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Mich Bergesen

Financial Sector Lead

Mind the gap:

Thoughts on Next Gen financial services branding

There is a widely anticipated generation gap looming in the financial advice industry. This will have a direct impact on advisory practices, but the demographic shift in attitudes has broader implications for how financial services are structured and what these brands stand for in future.

Leading financial advisors already embrace holistic life planning that goes beyond investment portfolio management, but this still largely caters to boomers and gen X in traditional ways. Services typically include individualized retirement planning and tax management, as well as guidance on health coverage, long term care and life insurance. Advisors naturally pursue more lucrative clientele with higher assets, who tend to be close to or already in retirement.

Clients also reflect the demographics of advisors themselves, whose average age is around 57*. There is evidence that many left the profession post COVID, with more than 37 percent of advisors (collectively controlling $10.4 trillion, or 40% of total industry assets), expected to retire in the next decade**. At the same time, a quarter of these practices are unsure of their succession plans, and the pipeline of younger advisors may be inadequate to replace those who exit. That creates opportunity for those who seek to innovate and think differently about their target clientele and services.

It is well known that Millennials have accumulated far fewer assets than previous generations at similar life stages, in part due to the great recession that decimated portfolios in 2008-09, as well as job losses from COVID. Add to that large student loan balances that are now coming due, plus massively increased borrowing costs keeping many out of the property market.

Financial distress and confusion appears to be on the rise for younger investors - a recent survey*** indicated that 82% of Gen Z and 84% of Millennials want financial advice, yet 76% of Gen Z and 71% of Millennials say they have not sought it. This is understandable given that this cohort came of age as investors during a period of social and technological upheaval, and experienced the brunt of recent market downturns. Unsurprisingly, they are skeptical of traditional stock market investments, as a recent BOA study**** found:

●    75% of Americans between 21 and 42 years of age don’t think it’s possible to achieve above-average returns purely through traditional portfolios of equities and bonds. Less than a third of investors 43 and older share this skepticism.

●    80% of younger investors readily consider alternatives such as private equity, commodities, real estate, and other tangible assets. They allocate triple the percentage of their portfolios to alternative strategies (16%) and half as much to stocks (25%) than older investors (5% and 55%, respectively).

●    Younger investors think the strongest growth opportunities lie in transformative digital assets, with nearly half (47%) holding cryptocurrency. Older investors (43+) still believe that U.S. equities offer the best growth opportunities.

●    Despite recent concerns over the commercial merits of sustainable investing, ownership of such assets has doubled since 2018, from 12% to 26% of wealthy people. This also skews younger, with nearly three-quarters (73%) of millennials compared to 21% of older respondents holding sustainable investments, although 72% of all survey respondents agree this can have a positive impact on the world.

Some opportunities:

●    Gain a deeper understanding of the why to deliver financial wisdom - Advisors aspire to deliver trusted financial guidance that is relevant across generations. Traditional playbooks frame how to ask the right questions, define client goals and investing profile, and build a suitable portfolio. However, the skeptical outlook of many younger investors puts a premium on deeply understanding their concerns and primary objectives, which may differ significantly from those of older clients. Successful practices will build reputations for financial wisdom amongst Millennials with a more nuanced understanding of their situations and outlooks, offering plain spoken coaching on investment choices, risk, and realistic expectations of potential outcomes.

●    Demonstrate vision that can look through volatility - Advisors typically use fairly long planning horizons that extend through accumulation to potential distribution scenarios. However, these are often formulaic, ignoring scenarios and strategies that could address uncertainties and new possibilities faced by younger investors e.g. sustainable investments designed to address climate change, or how to navigate evolving digital asset classes. Advisors would be well served to develop insight into how to objectively evaluate these types of investments and incorporate them into long-term portfolios.

●    Strive for both specialization and scale - Advisors can differentiate through expertise in a specific niche, but clients see great value in having access to the range of investment services they may need. Advisory practices that use technology and partnerships effectively can deliver financial wellness at scale, appropriately supporting and growing smaller asset base clients. While AI applications are still in their infancy, many financial services platforms use nudges, next best actions and personalized interaction across a range of life events to engage clients in helping to manage their own financial wellness. Expect to see adoption increase as these tools mature.

The intersection of market turbulence and generational differences will undoubtedly challenge financial advisors and the broader financial services industry over the next decade. For those willing to adapt, this presents a great opportunity. It will require a more nuanced engagement model with tailored offerings and integral use of technology, but financial services providers who do this well will thrive as they become known for delivering durable financial wisdom across generations.

* JD Power 2022 Financial Advisor Satisfaction Study
** Cerulli Associates survey June 2022
*** Harris Poll conducted for Intelliflo 4-11-23
****2022 Bank of America Private Bank Study of Wealthy Americans


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