The advice industry's age discrimination problem

Only 30% of financial advisers are actively looking for clients under age 40, according to a survey

May 13, 2015 @ 2:09 pm

By Bloomberg News

The investment industry has an age discrimination problem, and millennials and Generation X are bearing the brunt of it. Only 30% of financial advisers are actively looking for clients under age 40, according to a survey of 500 advisers by the research firm Corporate Insight.

Advisers prefer older clients for a simple reason: Most advisers get paid based on a percentage of the assets they manage. And typical households in their late 60s and early 70s are far richer than their children and grandchildren, with net worths that are five times that of a median 35- to 44-year-old household. These older baby boomers own 22 times more in assets than those under age 35, Federal Reserve data show.

Even if millennials and members of Generation X can find an adviser who will talk to them, they may well be better off on their own. If you have only $10,000 — the median net worth of those under 35 — it makes little sense to pay someone $300 an hour to manage it.

Still, the investment industry can't ignore younger clients forever. For one thing, retiring boomers are starting to spend down their nest eggs — making them less profitable for advisers year after year, says Corporate Insight's Sean McDermott.

MORE MONEY

Over time, more and more money will end up in the hands of millennials. And so far they don't see much point in professional finance advice. Only 29% of young workers have looked to professionals for advice, an IQuantifi survey last month showed. Meanwhile, 71% asked family members and 45% turned to friends.

While many advisers ignore people under 40, other investment firms are taking them very seriously. They see a business opportunity in winning over the younger Americans who are actually saving substantial sums.

On May 5, for example, Vanguard Group expanded its “Personal Advisor” service to clients with more than $50,000 in assets. Previously restricted to clients with more than $100,000, the two-year-old service offers advice to clients via the Web and over the phone for 0.3 percent of assets per year, or $150 on a $50,000 portfolio.

Vanguard's move follows rapid growth by several new online investment advisers, or robo-advisers, that charge similar fees for automated portfolios. Eleven start-up companies, including Betterment, FutureAdvisor, and Wealthfront, were advising clients on about $19 billion at the end of 2014, Corporate Insight estimates. That's up 65% in the eight months from April to December.

These firms can charge a fraction of the price of a human adviser because technology lets them be far more efficient. But low cost isn't their only appeal, Mr. McDermott says. Younger clients also like their transparent fees and easy-to-use websites. In March, Charles Schwab Corp. launched its own robo-adviser service, Schwab Intelligent Portfolios.

TECHNOLOGY LIMITS

Technology won't entirely replace human advisers, says Elliott Weissbluth, chief executive officer of HighTower Advisors. But advisers — even ones like HighTower's who specialize in wealthy clients — will need to find ways to incorporate technology and become more efficient, he says. Some big established players are making deals with the new startups. Fidelity Investments and TD Ameritrade have started partnerships with robo-advisers, and the insurance giant Northwestern Mutual bought online planner LearnVest in March.

Despite these trends, just 12% of financial advisers surveyed by Corporate Insight said they're interested in incorporating a robo-adviser service into their business. In the investment industry, “things are going to change faster than people believe they're going to change,” says Mr. Weissbluth. If advisory firms such as HighTower don't adapt, he says, “We become dinosaurs.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Nov 13

Conference

Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video

INTV

What's behind the TCA, ETrade deal?

Deputy editor Bob Hordt talks with senior columnist Jeff Benjamin about what each party in the recent acquisition stands to gain by joining forces.

Latest news & opinion

What's in a name? For TCA by ETrade, everything

Trust Company of America is gone, and there's big buzz over the name change. But turning the custodian into an industry powerhouse will take a lot longer — if it happens at all.

When it comes to regulating AI in financial services, murky waters are ahead

Laws are unclear on how the technology fits in with compliance.

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print