Why Advisors Should Target Clients in Their 40s: Cerulli

A financial advisor may do better in building and maintaining long-term client relationships by connecting with younger investors before they reach the stage when they’re more likely to turn over full responsibility to a professional, new research suggests.

A report from Cerulli Associates explores four different investor types and notes a significant jump in those considered “advisor-reliant” once they’ve reached their 50s.

Investors working with financial professionals generally aren’t interested in switching planners, so to hold on to clients, it’s important for advisors to build relationships earlier, according to Cerulli. The firm suggested it may make the most sense to focus on creating relationships with investors in their 40s, based on that age group’s investor profile.

Cerulli Edge—U.S. Retail Investor Edition, 2Q 2022, developed with Phoenix Marketing International, describes four investor behavioral classifications:

• Passive, or “set it and forget it” investors who aren’t particularly interested in financial advice or services
• Self-directed, independent, self-sufficient investors who are hands on with their finances and uninterested in paying for professional advice
• Advice seekers, behaviorally hybrid investors with some DIY characteristics but who actively seek new advice and insight
• Advisor-reliant investors who heavily depend on traditional financial professionals and make few decisions on their own

“On an age basis, the most important trend is the substantial increase in the Advisor-Reliant segment as investors move into their 50s,” the report found. “By age 50, many have had enough experience with their current provider to turn over full control, resulting in a jump in the Advisor-Reliant category to 37% among those ages 50 to 59 and, subsequently, to 52% among those in their 60s.”

40-Something Opportunity

In younger cohorts a plurality of respondents fell into the advice seeker category, at 59% among those in their 30s and 48% in their 40s. While these investors are looking for help, they haven’t decided yet to take a hands-off approach to their portfolios, Cerulli said.

“Younger and less wealthy clients seek help before choosing to invest on their own or choose a long-term advisor — connecting with them early is crucial for sustained growth,” the report said.

The firm also noted an increase in the self-directed classification among those 50 and older, reaching 20% by the 70s.

“In many of these cases, it is likely that former Advice Seekers have gained enough confidence in their own skills and knowledge to take a more active role in the ongoing management of their portfolios,” the report said.

Scott Smith, Cerulli director, said investors in their 50s are at a crossroads.

“These former Advice Seekers can either turn over control [to] their trusted advisors or use the knowledge they’ve captured over the years to take a more active role in the ongoing management of their portfolios long term,” he said. Younger investors want one-on-one help but may not have built sufficient assets yet to attract suitors, Smith added. “It’s imperative to create valued relationships with these investors as they mature into optimal clients.”

‘Advice Seekers’ Open and Eager

Cerulli sees significant opportunity for advisors to build relationships with the advice seekers, who overwhelmingly trust financial services firms to look out for their best interests, the report said.

“Advice seekers are an eager — and largely untapped — market for expansion, though their high personal engagement with investing means providers need to ensure they have a competitive product offering that suits their needs, lest they go elsewhere,” according to the report.

Advice seekers prefer high advisor engagement and are highly optimistic and open to new investment options, according to the report, which also found they comprise nearly half of investors working with bank advisors. 

Advice seekers working with bank advisors often move on to firms they believe to be more focused on wealth management “due to a perception of increased expertise or previous disappointing service engagements,” the report said.

While only 15% of those surveyed planned to move some or all of their business to a new financial professional in the following 12 months, 45% of advice seekers expected to make that move.

Among other findings, Cerulli reported that self-directed investors have little trust in financial professionals and are open to digital engagement but not robo-advice. Advisor-reliant investors, on the other hand, tend to have a conservative risk profile, have little or no involvement in their finances and are reluctant to adopt digital engagement. 

Advisors could find opportunities even among passive investors, who may be open to suitable relationships with financial professionals, according to Cerulli. 

“The challenge for attracting this group is to provide appropriate investment products that do not require a high level of management, such as annuities or index funds, while also setting up financial plans that have specified points for engagement that can guide future decision making while still being largely a ‘set it and forget it’ type of strategy,” the report said.

Nearly half of investors are open to the new investment offerings, and those in the advice-seeking and advice-reliant groups want professional help with these products, according to Cerulli, which said it’s crucial that advisors keep up with new investment and portfolio trends. Advice seekers were the most interested in exploring new investment categories.