What You Need to Know
- By 2030, Generations X & Y households will control 47% of wealth in U.S., vs. 45% of baby boomers.
- Firms in the top quartile of revenue growth have more younger investors among their clients.
- This group prefers a financial coach to a financial planner.
Baby boomers have been financial advisors’ core client base for years, but a practice needs new blood to continue to grow. Considering that Gen Xers and millennials will control 47% of wealth in the United States by 2030, advisors need to understand how to attract this younger group and adapt their firms accordingly.
And the younger generations’ wealth will only increase as they inherit a “significant share of the $24 trillion expected to be passed down in the next decade,” according to a new study by T. Rowe Price that explores attitudes of the next generation toward financial planning — and planners. “In fact, the next generation will surpass baby boomer inheritances in just three years.”
Also, firms with the highest revenue growth had the largest percentage of clients under 55 (the oldest Gen Xers turn 56 this year). The study found that 37% of clients at firms in the top quartile of revenue growth fell into this age range. Only 12% of clients at bottom-quartile firms were 55 or younger.
The quantitative and qualitative study looked at the top 10% of earners between ages 25 to 49, over-sampling diverse demographics, with $100,000 to $1 million in investable assets, compared with those over 50 with more than $1 million in investable assets. The study looks at subsets of these groups as well.
The Pew Research Center defines Generation X as Americans born from 1965 to 1980 and millennials as those born from 1981 to 1996.
‘An Old White Guy on a Golf Course’
Gen Xers and millennials have a certain views of advisors, the study found, stating they are usually “an old white guy on a golf course” or “they’re geared toward people who have a magic amount of money.”
Here are seven findings about the younger generations and what steps advisors can take to earn their business.
1. Next-wave investors don’t believe they are doing that well — or that advisors want their business.
They don’t see themselves as “wealthy,” and therefore don’t believe an advisor is interested in them, the study found. Further, they don’t relate to “an overabundance” of messages about retirement.
The younger set of these investors, those born after 1980, have what T. Rowe Price calls a “scarcity mindset.” They have seen two major recessions, a war and now a global pandemic without the ”prosperity” of the 1980s and 1990s in adulthood.
This has had a big impact on their investing, the study notes: They save more, they are more conservative and risk-averse than older investors and feel negatively about their current situation. Most don’t feel they are rich enough to afford an advisor.