Advisors Need To Know This About Younger Clients

It’s often said that age is nothing but a number and that’s true. However, the older an advisor is, the higher probabilities are that the advisor struggles to connect with younger clients.

Conquering this issue isn’t difficult. In fact, it can be argued that some advisors contend with no more than easily quashed mental roadblocks when it comes to working with millennials and Gen Z. Fostering better connections and long-term relationships with these demographics often revolves around a simple premise: Putting yourself in their shoes and understanding what motivates them from an investment perspective.

When it comes to working with younger clients and those in the prospective, some advisors are already aware of the following and all should be. Many of these investors are values-based market participants and prioritize issues such as sustainability and environmental, social and governance (ESG) in their personal investment evaluation process.

There’s more and this is where advisors should get involved. The level of devotion to ESG and values-driven investing possessed by younger investors is remarkable and potentially perilous.

Don’t Knock ESG, But Mention the Risks

A recent survey of 4,000 investors across all generations conducted by U.S. Bank underscores the level of devotion millennials and Gen Z have to investing in accordance with personal values.

“More than 8 in 10 Gen Z active investors (85%) would accept a return below the average return of the S&P over the last 10 years if it reflected their values and supported causes they cared about,” notes Gunjan Kedia, vice chair of Wealth, Corporate, Commercial and Institutional Banking. “This view is quite different than the Boomer generation; 35% of Boomers would not make an investment in something that aligned with their beliefs if it yielded a less-than-average S&P return.”

In plain English, some younger investors are willing to accept lower returns to ensure that their portfolios are aligned with their values.

“85% of active Gen Z investors would accept a return on their investment that’s significantly less than the average return of the S&P 500 (12% for the past 10 years); 30% would accept a 3% to 5.9% return; and 29% would accept a return of 6-8.9%,” according to U.S. Bank.

For advisors, the challenge is two-fold. First, there’s the issue of identifying strategies – they’re out there – that align with a clients’ beliefs that don’t result in subpar returns. Second, there’s evidence suggesting some youthful investors are making decisions based on personal politics. That might be tenable over shorter time horizons, but it could be costly over the long-term.

Bright Spots for Advisors

Advisors bemoaning perceived difficulty in working with younger clients, particularly those that want to make decisions based on values, don’t fret. Millennials and Gen Z want professional guidance and they’re highly receptive to working with advisors.

Currently, 42% of millennials work with advisors, indicating that demographic is rich with potential for practices. The same is true of the younger Gen Z.

“62% of Gen Zers trust financial advisors to give financial advice – more than any other generation,” concludes U.S. Bank.

Related: Advisors: It’s Time To Get Artistic