Cisco conducted a recent study aimed on showing financial services firms that they need to add new technology (e.g. video conferencing) to best attract the under-50 affluent investor. The survey polled more than 1,000 wealthy U.S investors having at least $500,000 in investment assets. However, what we found most interesting from the study is the investor attitudes toward financial advisers and it's not good.
Of those surveyed, 30% reported doubts about the value delivered by an adviser; almost half said the fees charged by financial advisers are too high and 40% believe they can get better results on their own. It's not surprising that these investors feel that way. One competent advisor recently admitted to me that he had earned nothing for his clients over the last 10 years. Thus, it's not surprising that the younger affluent feel that advisors deliver no value.
While this market is attractive to financial advisors and their firms, providers of financial services should not be licking their chops as this market will not be like their parents. First, let's consider the opportunity.
These under-50 affluent investors represent 29% of all wealthy investors in the United States, and their importance to financial services firms will continue to grow as wealth passes from their parents. Sixty-seven percent expect to get a substantial gift or inheritance in the next 10 years; 27% have switched advisers in the past two years (vs. 10% for older clients) and 32% are likely to switch financial advisers in the next year. As we see, this demographic is also more likely to switch financial advisers than older investors.
Additionally, it appears that this cohort is also likely to go it alone, without a financial advisor. A recent Spectrem Group study of investors under age 45 found that over one-fourth of Wealthy Young Investors with 100K-1MM do not use any advisors, compared to 12% of Millionaire Young Investors. Of those who do use an advisor, accountants are the most common advisor for the youngest investors regardless of wealth level. Independent financial planners are also a top pick.
Not surprisingly, 40% of affluent investors under the age of 45 who have less than $1 million believe they can do a better job of investing than a professional advisor.
The attitudes of the wealthy young investors are even worse for financial advisors as nearly two-thirds of those with $1 million + under the age of 35 believe they can do a better job than a professional advisor. In other words, it seems that the wealthier the investor, the less likely the are to see the need for a financial advisor.
The Spectrem study concludes "Young Investors have yet to see the value in using a financial advisor and many have not yet established a relationship with an advisor. This is a great opportunity for advisors. Since Wealthy Young Investors have access to a plethora of information available on the Internet, they must be convinced of the value of using a financial advisor. It is important for a financial advisor to bring value added information to Wealthy Young Investors. Work to establish your expertise in their minds and ultimately gain their trust.
While Spectrem sees this as an opportunity, our conclusion is that this information is a warning. The warning is that as the now-current senior generation passes, advisors will have a harder time recruiting their children as clients. It is incorrect to think that the attitudes of wealthy young investors will change as they age.
Although this author is not a sociological expert, demographic readings state that cohorts, a group of people for example for the same age group, retain their opinions and outlook as they age. They do not become like their parents. Therefore, any practitioner in financial services thinking that as young investors age, they will make greater use of financial advisors, is likely incorrect. However, financial advisors can always reposition themselves and deliver a value proposition accepted by the upcoming wealthy. That value proposition will need to different than currently offered to those currently age 50+.
Of those surveyed, 30% reported doubts about the value delivered by an adviser; almost half said the fees charged by financial advisers are too high and 40% believe they can get better results on their own. It's not surprising that these investors feel that way. One competent advisor recently admitted to me that he had earned nothing for his clients over the last 10 years. Thus, it's not surprising that the younger affluent feel that advisors deliver no value.
While this market is attractive to financial advisors and their firms, providers of financial services should not be licking their chops as this market will not be like their parents. First, let's consider the opportunity.
These under-50 affluent investors represent 29% of all wealthy investors in the United States, and their importance to financial services firms will continue to grow as wealth passes from their parents. Sixty-seven percent expect to get a substantial gift or inheritance in the next 10 years; 27% have switched advisers in the past two years (vs. 10% for older clients) and 32% are likely to switch financial advisers in the next year. As we see, this demographic is also more likely to switch financial advisers than older investors.
Additionally, it appears that this cohort is also likely to go it alone, without a financial advisor. A recent Spectrem Group study of investors under age 45 found that over one-fourth of Wealthy Young Investors with 100K-1MM do not use any advisors, compared to 12% of Millionaire Young Investors. Of those who do use an advisor, accountants are the most common advisor for the youngest investors regardless of wealth level. Independent financial planners are also a top pick.
Not surprisingly, 40% of affluent investors under the age of 45 who have less than $1 million believe they can do a better job of investing than a professional advisor.
The attitudes of the wealthy young investors are even worse for financial advisors as nearly two-thirds of those with $1 million + under the age of 35 believe they can do a better job than a professional advisor. In other words, it seems that the wealthier the investor, the less likely the are to see the need for a financial advisor.
The Spectrem study concludes "Young Investors have yet to see the value in using a financial advisor and many have not yet established a relationship with an advisor. This is a great opportunity for advisors. Since Wealthy Young Investors have access to a plethora of information available on the Internet, they must be convinced of the value of using a financial advisor. It is important for a financial advisor to bring value added information to Wealthy Young Investors. Work to establish your expertise in their minds and ultimately gain their trust.
While Spectrem sees this as an opportunity, our conclusion is that this information is a warning. The warning is that as the now-current senior generation passes, advisors will have a harder time recruiting their children as clients. It is incorrect to think that the attitudes of wealthy young investors will change as they age.
Although this author is not a sociological expert, demographic readings state that cohorts, a group of people for example for the same age group, retain their opinions and outlook as they age. They do not become like their parents. Therefore, any practitioner in financial services thinking that as young investors age, they will make greater use of financial advisors, is likely incorrect. However, financial advisors can always reposition themselves and deliver a value proposition accepted by the upcoming wealthy. That value proposition will need to different than currently offered to those currently age 50+.
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