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Data Snack: What do Millennial and Gen Z investors look for in their financial advisor?

  • Today, only 14% of advisory clients are Millennials and Gen Z.
  • But with the 'great wealth transfer' underway, financial advisors cannot afford to ignore this new breed of investment clients.

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Data Snack: What do Millennial and Gen Z investors look for in their financial advisor?

Boomers still dominate the traditional wealth and asset management industry. Today, only 14% of advisory clients are Millennials and Gen Z. But with the 'great wealth transfer' underway, financial advisors cannot afford to ignore this new breed of investment clients.

Yes, younger investors tend to skimp on management fees and will switch providers to get a better deal. In addition, they often have unrealistic expectations for the return on their investments. Green behind the ears, they expect a 25% annual median rate of return from their advisor, whereas Baby Boomers expect a modest 6% rate of return.

However, a Fidelity Investment white paper argues that it is time to start paying attention to young investors. It details how the next generations can help financial advisors grow and recommends steps to take to win their business. Here are the key takeaways:

Long-term profitability

The study shows that younger investors generate more profits over time than older investors. Financial advisors can lay the foundation for long-term and successful client relationships by investing in them early.

Collectively, Gen Y (Millennials) and Gen Z make up almost half of the US population (47%). They will inherit about $84 trillion in wealth between now and 2045. Also, worthwhile evidence shows that the younger generation is ready for professional financial advice:

  • Spurred by the stimulus checks and monotony of lockdowns, 60% of young investors (between ages 18 and 34) started investing in 2020, compared to only 30% of Boomers. 
  • In contrast to 25% of Baby Boomers, 85% of Gen Z and Millennials would like behavioral coaching from their financial advisors to help them avoid mistakes, procrastination, or bad judgments.
  • 78% of Millennials say they are “always looking for new investment ideas."
  • In the past year, Gen Z and Millennials were three times more likely to refer their advisors to friends and family, compared to an average 0.9x referral rate from Baby Boomers.
Next-gen expectations

Today, Millennials and Gen Z are more likely (28%) to work with several advisors than Baby Boomers (9%) to gain access to a range of alternative investments. Plus, they are more price-sensitive than their older counterparts. 56% of respondents indicated they "might be easily persuaded to switch their primary financial advisor if another advisor had reduced costs," compared to only 9% of Baby Boomers.

  • In comparison to older generations, Gen Zers and Millennials are more likely to "expect my primary advisor to be able to report on my digital assets/cryptocurrencies, together with other investment vehicles, as part of a full report." (80% vs 43% of Boomers)
  • Most young investors (almost 7 in 10) who do not currently have an advisor "would like an advisor who provides personalized marketing communications based on my unique requirements and objectives," compared to 45% of Baby Boomers.
  • 71% of younger investors believe financial advisors should have a good website, compared to 40% of Baby Boomers.
Evolving to meet Gen Z needs

Next-generation investors invest differently than their older counterparts did at comparable ages. They invest according to their values and prefer using the latest technology, and their decisions tend to be influenced by FOMO.

Ramping up tech offerings and social media channels, adding educational content, and highlighting ESG initiatives is what financial advisors can do to win over this generation.

  • Among those investing in stocks, 91% of Gen Z and 75% of Gen Y used social media to find investing information. 
  • Almost 8 in 10 Gen YZ investors are more likely to consider an advisor who uses the latest technology versus 58% of Baby Boomers. 
  • And 61% of Gen YZ “prefer to learn about financial topics via online tools, apps or interactive websites versus someone talking about those topics.”

Going after younger investors may initially require financial advisors to pivot to serve the needs of Gen Z and Millennials. According to Fidelity, the trick to profitability is picking the right clients. Young investors with a high savings rate who demand less service outperform those earning higher incomes. 

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