Advisors Must Embrace Gen X and Gen Y | Lord Abbett

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Practice Management

The generations that succeeded the baby boomers are the ones who will take your business into the future.

This Practice Management article is intended for financial advisors only (registered representatives of broker dealers or associated persons of Registered Investment Advisors).

They're skeptical, cynical, and probably way too dependent on mobile computing devices. But Generation X and Generation Y investors are the future of your business. Advisors who don't make the effort now to target and cater to Gen X and Gen Y will pay a steep price in the next decade as their bread-and-butter baby-boomer clients transition from wealth accumulators to wealth distributors.

"For the last two decades, you have focused on baby boomers—and rightly so," Gabe Garcia, a director at Pershing Advisor Solutions, told attendees at his firm’s Insite 2012 Financial Solutions Conference. "That has served you well, and allowed you to create a successful business."

"Over the next decade, your proactive business strategy will have to change," he said. "These clients are the direct link to the next generation of clients you'll need to grow your business in the years ahead."

Just as advisors and firms need to invest some time and effort in their own succession-planning programs, they also need to start reaching out to younger investors as their core clients age and pass their considerable wealth down to the next generation.

And, at least until the Generation Y bumper crop starts hitting retirement age, advisors will be fighting it out among themselves for slices of a much smaller client pie.

Garcia said the pool of 40- to 59-year-old clients will grow only 1% between 2005 and 2020.

And unlike boomers, who tended to simply trust and follow the advice given from their wealth managers, younger generations are more informed, cynical, and inclined to do research and vetting on their own. They want to be more involved in the decision-making process for their investments, they want more options, and they want more validation from their financial professionals.

This combination of fewer clients who are much higher maintenance doesn't sound so great to financial advisors until they digest the numbers and the opportunity that Gen X and Gen Y offer.

Twenty-nine percent of wealth investors today are under the age of 50 and control 37% of all investable assets. Garcia said this market represents an $18.6 billion revenue opportunity for advisory professionals.

If history has taught anyone anything, it's clear that these younger generations will need all the help they can get.

Garcia said 70% of high-net-worth families lose all that wealth in the following generation, and 90% lose it all by the third generation.

Generation X and Generation Y investors will inherit more than $41 trillion in assets by 2052, most of that wealth coming from their baby-boomer parents. And 90% of these heirs have already said they don't want to work with their parents’ advisors when they finally do inherit this wealth.

"If that's the deal, then the key is to become their advisor before their parents die,” said Rob Zeeb, CEO of the Heritage Institute, a firm that coaches advisors working with multigenerational investors.

The first and best way to bring these younger investors into the fold is through introductions from their parents. Despite being tethered to their iPhones and concentrating much of their social life on Facebook, these investors do rely on family and friends for important decisions and references.

To help advisors better attract and serve Gen X and Gen Y investors, Pershing released a new guidebook focusing on how financial professionals can work to ensure the continued success of their firms by servicing the next generation of investors now and incorporating them into their long-term growth strategy.

Both generations generally mistrust financial organizations more than baby boomers do, and feel less satisfied with the service they currently get from financial organizations. Pershing's guidebook suggests that unless financial professionals act promptly to claim their share of this much smaller client pool and address the perceived shortcomings in service, they will almost certainly lose assets in the future.

"Studies show that almost 90% of prospective heirs say they will move assets to another firm once they receive their inheritance," said Kim Dellarocca, head of segment marketing and practice management at Pershing. "Financial organizations should be looking to connect now with Gen X and Gen Y investors, whose viewpoints on money and investing and the service they demand will be very different from those of their parents."

Aside from more engaging and self-directed websites and personalized electronic communications—think up-to-date news and investment data catered to younger investors and sent via e-mail, text, or social media—firms of all sizes need to do get younger themselves.

Garcia said 21% of investors today are 25–45 years of age, yet only 7% of advisors fall into this age group. Between now and 2022, another 227,000 advisors will be needed to replace retiring financial professionals and to handle the surge in demand that will be coming from the 76 million members of Generation Y, a generation projected to be the wealthiest in the history of the world.

"The next generation isn't looking for expert oversight but peer validation," Garcia said.

Larry Barrett writes for Financial Planning.


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