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Many of us who have been in the wealth management profession for a while will admit to fixating on supposed trends. (Remember the furor over robo-advisors replacing human advisors or the looming retirement crisis?) These specters of change failing to manifest – or at least taking longer to do so than originally believed – has desensitized us to the headlines. As a result, we default to downplaying whatever we’re told is coming next.
I am concerned the same is true of another much-hyped conversation surrounding next-generation investors.
While the profession has been endlessly pontificating about how best to attract and serve that next generation, they have already arrived. The descriptor “next” implies that this group of investors has yet to materialize. That isn’t true. Instead, this group of investors – including millennials, people of color, women, first-generation immigrants and other historically underserved communities – have already emerged as the “new generation” that advisors must adapt to serve. They’re here, they have money to invest, and they want help navigating an ever-more-complex financial world. If advisors continue to think of these clients as something that comes “next,” the sense of urgency to adapt their practices and meet the needs of these new investors today vanishes.
Many advisors are woefully behind the curve: According to new research from Fidelity, just one in five has an asset-weighted client age under 60. The average firm derives an overwhelming majority of its revenue from older clients, yet advisors have initiated contact with just 13% of their clients’ children. Meanwhile, despite women’s burgeoning share of the wealth pie, financial professionals are missing out on a $14 billion opportunity to serve them via segment-specific experiences, appropriately tailored enablement programs, and targeted products and services.
Advisors can’t be this complacent.
Those advisors with an average client age of 69 are growing just 1% year over year, according to the Fidelity research, and 78% of the existing assets are at risk. Meanwhile, competition is fiercer than ever, and the creeping commoditization of investing means that advisors must reevaluate their value propositions to survive and thrive. Millennial and Gen Z investors, women and minorities have quite different needs from those of the “traditional” client set. Many grew up in a different era, shaped by transformative technologies and pivotal world events, and their personal experiences have informed their expectations for financial advice.
A great wealth transfer is not just imminent, it’s already underway – and millennials, Gen Z and women are among those poised to be on the receiving end. Advisors need to think about the now and the new, not the next, and step up their offerings in key areas.
The ability to offer personalized, tech-enabled experiences that address the unique needs of diverse clients will define advisors’ success. As digital natives, new-gen clients will demand the convenience of technology that offers seamless onboarding, multiple modes of digital communication, and instant mobile access to their financial plans. Moreover, these clients expect interactions and financial road maps that are tailored to their unique values, circumstances and goals. In fact, a significant number see the latter capability as one of the most important ways an advisor can impart value.
To that end, advisors would do well to deploy behavioral tools and technologies that help them get to the heart of – and better serve – their clients’ motivations and desires. Once they understand what makes their client tick, they will be better positioned to deliver thoughtful, personalized recommendations that resonate.
The new generation of investors tends to lead with their values. When it comes to their investments, millennials and Gen Zers are more than twice as likely as baby boomers to prize values alignment when investing. Cerulli found that women are more inclined than men to invest in companies that have a positive social or environmental impact. Meanwhile, Schwab research indicates that Black investors are particularly enthused by the possibility of aligning their investments with their personal beliefs.
Why are advisors drastically underestimating or ignoring the demand for values-aligned offerings?
It may be that some are waiting for their clients to initiate the conversation, in which case they risk losing out to the advisor who proactively broaches the topic of environmental, social and governance (ESG) investing. Others may be justifiably concerned that, despite their best intentions, they’ll inadvertently engage in greenwashing and undermine the client’s trust. But it doesn’t have to be this way – in recent years, a crop of platforms has emerged to help address advisors’ ESG challenges head on. Many offer educational materials and conversation starters to support advisors in confidently uncovering their clients’ values, subsequently translating them into custom allocations that offer greater control and transparency than one-size-fits-all strategies.
Diversity and inclusion
Serving a diverse clientele extends beyond investment offerings alone. By 2045, the United States’ population will be majority-minority, and this cohort will want to work with advisors who look like them and can relate to their lived experiences. To that end, firms should prioritize attracting and retaining talent that is equipped to meet the needs of this increasingly heterogeneous client base. The benefits are multitudinous: as an industry, we have an opportunity to narrow the racial wealth gap and help diverse populations achieve their financial goals. At the firm level, nonhomogeneous voices lend fresh perspectives and bolster teams’ abilities to problem solve.
There are numerous measures that firms can take to onboard more diverse talent, but a judicious first step might be to reevaluate the hiring process. Some job postings are inadvertently deterring candidates that aren’t white and male, but there are machine-learning tools that can assess whether role descriptions use adequately inclusive and nonbiased language. Hiring managers might also tap their own networks to widen the talent pool or forge partnerships with professional organizations that specialize in connecting employers to diverse candidates.
Further, leadership should ensure that they are fostering a supportive workplace environment where all employees feel welcome. This will not be an overnight undertaking. However, firms can still make meaningful progress by establishing employee resource groups (ERGs) that encourage workers with shared characteristics to come together on a voluntary basis and build community. Formal mentorship programs can also be a great way to support and empower incoming employees, ensuring they have an internal advocate who’s looking out for their continued success.
The new generation does things differently than the last and, contrary to widely held misconceptions, they stand to be a significant driver of revenue for advisory firms. They’re eager and willing to seek out professional financial advice, but they want it on their terms.
Remaining competitive and positioning yourself for smooth succession planning means abandoning the notion that there is a next generation of investors around the corner. That generation is already here and, to retain relevance, advisors must take meaningful steps to serve them now. That generation we’ve been plotting for the arrival of is already at the table, seated and waiting to be served.
Zach Conway is cofounder and CEO at Seeds Investor, a wealthtech platform that helps independent advisors win the hearts and minds of the new generation of investors.
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