals how younger investors—especially millennials—place a greater priority on technology. This year’s study also shows how future generations —and the future of financial advice — depends not just on innovative technology, but also on access to unbiased advisors who can have a real dialogue with clients and provide financial planning in a more holistic way.

When selecting factors that influence investors to work with an advisor, younger investors — both Millennials and Gen-X — rate technology such as enhancements to current website, robust cyber security and mobile technology as more important than their older counterparts.

Related: Technology to the rescue for fiduciary rule compliance

Likewise, millennials are more likely to be confident that robo-advisors and other digital advisory solutions can manage the volatile market, while older investors are not: Nearly half (45 percent) of Millennials are confident compared to only 19 percent of Gen X and just 14 percent of Baby Boomers.

Younger investors also prefer a more “low-touch” level of engagement. More than half (51 percent) of millennial investors prefer low-touch, while just 19 percent prefer high-touch.

The balance shifts clearly for older generations. For Gen Xers, 43 percent prefer low-touch and 24 percent prefer high-touch. For boomers, 41 percent prefer low-touch, and 38 prefer percent high-touch.

Regardless of age, the preferred method of communication with their advisors involves one-on-one engagement.

Surprisingly, millennial investors are more likely to choose face-to-face (22 percent) as their preferred method of communication, followed closely by email (21 percent), and phone call (18 percent). Gen Xers rate phone call (36 percent) and face to face (28 percent) higher than email (13 percent). Boomers are even more likely to rate phone call (40 percent) and face to face (40 percent) far higher than email (11 percent).

And advisors should not ignore innovative channels of communication, such as text messages, social media and video chat, as their usage is stronger among millennials and is likely to continue to grow 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,” says Jefferson National Laurence Greenberg. “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.”   

Related: 6 key facts that can help advisors capture a piece of the substantial mass-affluent market


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