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Practice Management > Building Your Business > Prospect Clients

Younger Investors Present Massive Opportunity: Fidelity

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What You Need to Know

  • Millennials and Generation Z now collectively represent nearly half of the U.S. population.
  • There is substantial, long-term wealth potential for the financial advisory industry.
  • But advisors need to be intentional in what types of next-gen clients they seek, based not just on current assets but savings rate and the service level they require.

Population and wealth are significantly shifting to millennials and Generation Z, who now collectively represent 47% of the U.S. population, according to a recent report from Fidelity Institutional. Because of their sheer numbers and wealth potential, next-generation investors will play a pivotal role in the growth, valuation and long-term success of firms in the financial advisory sector.

Millions of 18- to 34-year-olds have started investing since the beginning of the COVID-19 pandemic. Along with their rise came an influx of social media influencers and fintech outfits eager to help them save and invest.

Financial advisors — who typically have preferred serving the already-affluent (and typically older) generations — have an opportunity to become educated on younger investors’ needs now and make strategic adjustments to serve them well and profitably.

Most of the findings in this report came from the Fidelity Investments 2022 Investor Insights Study, which included 2,490 investors who were 21 and older and had household investable assets of $50,000 or more.

Importance of Young Clients

Fidelity noted that although it may be difficult for some advisors to consider serving this not-yet-affluent group, they should consider these attributes of young investors:

  • They prefer to do most of their financial business with one firm.
  • They are loyal, likely to recommend their advisor to family, friends or colleagues.
  • They are motivated to improve their financial situation.
  • They believe a financial advisor will help them achieve financial or investment success.
  • They are willing to pay for advice.

Not all millennials and Gen Zers are the same, however. Fidelity’s analysis showed that an individual’s savings rate and service level are chief factors in determining the long-term profitability of a client; sometimes clients with higher assets or incomes are not the most valuable to an advisor’s business over time.

For that reason, it is important for advisors to be deliberate about the attributes they seek in a younger client — e.g., profession, savings rate and service demand — so that they can attain revenue and profitability goals in the future.

Given their lived experiences, next-generation investors do not fit the same mold as their older counterparts at comparable ages, according to the study. They are following nontraditional life paths, driven by values, always connected to technology, motivated by fear of missing out (FOMO) and focused on mental health, and they value diversity.

Understanding the nuances of serving these young investors will help advisors better tailor their approach when offering to help them, the report suggests.

What Millennials and Gen Zers Value in a Relationship

Fidelity’s analysis found that younger investors often want to co-pilot their financial lives and be engaged in decisions rather than simply delegate them to an advisor. They appreciate a full spectrum of advice, from investment management to financial planning to help achieving life goals. They value an accountability partner or behavioral coach to keep them on track.

Although saving for retirement is a priority — and source of stress — for many young investors, they are more likely than their older counterparts to focus on creating financial independence, to stop working entirely or pursue passions. In turn, Fidelity said, they need guidance on how to save and invest for earlier retirement or shifting to lower-paying jobs later in life.

Millennials and Gen Zers also want to gain access to new investments their older counterparts generally eschew, such as investments based on environmental, social and governance themes; directly held cryptocurrencies; and thematic funds.

What Advisors Can Do

Fidelity noted that financial advisors have a track record of evolving to better meet client needs, and can pivot once more to serve the needs of younger generations. The study suggested several steps they can take to better meet young investors’ needs and preferences.

Foundation: Get the Basics Right

Advisors should create an ideal profile of the young clients they want to work with. They should also engage with the children of current clients as a way to retain assets when wealth is transferred and potentially take them on as clients.

It is also important to provide holistic financial planning to meet their financial and life-related needs, and to use technology throughout the client life cycle to engage and inform young investors.

Evolution: Enhance and Evolve the Offering

This includes expanded investment products, more use of technology and building a bench of diverse talent to better reflect one’s clients.

Innovation: How to Stand Out

Advisors can differentiate their firms for next-generation investors by becoming a coach, elevating the client experience with such methods as frequent check-ins and establishing and monitoring financial routines.

They can also build specialized expertise and a focused offering for the young clients they most want to serve, and refine their social media strategy to capture their attention.

Advisors can further distinguish themselves by telling young clients what they do for the community and the causes they care about, online and through various client communications, and even involve them in their own philanthropic activities.

(Image: Shutterstock)


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