Yes, technology is important to young investors. But they value advisory relationships, too

New research shows that younger advisory clients aren't receiving the service they need.
APR 20, 2018
By  apino

Increased options for online advice have many wondering how the future of the financial advice industry will be shaped. Robo-advice is gaining traction both in stand-alone platforms as well as direct offerings from advisers. As younger and more technology-savvy generations create and inherit wealth, the potential for clients to move away from traditional advice seems inevitable. However, as the new white paper from InvestmentNews Research and Cetera, "Advice Alpha," notes, the client-adviser relationship has not become obsolete. In addition to hosting a roundtable of leading advisers, InvestmentNews Research conducted an investor survey that received over 1,600 responses, primarily from mass affluent and high-net-worth individuals, to learn about investors' needs and how top advisers are preparing to meet them. When asked, on scale of one to 10, how likely they were to recommend their financial adviser to a friend or family member, the average response from investors was 7.9. Financial planners rated highest among the different types of advisers used by the investors in our survey, and they are in the best position to drive client referrals — 59% of investors who work with a planner rated their adviser a 9 or higher, indicating that they are extremely likely to refer them. Compare that with the responses from those working with a robo-adviser, just 12% of whom rated their adviser a 9 or higher, or those working with an online broker, none of whom ranked their adviser that highly. It is evident that clients find the relationship with their adviser valuable.
Type of adviser Client's likelihood of recommending adviser (average; scale of 1–10) Percent ranking 9 or higher
Financial planner 8.4 59%
Estate planner or attorney 8.3 50%
Registered representative at a broker-dealer 8.0 48%
Investment adviser representative 7.9 46%
CPA or accountant 7.7 52%
Private banker 7.5 43%
Insurance agent 6.6 43%
Digital-only or robo-adviser 6.2 12%
Online broker 5.3 0%

Client recommendations are essential to a financial adviser's business — assets from client referrals accounted for, on average, 27% of new client assets in 2016 according to InvestmentNews' 2017 Adviser Compensation & Staffing Study. So advisers should be sure they are tracking client satisfaction to guarantee the continuation of this crucial source of new assets. Those most likely to recommend their advisers are older clients. The average likelihood of recommending their advisers for Silent Generation clients was 8.3, compared to 8.0 for baby boomers and 7.9 for both Generation X and millennials. Younger clients, such scores show, have much less sticky relationships with their advisers. And elsewhere, we see that advisers are much more effective at demonstrating their value to their older clients, who report much more confidence in their advisers' ability to understand their unique financial situation, anticipate financial challenges, deliver personalized service and make it easier to reach financial decisions, than to younger advisory clients.
Younger investors less likely to believe they receive personalized and unique advice
Percent of respondents who agreed with the following statements

Younger clients are not only less likely to recommend their adviser or agree that their adviser is meeting their needs, but the areas where young clients report their advisers are falling short are exactly those where potential young clients perceive the value of advice. Millennial investors who don't have an adviser indicated that personalized advice would be the largest benefit of hiring an adviser, followed by creating financial goals. Advisers clearly have ground to gain with young investors, and therein likely lies a market opportunity. Demonstrating these qualities to young clients — and by extension their referrals — will be essential in differentiating advisers' value over an online offering. Advisers' assumptions and how they deal with new clients will have to change, whether they're serving the next wave of mid-50s advice-seekers or Gen Xers, or reaching out to younger millennials. In order to maintain their competitive advantage of personalized and unique advice, advisers must make sure their value is being articulated to every one of their clients, no matter their age or assets. To read more about how our think tank of leading advisers are tackling the problem of appealing to the next generations of investors — and more — click here to download the full report or click here for an excerpt. Digital production: Ellie Zhu

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