Advisors Should Employ Generation Tactics

From the perspective of dispensing financial advice, registered investment advisors (RIAs) are often brought up on a simple premise: The older a client is, the more necessary it is to reduce that client’s exposure to equities and other riskier assets.

Of course, the other side of that coin is increasing exposure to bonds, generating safe income and reducing portfolio as the client ages. While that’s conventional wisdom in the industry, it’s also somewhat of a one-size-fits-all approach and it also belies opportunity to engage clients in other generations regarding significant, potentially useful portfolio alterations.

In fact, a market environment such as the current one could be ideal in terms of reconnecting with clients to discuss fresh strategies. This endeavor could be all the more fruitful for advisors that do so along generational lines with ideas that go beyond reducing equity exposure for older clients.

For those that need more convincing, data confirm that the various generations have, not surprisingly, differing views on 2022 market calamity.

Data Confirm Generational Approach Is Worth It

In recent years, advisors have gotten their fill of how to work with baby boomers and millennials, and more recently, Gen Z. Gen X shouldn’t be forgotten, either.

“In a year when it was easy to be a pessimist, a BlackRock Fundamental Equities poll of over 1,000 U.S. individual investors revealed potential hints of optimism ― along with some interesting variance in sentiment by generation,” according to the asset manager. “Millennials were more comfortable increasing equity allocations this year, with 45% of those surveyed in May revealing they added to their exposure, well above both Gen Xers (25%) and Boomers (11%). And 49% of Millennials saw themselves adding more in the ensuing six months.”

Obviously, millennials and certainly Gen Z have the benefit of time and advisors should be heartened by the fact that nearly half of the former demographic see themselves adding equity exposure in the months ahead.

However, that percentage for Gen X – particularly the younger members of that demographic – is low and advisors need to understand why some members of that group are apprehensive about risk assets at the moment. Start with the fact this is at least the third rocky market environment/possible recession they’ve deal with since the start of this century.

“I've lived through multiple bear markets … 1990, 2000, 2008. At the time, they all seemed massive and quite frightening … but when you get some historical perspective, they start to look like small speed bumps on the way to good long-term returns,” notes Tony DeSpirito, CIO of U.S. Fundamental Equities.

That’s wisdom advisors can and should pass along to skittish clients.

Reconsidering Value

Another element worth noting is that history is repeating this in that value is outperforming growth – the norm for rising rate climates as well as slow economic growth settings.

That’s relevant to Gen X clients that may have faint memories of value outperforming following the 2000 tech bubble and to millennials that likely have no memory of value ever outpacing growth because they came of age during the now deceased decade-long growth bull market.

“With inflation and recession both at play as important market risks, the investors explored what this might mean for the growth and value styles of investing. Historical performance shows that value tends to lead in inflationary environments, whereas growth generally has an edge in slowing economies,” concludes BlackRock.

Related: How Advisors Can Turn Volatility in Their Favor