The New Demographics

Reading The Generational Tea Leaves

How advisors can tap into the Millennium hunger for investing

by Andrew Guillette & Matt Schiffman

Mr. Guillette is Vice President of Distribution Insights and Mr. Schiffman is Principal of Distribution Insight at Broadridge Financial Solutions, a data and intelligence fin-tech. Visit broadridge.com.

Over the past 18 months, the Covid-19 pandemic has forced financial advisors to reinvent many of their tried-and-true methods of engaging with clients and running their businesses. Most advisors, for example, would never have chosen virtual over face-to-face client meetings two years ago, but now some may have actually begun to prefer Zoom in some situations. The good news is that many of the changes advisors have made since early 2020 have been largely viewed positively by clients, sometimes even leading to deeper relationships and greater trust.

At Broadridge, our vast data warehouses place us in a unique position to extract critical information about the financial services industry. By sorting through billions of investor data points and the results of our quarterly surveys, we’ve discovered many actionable insights for advisors. Here, we share three of our most useful observations for advisors in managing your business going forward.

Trend #1: Democratization of Investing

More Americans than ever are investing, with new classes of tech-enabled mass market and Millennial investors on the rise. Fractional shares and low-cost exchange-traded funds have eliminated price barriers to investing. Social isolation and boredom during the Covid-19 pandemic have given investors the time to figure out how to set up accounts and to use them. Empowered by platforms that eliminate transaction costs, trading apps on their smart phones, and PPP dollars burning a hole in their pockets, average people may have found themselves asking: Why not buy a few fractional shares of Tesla on the Robinhood app on my iPhone and watch what happens?

To put the mass market phenomenon into perspective, the slice of households with less than $100,000 in investable assets participating in investment activities grew to 41% at year-end 2020 from 30% in 2017. Asset share held by this group increased to 12% at year-end 2020 from 7% in 2017. These data points show mass market investors are expanding into a bigger piece of the pie.

Meanwhile, Millennials—those Americans born between 1981 and 1996—are the fastest growing generational group. The percentage of Millennials who invest grew to 16% in 2020 from 9% in 2017, while their asset share increased to 4% from 2% over the same period. Millennial investors account for about 25% of the mass market, and they are the least reliant on mutual funds and most reliant on ETFs. While Millennials may lack the experience of other investors, they tend to like learning and information gathering. The industry should capitalize on this hunger for information by inundating them not only with free trading apps but also with education. These newly active and upwardly mobile investors need to learn the basics of responsible investing to protect their own outcomes, and providers have a stake in ensuring investment competence to secure the viability of the industry.

For advisors, the implications of the trend toward democratization are two-fold. First, FAs do not target Millennials proactively. According to our most recent quarterly advisor survey, only 8% of the third of advisors who target specific groups even mentioned Millennials. This is despite the fact that Millennials are the largest cohort within the workforce, they are upwardly mobile, and they stand to inherit wealth. We believe this lack of attention to Millennials is a missed opportunity. The easiest way to start tapping into this market would be to reach out to current clients with Millennial children and begin finding ways to include the offspring in their conversations.

Second, clients are clearly relying more on technology. The younger generations, in particular, prefer using digital and mobile apps for information and communication. Savvy advisors should be willing to use these technologies to interact in the ways clients choose.

Trend #2: Positive State of Mind

A year after the start of the Covid-19 pandemic, our research found many investors were feeling better about their financial situation than they had felt a year earlier. They felt most confident when they were working with an advisor and a financial plan.

More specifically, 39% felt “better” about their own financial situation. That’s despite feeling less positive about the economy or stock market, where a major decline tops their list of major concerns. Although seven in 10 were reasonably positive about their own financial well-being, only about a third reported feeling “very confident” about achieving their financial goals. Peeling back further into that third who reported feeling most confident, 62% of them were working with a financial advisor and 28% had a formal financial plan. This finding reinforces the trend toward advisors spending more time with investors and creating financial plans, which are facilitated by models, SMAs and other forms of automation.

Despite improvements in technology and automation of services, the human touch remains in high demand. This is true even for the younger generation of investors...

Advisors have picked up on the enthusiasm for advice and financial plans, and they have adjusted their practices accordingly. Whereas advisors used to spend much of their day overseeing investment-related transactions, they have evolved to focus more time and energy on holistic financial plans. They have been minimizing their involvement with transactions by using SMAs and model portfolios, which free them up to focus on reviewing financial goals with clients. Our survey found most advisors expecting to be spend more time with clients this year versus last year. Given data showing the younger generation of investors is interested in holistic planning services, it’s critical that advisors adjust their business activity to meet these needs of the younger generation.

Asset managers should also be paying attention to these trends. As advisors increasingly look to models and SMAs, they appreciate any support they can get from asset managers in terms of educational materials and practice expansion tools.

Trend #3: Value of Advice

In addition to feeling positive about their financial situations, investors appreciate the advice they’ve been receiving from their advisors during these turbulent times. Despite improvements in technology and automation of services, the human touch remains in high demand. This is true even for the younger generation of investors.

Overall, 96% of investors reported feeling very or somewhat satisfied with their financial advisors, with 70% saying they felt very satisfied. The Silent Generation (born 1928-1945) was most likely to be very satisfied, while the Millennials were least likely. Millennials surprisingly were not terribly different from prior generations in terms of advisor usage, however. Also surprising, the primary advisory channel for Millennials was full-service brokerage at 54%, which is roughly the same statistic as the Gen-X and Boomer segments. The Silent Generation logged in with 48%, but all segments reported full-service brokerage as their primary advisory channel by a significant margin.

At the same time, Millennials were most likely to report having a self-directed brokerage account at about two-thirds. Here again, the breakdown was similar to what we found with the older generations. And all generations leaned most heavily on established firms for their online accounts. Traditional full-service players such as Fidelity and Merrill Lynch held top spots in this metric, while Robinhood (focusing solely on stock trading) ranked fifth.

The fact that so many investors in all generational segments maintain online accounts is indeed proof of a digital revolution, but our findings highlight human advice continuing to lead the way. Although Robo accounts have received a fair amount of attention and certainly offer promise in certain situations, overall familiarity with them remains fairly low. Moreover, 65% of Millennial and 57% of Gen-X investors who said they are not using an advisor currently reported they are likely to use one in the next two years. Concerns about not being able to meet their financial goals were the primary motivator prompting them to seek advice. This finding indicates a pipeline of potential clients in these market segments for advisors.

A final observation on self-directed trading is that our surveys found investors have self-directed online accounts because they enjoy dabbling in investing. Rather than discouraging this activity, advisors should support their clients who have self-directed accounts. Providing research and educating the investor who wishes to orchestrate their own trading in an account will only serve to enhance the relationship with the client and reinforce the overall goals of the holistic financial plan.

Action Plan for Advisors

The three trends we’ve explored highlight clear opportunities for advisors, and we recommend three steps for making the most of them. First, begin paying attention to the Millennial market. One of the easiest ways to start doing this is by asking your existing clients for introductions to their Millennial children. You can start connecting with the younger generation by being a trusted source of information about things they care about, such as ESG, ETFs and online investing.

Second, recognize that your clients are using technology and many of them have online accounts. Ask them about their online activities. Rather than discouraging them, encourage them to talk to you about their online activities within the context of their financial plan. Provide them with resources to help facilitate their information-gathering and decision-making process. This will help deepen your relationships and provide greater trust. Finally, continue expanding your focus on holistic planning. Clients appreciate the human touch. They feel more confident knowing that you are in charge of their financial plans. They understand they are less likely to reach their goals without you.

 

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