While this year’s market downturn has been a painful experience for everyone in the investment industry, the turmoil in financial markets may offer financial advisers a silver lining: a chance to win over younger investors.
Generation X and Millennials now account for half of the mass market investment universe. As this share grows, financial advisors must find ways to attract these generations of young investors as a means to grow and even maintain their business.
For most consultants, this is not an easy task. Compared to previous generations, younger investors are more likely to use self-directed brokerage accounts, invest in passive strategies and at least try low-cost robo-advisors. Yet despite these DIY trends, most young investors aren’t entirely against the idea of working with a financial advisor. In fact, according to the latest Broadridge Investor Survey results, approximately 60% of millennial and Gen X investors already work with an advisor, and a significant percentage of them do not express a willingness to work with an advisor.
This year’s market sell-off may have made these investors more willing to meet and work with professional advisors who can help them weather the volatility. As advisors begin to take advantage of this opportunity, here are five tips they can follow to build strong client relationships with Gen Xers, millennials, and other young investors:
1. Prioritize planning
While many baby boomers and older investors seek out financial advisors primarily to improve investment performance, Gen Xers and millennials are more likely to see advisors as expert coaches who can help them and their families identify, plan and achieve financial goals. In fact, about 80 percent of millennials in the Broadridge survey said they work with an advisor to plan their overall financial goals—a significantly higher percentage than older generations like Baby Boomers and Silent Generations. Therefore, planning should be at the heart of value proposition advisors to young investors.
2. Commit to digitization
Financial advisors make enhancing their digital capabilities a top priority for two reasons. First, the younger generation wants and expects robust and seamless digital services. Second, advisors can only provide clients with personalized plans and recommendations by leveraging technology. Advisors committed to monetizing their younger client base should integrate online tools that allow them to tailor advice and solutions to individual clients and deliver advice through the digital channels preferred by younger investors.
3. Leverage automation
Advisors should capitalize on younger investors’ preference for new investment solutions. Gen Xers and millennials are more open to relatively innovative tools like model portfolios, SMAs, and direct indexing than older investors. Integrating these and other technology-driven solutions will enable advisors to implement portfolio construction, freeing up time to talk to existing clients – especially younger clients – and find new ones.
4. Participate in important issues
There’s no way around it: To be relevant to Gen Xers and millennials, financial advisors must understand what these generations consider important. This means keeping abreast of new investment products such as cryptocurrencies and developing at least some level of expertise in environmental, social and governance (ESG). Despite widespread interest in these issues, only about half of millennials have spoken to their financial advisors about cryptocurrencies, and only about 15% of investors overall say they have discussed ESG. To win younger clients, wealth managers and individual advisors must address any gaps in knowledge and educate investors on these and other emerging topics.
5. Make it a family affair
Financial advisors have a secret weapon when it comes to attracting younger clients: older clients and investors. During what may be the largest intergenerational wealth transfer in history, baby boomers and their children have clear incentives to ensure that younger generations are properly prepared to inherit, protect and develop family assets. Young investors are willing to listen to their elders’ advice on these important topics. According to a survey by AdvisorStream, 70% of Gen Z investors said they would likely work with an advisor recommended to them by a friend or family member. Advisors should leverage this trust by holding intergenerational conference calls with clients and adult children. These are golden opportunities to engage future generations in conversations and understand their needs – whether those discussions bear fruit now or in the future.
During the historic financial market drawdown, Gen Xers, millennials, and other investors who were previously willing to invest on their own may turn to the market for some professional advice. This could be a key opportunity for advisors who can combine planning expertise and technology to help young clients stay on track to achieve their long-term financial goals.