Wealth managers, in the US and wider afield, face a
lethal generation gap, as younger generations poised to inherit
billions of dollars in the next few years see little need for
exclusive financial planning relationships. Charles Davis looks at
three surveys digging into these demographic investment
trends.
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Wealth managers have cause for concern. Younger investors in the
US trust financial advisers less, are much less likely to seek out
their own advice and are more comfortable using online tools to
manage their own finances.
That is worrying news for financial
planners, as the younger affluent sense no need for fee-based
planning, even as the financial complexity of their portfolios is
set to grow exponentially as they come into greater wealth.
A pair of studies released by TD
Ameritrade earlier this year highlights the risk and reward of
greater personal involvement by younger Americans in financial
planning.
Although TD Ameritrade caters for
an affluent market targeting clients with investible assets of
$500,000 to $750,000, the findings underscore the urgency with
which wealth managers need to engage with younger investors who
will be tomorrow’s high net worth clients.
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By GlobalData
The good news is that they are
taking responsibility for their finances earlier than older
generations. In fact, 69% of Gen Y (22 to 34) and 62% of Gen X (age
35 to 46) respondents took responsibility for managing their
finances in their teens, compared to 53% of Boomers (age 47 to 66)
and 41% of Matures (66 and up) who reported the same.
Young American investors feel well
prepared to handle their own budgets and are optimistic about the
future – but that does not mean they trust financial advisers. Many
are much more interested in online tools and self-directed
investing – fine for the middle market but a real threat for wealth
management.
“With access to online resources
and tools, younger generations are now able to take financial
matters into their own hands to gain the financial confidence they
need to succeed,” said Stuart Rubinstein, managing director of
client engagement at TD Ameritrade.
The study, conducted by Maritz on
behalf of Ameritrade, found that 52% of Gen X and 64% of Gen Y
relied more on websites than any other source for financial
information. Boomers and Matures were more likely to turn to TV,
radio and newspapers.
A third of the Gen Y respondents
relied on social media for news about the economy and financial
markets, compared with 27% of Gen X, 21% of Boomers, and 14% of
Matures.
Most ominously, only 21% of Gen Y
and 32% of Gen X turn to professional investment advisers for
financial news, compared with 38% of Boomers and 37% of Matures.
Gen Y is most skeptical of professional investment advisers, with
only 10% of respondents trusting them most as a valued source of
news.
Unless wealth management firms can
bridge the trust gap with young affluents, they risk losing an
entire generation.
The young
conservatives
The research also showed that young
affluents are also far more conservative in their investment
philosophies at this point in their lifetimes. Generation Y’s views
on money echo that of another generation: their grandparents who
grew up in the wake of the 1929 market crash and the Great
Depression.
By contrast, their parents – Baby
Boomers – were buoyed by several major bull markets, soaring home
values and the proliferation of easy consumer credit. The
opportunities presented by the boom years cemented a generational
adviser relationship that has formed the backbone of the last 20
years, with the wealthy actively seeking expertise.
That generation is yielding to a
crop of younger affluent investors much less likely to seek the
same advising relationship, and with a much more conservative
investing philosophy.
Ameritrade’s research mirrors a
similar study from Bank of America Merrill Lynch survey earlier
this year which found that 52% of young, affluent investors seek
lower risks when choosing investment strategies.
According to the survey, a greater
percentage of younger individuals ages 18-34 (mean age of 30)
describe their risk tolerance as low than do investors ages 35-50
and those 51- 64. The only age group with a comparable percentage
to younger investors in terms of having a low risk tolerance are
those ages 65 and older (55%), among whom 87% indicated that they
are retired.
The survey also found that, when investing, 46% of affluent
individuals overall describe themselves as being more conservative
today than they were one year ago. This jumps to 56% among younger
investors ages 18-34, the highest percentage among all age
groups.
