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Why Financial Advisors Should Target Young Investors

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Only 30 percent of financial advisors are actively searching for clients under the age of 40.

Most advisors don’t pause often enough to take stock of their client bases. Many who do find that a majority of their clients are members of the older generations – namely, Gen Xers and baby boomers. What financial advisors must keep in mind, however, is that in 2016, millennials surpassed Gen Xers and baby boomers as the largest generation employed in the workforce.

These advisors are missing out on young potential clients who may hold the key to exceptional long-term revenue for their businesses: millennials – the younger group of potential investors who may be just beginning their careers. As young investors are set to take over leadership in business sectors within the next decade, financial advisors must shift their attention to collaboration, emotional intelligence, young leadership, and technology in order to stay ahead of the competition and solidify future business prosperity.

Millennials could essentially hold the key to brand survival.

Many members of this generation are reaching their prime working and earning years. The problem, however, is that a majority of them began their careers during the Great Recession of 2008 and now find it a challenge to secure jobs that pay well. This economic reality demands a specific approach to providing financial guidance to young investors.

Why Financial Advisors Should Focus on Young Investors

As this generation grows older, its purchasing power will increase, which means millennials will want to move their money. Advisors need to show them that the opportunities they offer align with millennials’ style. They are already earning more than past young adults did at their age. However, since millennials came of age during that 2008 recession, they are leery about investing. This is a generation of skeptical, analytical, and tech-reliant people who are also full of potential. They need to put their money with trustworthy, relatable advisors who are as adaptable as they are.

Because financial enterprises are consistently seeking the next big growth opportunity, they may want to turn their attention to this lucrative investor base for three major reasons:

The Great Wealth Transfer

Baby boomers will soon transfer their wealth to their children, making now an opportune time for advisors to capture new clientele. According to CNBC, no less than $68 trillion is about to change hands in the U.S., making it the “biggest wealth transfer in history.”

Where do financial advisors come into play?

Studies show that 66 percent of children switch advisors after they receive their inheritance, so you’ll want to make sure that you’re accessible, attentive, and committed to everything young investors need in an advisor to ensure your business is right there when these transfers happen.

Long-Run Potential

When managing a business, it’s crucial that you keep both your short-term and long-term revenue in mind. While it’s true that young investors are just beginning their careers and have fewer assets, it’s also true that as they continue their careers, their assets will grow. By snagging them early and building a relationship, you’ll be top of mind as those assets increase. Part of this long-term potential lies in the fact that young investors need guidance on how to reduce financial stress. Advisors would do well to provide financial literacy for young clients, because there’s currently a significant market for it.

Targeting Young Investors Will Keep You Competitive

Younger investors prefer a fiduciary approach regarding investments. Adding new skills and benefits to your practice is going to make you more competitive in the marketplace. Only 4.5 percent of the U.S. population has $1 million or more in investable assets; financial professionals who only help the wealthy population will miss a big opportunity to help young investors who have fewer financial resources.

Most of the population is middle or working class, which opens the door for advisors to bridge this wealth gap. If you make it the mission of your business to help young investors - who aren’t already rich - achieve financial security, they’ll likely stick with your business for the long haul.

How to Engage the Young Investing Generation

The old ways of financial advising are dead and gone. As wealth transfers from baby boomers to millennials, advisors must learn to adapt. Until now, the industry hasn’t functioned to serve the needs of the average investor who is living paycheck to paycheck – however, that’s exactly what young investors today need.

From total transparency to compelling visuals, there are several key ways to engage with younger investors:

Comprehensive Financial Services

In order to provide truly comprehensive financial services, you have to offer more than just financial advice – you also have to offer financial guidance. One of the biggest challenges young investors face is a lack of financial knowledge – when it comes to their finances, they’ve been “winging it.” Financial advisors can remedy this gap in education by providing more than just advice. When a major life event comes up, such as marriage, advisors should help younger clients with concerns such as:

  • Combining and balancing finances
  • Saving for down payments on major purchases like autos and homes
  • Securing the right types and amount of insurance coverages
  • Determining whether to pay off certain debts before applying for major loans

In addition, many millennials are launching their careers with significant student debt and need financial advisors who are able to help them manage it. Advisors who aren’t well-versed on the subject must educate themselves in order to attract young investors who need help with such a complex topic. Advisors should be able to help them navigate requirements and paperwork, create budgets and manage spending, and ultimately pay off debt.

Communication with Convenience

Young investors have different tastes from their older counterparts: They prefer robo-advisors, remote communication, email, text messaging, and social media. In fact, almost 90 percent of millennials claim that they are never without their mobile phones. This means you’ll need to ensure that your young investors can communicate and access information via these mobile devices. Information must be made easily available across a variety of platforms.

