Looking for the fountain of youth may be a fool's errand, but courting youthful investors in need of help is the mark of a shrewd financial adviser. Advisers who fail to adapt their practices to meet the investment and planning
needs of younger investors, or who continue to operate under the false assumption that they will simply “inherit” their clients' children as clients of their own, are in for a rude awakening. They are destined to see their firms' assets wither as baby boomer clients spend down their savings or die off.
Advisers are leaving a lot of money on the table.
A recent study of 1,000 wealthy investors conducted by Cisco Systems Inc.'s Internet Business Solutions Group concluded that investors under 50, a group that includes the tail end of the boomer generation, represent an $18.6 billion revenue opportunity for the advisory industry.
It also noted that younger investors account for 28% of the total wealth in the United States and that they are much more likely to own their own businesses and have a higher average income than older investors.
If all that doesn't make for an attractive prospect, consider that 67% of wealthy investors under 50 expect to receive a substantial gift or inheritance in the next 10 years, according to the Cisco survey.
Unfortunately, the vast majority of advisers are ill-prepared to take advantage of this generational shift because they have focused primarily on attracting and retaining baby boomer clients.
As a result, younger investors are underserved by advisers and generally wary of the financial advice business.
That wariness prevails at a time when younger investors want and need solid financial advice.
Forty-two percent of investors from Generations X and Y said their need for financial advice has in-creased over the past year, compared with 19% of baby boomers, according to a survey released last week by MFS Investment Management.
What's more, 45% of investors in Generations X and Y said that they feel overwhelmed by all the investment choices available to them, compared with 35% of boomers, the survey found.
To be sure, advisers face several obstacles in going after younger investors.
For starters, younger investors are generally less affluent, which means that advisers have to work just as hard — if not harder — to meet their needs as they do to meet the needs of wealthier baby boomers.
Then there are the cultural issues. Considering the average age of an adviser is above 50, most advisers are baby boomers themselves, and therefore identify more closely with similarly aged clients.
Like their clients, the average adviser's experience in the financial markets has been shaped by such pivotal events as the 1973 oil crisis, the early 1980s
recession, Black Monday (1987) and the savings and loan crisis of the late 1980s and early 1990s.
Finally, compared with baby boomers, younger investors tend to be less engaged in investment planning and their finances. They also tend to be more individualistic and, importantly, less loyal to any one adviser.
Even so, advisers can't afford to overlook the investing and planning needs of younger investors.
Gaining the
trust and confidence of these investors will take a lot more than using younger models on firm brochures or setting up a Facebook page or learning to Tweet.
It requires gaining a real understanding of what is going on in the minds of younger investors and making a commitment to develop products and services aimed specifically at them.
For many firms, that means reconsidering their fee structures to accommodate clients who are unable to meet high asset minimums. Some advisers, for example, are experimenting with a retainer-fee model, whereby clients are charged an initial set-up fee and a service fee of $100 to $150 per month.
It also means finding new ways to recruit and retain the younger members of their own staffs.
Like it or not, younger investors prefer to work with younger advisers. Therefore, firm leaders should make it a priority to identify talented young people in their organizations and train them to work directly with those clients.
The growth and vitality of the financial advice business hangs on whether advisers can convince the next generation of wealthy investors of their worth.
Although catering to retiring baby boomers is a worthwhile and profitable endeavor, prescient firms should begin preparing now for life after the baby boomers.
