Baby boomers and their parents have experienced several market cycles. By leveraging a diverse portfolio mix of annuities, mutual funds, exchange-traded funds and other products, most of these investors have regained much of the wealth they lost due to the stock market’s swoon during the recent financial crisis. However, younger investors looking for ways to save for retirement and other long-term goals have not been as lucky because they do not have enough money to pursue a portfolio diversification strategy. To meet the needs of these younger “NextGen investors,” advisors must expand their product offerings beyond products appropriate only for investors with significant investable assets. By offering a broad range of products at different entry points, financial advisors will be better positioned to serve clients at every level and stage of investment.
Financial Preferences Are Changing
NextGen investors comprise a sizeable portion of the financial advice market. There are 75 percent more consumers in Generations X and Y combined than the baby boomer segment and by 2015; the oldest members of Generation Y will turn 35 years old, entering their peak earning years, according to MFS Investment Management. These younger investors have accumulated investable assets, however; their preferences for interacting with advisors are likely not being met by the advisory model that has proven successful for baby boomer clients. While most baby boomers prefer face-to-face collaboration and printed financial plans, NextGen investors are accustomed to electronic, fast-paced engagement styles. As baby boomers retire and spend their assets, NextGen investors are in accumulation mode, saving for a variety of life events. If approached effectively, advisors can engage them as long-term investors.
These investors lived through the stock market highs of 2007, followed by the 2008 economic recession and are now accustomed to volatile markets, high unemployment rates and rising health care costs. As much as they want to retire comfortably, NextGen investorsalso have to worry about their present-day financial situation. They are likely to pursue a self-directed investment strategy, and proactively utilize online resources. However, study after study has shown that the customized goals-based financial advice that only a professional can provide cannot be matched by do-it-yourself advising. Many NextGen investors recognize these advantages, but have not yet taken the leap to seek out professional advice.
Self-Service Augments Professional Advice
Although NextGen investors appreciate the expertise that an advisor brings, they desire a certain level of control over their investments. Rather than relying on one-on-one face time with advisors as their parents have, NextGen investors want on-the-go, convenient advice. While they are more likely to seek out information on their own, especially if their financial advisor isn’t quick to respond, they still need validation that the information they have obtained is correct. This “trust, but verify” approach is the reason many advisors are adding Personal Financial Management (PFM) tools to their technology systems. PFM offers a reduced level of advisor-to-client engagement, so the overall management of finances is more collaborative. NextGen investors are also looking for more ways to contact their advisor on their laptops, mobile phones and tablets via: applications (apps), social networks, emails and even text messages. Augmenting advisory practices to incorporate mobile formats, self-service apps, and even interactions via Skype, help bridge the generational gap so that NextGen investors can be more hands-on with their portfolios, yet still know there’s someone they can turn to who can validate their financial decisions.
To provide the best blend of advice and self-service requires a web-based unified wealth management platform with client-facing portals andinvestor needs-analysis capabilities. These tools provide the transparency that investors are seeking, while also allowing an advisor to garner enough detail to effectively manage their client meetings. Accessible via apps on tablets, smartphones and browsers, these financial advice management tools facilitate the creation of proposals, suggested plans and reports on-the-fly to meet the expectations of fast-paced investors. Flexible needs-analysis capabilities enable advisors to produce actionable plans during each meeting – in-person, on the phone or via the Internet - with clients.
Technology tools available today make data collection more efficient and save investors and advisors the costs related to old-school information gathering. An online experience helps advisors save time and energy as it facilitates on-demand live interactions with their clients, eliminating the need for one party to physically travel to meet the other. Recent advances in client-facing portals enable financial advisors to present liability information and financial strategies in a clear and relatable fashion. Seeing their portfolio strategies elegantly illustrated is a significant draw for NextGen Investors who are looking for ways to pay down liabilities and improve their cash flow.
NextGen investors will continue to seek financial advice as long as they find value in the service. To cater to the next generation of wealth creators, advisors need to adjust their service models, customize investment recommendations and maintain accessibility. Providing value-added services for younger investors and easing the time-intensive task of collecting and entering financial data are major benefits of this type of service model. Advisors that can attract the next generation of investors today with custom, convenient and transparent financial advice will have an array of assets to manage in the future.
Pierre Bossaert is vice president of product management, investment services, for Fiserv.