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Next Gen Investor: Unlocking a $30T Opportunity

By Adhesion Wealth, A Vestmark Company

Next Gen Investor Blog Hero 10 18 22

We've progressed through the years with different generations—the Baby Boomers, Gen X-ers, and now the Millennials. We will discuss why there's been a shift, why the next generation is a tremendous market, and a few tips and tricks to capture, interact with and attract the Millennial to your practice.

Why target this demographic? One of the main reasons is there are 82 million in this age category. This is one of the largest generations--more than 20% larger than Gen-Xers and Baby Boomers. As many firms start thinking about this next generation of investors, there's talk about the great wealth transfer. We know that Baby Boomers and Gen X-ers amassed significantly more wealth than past generations. So, from an asset perspective, there's a lot of money that is anticipated to flow to this next generation of investors. Cerulli predicts that there will be $84 trillion in wealth transfers through 2045. There's a lot of money held by older people who, over time, will pass away and pass those assets to the next generation.

It's easy to discount that and say I'll deal with it when that happens. But 25% of Millennial households hold over $100K in assets and collectively have a net worth of about $9.4 trillion. That isn't something to ignore.

An interesting characteristic is that they are digital natives. They are the first generation to grow up with a mobile phone. Digital tools have transformed their expectations around product and service delivery. This is not unique to financial services. The Millennials are the first generation exposed to obtaining financial advice very differently, making them a unique demographic.

This generation is a sponge when it comes to absorbing advice, and much of the advice comes from online searches and social media. Millennials are expressing a higher demand for financial advisors than prior generations, which is interesting. We have been talking about being digital natives and the innovation taking place during their entrance into investing and asset growth. Many people were banking on robots taking over the digital advice and financial advisors, and advice, as we knew it, would not exist. But what has unfolded is the demand for financial advice from financial advisors has never been greater. That leads us to what is different.

The first point is around decentralized financial advice and offerings. Think about this generation using technology, not only manage simple financial aspects of their life like banking, moving money, check transfers, and even, in some cases, investing and buying stocks online; and they're comfortable doing so. That's one of the challenges that we need to think about addressing.

The other trend we're seeing is seeking less traditional investing methods, such as bitcoin cryptocurrencies. Advisors need to understand how to talk about these different spaces. We know crypto is especially complicated because there's not always an easy way to get someone invested in crypto. It hasn't yet been infused into how we think about portfolio planning.

This generation of investors want to get engaged in investing. Millennials are trying to be more connected to their money and the stories around their investments. As a result, the interest in alternatives has grown significantly. This doesn't mean we should re-adjust how we think about alternatives and portfolio asset allocations. There's still a risk profile that we're looking to uncover. Millennials are not different in that in that regard.

Advisors need to understand that an excitement and enthusiasm are driving this yearning and interest. Advisors should be thoughtful about how to lean into that versus discounting it.

Millennials also want personalization. Everyone cares about the earth and the environment. But, the Millennial generation really cares about ESG, and they have opinions about things that are meaningful to them. There are issues that they are passionate about, corporations they do not want to invest in it all. Advisors need to tighten the connection that people have between themselves and their money.

Here are some proactive steps that you can think about. The first one is about what your message is and how you're differentiating it. Take a step back, think about what makes you unique in this space. Differentiation doesn't mean you need a podcast, or you are on TikTok – differentiation is core to who you are, what type of practice you want to run, and how you work with clients. Identify what it is about your practice that is unique; and then find the right platform to convey that message. Authenticity and transparency are key.

You likely have several target audiences. Whether they’re moving into retirement, or just starting their career – the messaging is going to be very different.

Be sure your firm has a dedicated area of your website to define how you work with Millennials, just as you have a dedicated page for Retirees. Don’t just think about your website, think about your digital presence and even the events you are planning. The Millennial is interested in different types of events than your older clients and are spending time on different social platforms.

Another thing about this age range is they like subscriptions; many advisors instill a minimum investment amount to work with them. If you are embracing the Millennial, rethink the minimums. They are in the accumulation phase and in a position to inherit and continue to advance in their careers which will increase their assets over time.

Perhaps your firm develops a special program for clients under 40. And as they reach 40, they need to strive to have a larger amount of money invested with you. This gives them a goal to reach, not only their personal goal, but wanting to achieve the next tier with their financial advisor.

This generation of investors is very different than their parents and their grandparents. The challenge that we're seeing with a lot of financial advisors is the assumption that, if they're already overseeing the wealth on the front end, through the parents or their grandparents it's automatically going to migrate to the children and spouse and stay within their practice, The stats will tell you otherwise. 70% of heirs will not stay with their parent's or spouse's financial advisor.

Start to nurture those relationships today. Understand what is important to the children, and spouse because what resonated with the person who controls the wealth today might not resonate with the people who control the wealth in the future. Recognize the growth in assets that will come with this generation – $84 trillion by 2045 according to Cerulli. Define yourself in this space, realize that this generation holds a key to the future of your firm and you will thrive.


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By Adhesion Wealth, A Vestmark Company