Advisors Should Change Tunes About Younger Investors

Younger investors and prospective clients – namely millennials and Gen Z – have, in the essence of diplomacy, “interesting” reputations and the interesting isn’t always positive.

There’s the notion that these groups are entitled, too wrapped up in social media and consuming investing advice from dubious sources. In some cases, those points are true. In many cases, they are not. Even if advisors work past those stereotypes – they should – it’s somewhat easy to be dismissive of these demographics simply because they don’t yet have significant wealth.

The fee-based model so many advisors employ makes it more practical and lucrative to target affluent clients, not those with low five-figure (and lower) assets tallies.

There’s nothing wrong with targeting clients that can bring substantial asset bases to the table. However, it is potentially risky to ignore entire groups, believe negative stereotypes and ignore the fact that millennials and Gen Z actually want the help of financial professionals.

Altered Thinking Needed. Now.

In its “It's Time to Change Your Mind about Young Investors” white paper, Fidelity makes a compelling case regarding why advisors should stop glossing over younger prospective clients.

“Contrary to the beliefs of many advisors, young investors can be attractive and profitable clients, especially over time. They value and are willing to pay for the advice of professionals, are motivated to improve their finances, prefer to consolidate assets with a primary advisor, and are loyal clients,” notes the fund issuer.

Not to mention the fact that along with Gen X, millennials and Gen Z are major pieces in the great wealth transfer puzzle. Said another way, those groups will be inheriting trillions of dollars in the coming years. Alone, that should be appealing to advisors.

To better capture that business and facilitate longer-lasting relationships advisors not only to free themselves of the stereotypes surrounding these generations, but alto better under the investing motivations of these groups.

“Given their lived experiences, next generation investors do not fit the same mold as their older counterparts at comparable ages,” adds Fidelity. “They are following nontraditional life paths, driven by values, always connected to technology, motived by FOMO (fear of missing out), focused on mental health and value diversity. Understanding the nuances of serving these generations will help you better tailor your approach and offering to help them.”

Other Gen Z, Millennial Points for Advisors to Ponder

There are other important tidbits for advisors to consider. Notably, millennial and Gen Z clients are more likely than their older counterparts to consider having multiple advisors. That’s not necessarily a bad thing, but obviously, the advisor that compels those clients to have just one advisor (you) will come out ahead.

Additionally, while older clients typically have more assets to bring to the table, they also represent slower growth avenues for advisors. Consider it this way: Many baby boomers are at or nearing retirement, meaning they’re traditional income sources are being eliminated. Likewise, many boomers have already inherited assets from their parents. On both accounts, the opposite is true of Gen Z and millennials.

Not to mention, older clients are engaging in required minimum withdrawals (RMDs), which depletes the level of assets the advisor is managing. That scenario is decades away for younger clients. Other data points confirm the value in advisors starting to skew their practices younger.

“Furthermore, the number of assets at risk of wealth transfer increases along with the average age of a firm’s clients,” concludes Fidelity. “In fact, as much as 78% of assets are estimated to be at risk for firms with an average asset-weighted client age of 69 or greater versus just 37% of assets for those with an average asset-weighted client age of <62.”

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