Young investors under the age of 40, also known as millennials, are rapidly changing their wealth management priorities, and advisers need to adjust to the changing terrain or miss the opportunity to attract new assets.
A huge generational transfer of wealth, at roughly $68 trillion, is poised to fall into the hands of the millennial generation as their Boomer parents age throughout the next decade. For advisers that means embracing digital engagement, environmental, social and governance investing, and one-time fee-for-service and subscription payment models, according to new research by J.D. Power.
“Wealth management providers are making a mistake if they assume that the emerging affluent investors will simply evolve into Boomers over time,” said Mike Foy, senior director of wealth intelligence at J.D. Power. “Firms with the ability to recognize and address these changing needs will define success through the great wealth transfer.”
The past year has exposed a stark divergence in the investment behavior of younger investors compared with their older counterparts. To start, ESG investing is a key priority, but according to J.D. Power’s survey of about 4,300 investors who make some or all of their investment decisions with a financial adviser, many firms are still falling flat.
Among millennial investors who strongly agree that their advisory firm is committed to ESG efforts, 52% say they plan to increase their investment with that firm. The number falls to just 24% among investors over age 40. Despite the positive influence ESG has among younger investors, 68% say they either have doubts about their firm’s commitment to ESG or don’t know about it.
Payment models is another area for adviser improvement, according to the study. Nearly three-fourths (74%) of millennials say they would prefer to pay for full-service wealth management via a one-time, fee-for-service model. This is followed closely by a subscription model, which is supported by 73% of millennials. Conversely, among full-service investors aged 40 and older, just 42% support a fee-for-service model and 34% support a subscription model.
Finally, engaging via digital channels and meeting young investors where they are — their smartphones — is a key driver to attracting more clientele. Millennials have cranked up interaction with their financial health during the pandemic, with more than half (55%) preferring digital channels for communicating with their advisers.
More than two-thirds (71%) of full-service millennial investors have increased their frequency of interaction with their advisory firm during the pandemic, with phone (+33%), website (+25%), email (+24%) and mobile apps (+23%) emerging as the channels with the largest increases.
By contrast, just 38% of investors aged 40 and older increased their level of engagement during the past year.
The study, fielded from December 2020 through February 2021 also ranked firms that are hitting the mark with young investors, based on an overall investor satisfaction score. Edward Jones ranked highest in investor satisfaction followed by Stifel ranking second, while Fidelity, RBC, and UBS each rank third in a tie.
