Generation X investors who handle their own portfolios trounced advisers last year. This does not necessarily bode well for the future of the business.
Well-off Generation X investors are unhappy with their investment advisers — and it's hard to blame them. The group scored much better investment results on their own than with an adviser last year, according to Cogent Research, which released a report on Generation X investors Wednesday.
Cogent's report is based on an online survey of 4,025 affluent investors, including 738 affluent investors 29 to 44. The Gen Xers had an average of $476,000 in investible assets.
Gen X do-it-yourself investors reported a 28% increase in assets in 2010, while those in that age group who turned to an adviser for guidance reported a paltry 3%. Part of the reason self-directed investors did better is that they owned more equity-based investments, while their advised peers' assets were allocated more heavily to safer investments such as bonds or products such as annuities, which are associated with extra fees and commissions, the report said.
The report's author said it isn't clear if the difference could be due to advisers' “re-purposing investment strategies designed for older investors with lower risk tolerance or whether they're simply not paying enough attention to” Generation X's needs, said Steven Sixt, project director at Cogent. “But either way, advisers are taking a big risk of alienating a generation of investors that are already inclined to go it alone.”
Many in the group are way beyond alienated, with only 42% of the advised group calling themselves satisfied with their primary financial adviser, a significantly lower percentage than any other generation reports, the Cogent report said.
Just over half (51%) said they are the on the fence or likely to switch primary financial advisers within the following 12 months, a higher percentage than any other age group reported. Asked why they considered switching, they cited dissatisfaction with adviser communication, investment performance and the adviser's ability to navigate and react to changing market conditions.
The study found that affluent Gen X investors represent roughly one-fifth (18%) of the overall affluent investor community but tend to have advisers with the least time in the business and the smallest books of business, according to Cogent data.
“It's time for advisers to capitalize on this growing, wealthy subset of the affluent community,” said David Feltman, Managing Director at Cogent. “However, tailoring the approach will be key, with a focus on the products Gen X investors favor, the risk tolerance they are comfortable with and the platforms they gravitate towards.”