Likewise, millennials won’t always be able to meet with their financial advisors in person, either. Make meetings available and accessible via video or phone so they can connect from anywhere in the world. An added benefit of sharpening your skills to adjust for a younger audience is that you’ll attract and retain older audiences as well. For example, if you add that video conferencing capability to your suite of services to appeal to a younger audience, older investors may also find the convenience of conferences useful.

Transparency Goes the Distance

Members of the younger investing generation are skeptical truth seekers. This means you’ll need to provide each investor with all the pertinent information with respect to potential business opportunities.

Be upfront right at the start about disclosing fees. Traditionally, financial planners didn’t disclose fees until clients met with them. However, younger investors don’t want to waste time traveling to the office if the partnership will not be affordable. Plainly display your fee and costs on your website. Be sure to include concise information about how fees will be calculated. For example, potential clients will want to know upfront if fees are based on a percentage of assets under management or income.

Inclusivity and Diversity Matters

Younger investors are decidedly inclusive and diverse, so you’ll want to attract these potential clients by ensuring that your business is on the same page. There are many areas in the United States in which English is not a main tongue – in fact, it is estimated that there are over 350 different languages spoken in the United States. In Los Angeles, for example, over half of the city’s population speaks English in the office or at school but rarely – or not at all – once they return home. Embrace inclusivity and diversity, by providing multi-lingual customer service and adding diversity to your team.

Advisors can also focus on languages in addition to English in their mobile apps for wider brand reach. Mobile devices are personal - they provide a virtual space where consumers revert to their true selves and, consequently, to their mother tongues. If you keep your app monolingual, you’ll miss major business opportunities with young investors. Translation opens up new markets and expands the reach of your mobile app.

The Cause Effect

Millennials, more than any other generation, are looking for ways to put their money to work for social and environmental change. They make up a group of investors who are inching toward their peak earning years. 21.7 percent of millennials say that the single most important factor when making investments is the goals of the companies in which they are investing.

Over 60 percent of millennials surveyed in early 2019 by TD Ameritrade had at least 21 percent of their money in ESG investments. These investments that promote environmental, social, or governance goals speak volumes about the generational mindset of young investors. They want their money to make an impact in the world.

A study by the wealth management division of Bank of America also found that 37 percent of high net worth investors reviewed their investment portfolios for ESG impact, and the biggest one-year increase (+14%) was from millennials. Be sure that your company communicates the ESG priority to young investors — let them know that your business recognizes its importance and values their commitment to it.

Obstacle Removal

Three main obstacles currently stand in the way of getting more millennials to explore investment opportunities: speed, complexity, and cost. These young investors don’t want to wait for transactions to be processed; they’ve been raised in the age of “nowism”. They are used to instant answers and don’t want to deal with layers of red tape and legal fine print.

Young investors are very risk-averse, in large part due to the effects of the recession of 2008. They appreciate trial investment methods that come with an affordable cost of entry, especially when they are new to investing. Your business will need to focus on lifting the barriers of cost, complexity, and speed in order to attract millennial investors – which would likely appeal to Gen Xers and baby boomer investors, as well.

Understand the Millennial Lifestyle

Make it a priority to become familiar with your clients’ values and missions so that you can properly guide these up-and-coming young conscientious investors. Be sure to keep the list of “can’t-dos” to a minimum. No one, especially those in the younger working generation, wants to repeatedly be told that they must be a miser with their money and not spend any of it. Focus on finding a prudent balance. When your business creates budgets for young investors, include money for vacations and outings. While it’s true that they want to invest and also save for retirement, they don’t want to do so at the expense of living their lives now.

The Bottom Line

The volatility of the markets and the Great Recession of 2008 have resulted in a state of general skepticism toward financial institutions among young potential investors. In addition, this clientele demands requirements of wealth managers that are different from previous generations. Millennials will soon be the largest group of potential investment clients, driving many financial advisors to reassess their business models.

Early adoption is going to enable financial professionals to successfully serve young investors and, in turn, keep their leading position and protect their market share.

Axos Advisor is a program that serves financial advisors by offering exclusive bank accounts for their clients and a CRM dashboard to manage clients’ accounts. If you have any questions during this process, please don’t hesitate to reach out to our Axos Advisor team at 1-866-833-0529 or email [email protected].

Why Financial Advisors Should Target Young Investors

This blog post was published by Axos Bank on November 1, 2019 and last updated on November 4, 2019.

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