We know several traits about affluent Gen X and Gen Y investors that set them apart from Baby Boomers: they are unusually concerned about inflation yet can't bear to switch out of cash, they want your help in ways they feel are customized to them and they need lots of communication.
But did you also know that younger investors feel overwhelmed by financial choice, think that financial products are too complicated and don't really understand what you're talking about?
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Those are some of the findings of our recent MFS Investing Sentiment Survey that illustrate how unseen barriers may be keeping financial advisers from serving younger investors more effectively. Consider the following:
• When asked whether they feel overwhelmed by all the investment choices available to them, 53% of Gen Y investors and 41% of Gen X investors agreed, compared with 35% of Boomers.
• “I often put off making decisions about my savings and investments for fear of making the wrong choice.” Almost half of Gen Y investors — 48% — agreed with that statement, as compared with 34% of Gen Xers and 25% of boomers.
• More than half of Gen Y investors — 51% — believe that financial services providers make investment products overly complex to confuse the average investor. That compares with 39% of Gen X investors who feel that way and 40% of Baby Boomers.
Confusion, not assistance
As an industry, we have a black belt in trying to confuse the people we're supposed to be helping. Think about it. Has a client ever come to your office asking for a global-local micro-macro long-short equity fixed-income local currency fund?
Of course not. But many of us use terms like that even if we don't realize it. So how do you make things less complicated?
Essentially by explaining what products and strategies are intended to do, rather than by the names the industry has attached to them.
How about an investment that strives for a positive return after inflation, so that it protects purchasing power? There are many mutual funds like that, but the fund industry and financial advisers call them absolute return funds. Investors have no clue what that 'absolute return' means and, as a result, may shy away from an investment that could serve them very well if it only were explained in terms investors could understand.
What to say
Let me give you examples of how to describe certain kinds of investments and how investors in our survey reacted to such descriptions (since you know the jargon terms for these investments, I leave that to you):
• A mutual fund that focuses primarily on generating a regular monthly or quarterly income stream, usually from bonds and dividend-paying stocks, was seen to be extremely or very appealing to 63% of Gen Y investors and 59% of Gen Xers (47% of Boomers). Moreover, 62% of Gen Y investors and 56% of those in Gen X were extremely or very interested in learning more about such an investment, versus 38% of Boomer investors.
• A mutual fund that uses non-traditional asset classes, such as commodities and real estate, to reduce risk due to their low correlation with assets such as stocks and bonds. Some 45% of Gen Y investors and 39% of Gen Xers found such a fund extremely or very appealing, compared with just 15% of Boomers.
• A mutual fund that uses a highly active management approach to reallocate investment holdings as needed in order to take advantage of short-term market conditions. Forty-nine percent of Gen Y investors and 42% of Gen X investors were extremely or very interested in learning more about such a fund, as compared with just 21% of Boomers.
Clearly, Gen X and Gen Y investors are eager to learn more from advisers who speak their language — plain English.
We'll discuss the media through which you should conduct these conversations in our next blog.
About the Series
Financial advisers seeking to expand their business may not be aware of the potential afforded by Gen X and Gen Y investors. Wealthier than most advisers realize, these younger investors want help. But their expectations of advisers are different from those of Baby Boomers. Using data from his firm's extensive Investing Sentiment Survey, William Finnegan, Senior Managing Director of Global Retail Marketing at MFS Investment Management, offers insights into tapping this huge, underserved market through a series of six articles.
About the Survey
MFS, through Research Collaborative, an independent research firm, sponsors a regular online survey among individual investors with $100k+ in household investable assets and who make or share in making financial decisions for their households. Generation Y investors are those under the age of 33; Generation X is defined as investors between the ages of 33 and 47.
About MFS Investment Management
MFS is a premier global money management firm with investment offices in Boston, Hong Kong, London, Mexico City, São Paulo, Singapore, Sydney, Tokyo and Toronto. The firm's history dates to March 21, 1924, and the establishment of the first US “open-end” mutual fund. MFS manages $303.6 billion in assets on behalf of individual and institutional investors worldwide, as of September 30, 2012.
Please visit MFS.com/InvestingPulse for more information.