Could Your Practice Survive Without Boomers?

There is an enormous generational transfer of wealth on the horizon that will test retirement advisory firms’ ability to attract younger clients, a new J.D. Power report finds.

J.D. Power says an aging client population and a massive generational transfer of wealth away from Baby Boomers means advisory firms not focused on winning Millennial and Gen X clients may already be already falling behind.

“Investment firms are not asking the right questions of their clients and may be at risk of losing assets if they fail to establish relationships now with the next generation,” the report warns.

As part of the 2015 Full Service Investor Satisfaction Survey, J.D. Power researchers measured overall satisfaction with full service investment firms across seven factors:

  • investment advisor service quality;
  • investment performance;
  • account information;
  • account offerings;
  • commissions and fees;
  • website; and
  • issue resolution.

Overall investor satisfaction remains unchanged from last year’s survey, at 807 on a 1,000-point scale. Beyond rote satisfaction, the research highlights some pressing statistics. For example, the median full-service client is 61-years-old and right on the brink of retirement. And despite the 71% of investors who say they have informed their adviser about their next-generation beneficiaries and a willingness to discuss wealth inheritance strategies, only 42% of clients say their referrals were contacted by the adviser to have such a conversation.

“When advisers ask about the needs of the next generation, not only does the number of contacts with beneficiaries and potentially new clients increase, but overall satisfaction is also higher among investors who are asked than among those who are not asked, at 854 vs. 793, respectively,” the report explains.

Mike Foy, director of the wealth management practice at J.D. Power, notes that talking to clients about their beneficiaries may feel awkward to many advisers, “but most investors want their wealth to benefit the next generation.”

“Many times, investors themselves struggle in money-related conversations with their kids, and an adviser is in a unique position to be a bridge between generations,” he adds. “Firms that can effectively train and support their advisers in this regard have a real opportunity to differentiate their services.”

Other key findings show there is only a five-point gap in satisfaction between the highest-ranked investment firms and the industry average (812 vs. 807), “suggesting there is a limited perception of differentiation with the client experience among industry firms.”

“Similar to their lack of preparation for intergenerational wealth transfers, firms are also not proactively preparing for intra-generational wealth transfer events,” J.D. Power warns. “Nearly one-fourth (23%) of investors say their adviser never interacts with their spouse or partner, missing a tremendous opportunity to retain the household wealth over the long term.”

The report finds many investors have already positioned themselves to smoothly enact wealth transfers—for example, among investors who have named next-gen beneficiaries, 33% of the beneficiaries have an account or product with that same firm. The proportion of beneficiary accounts increases by a striking 24% points when advisers proactively ask their investors about beneficiary needs.

Even as advisory firms take steps to promote internal wealth transfers, the movement of wealth will almost certainly face some hiccups, as there are important generational differences in terms of the trust investors place in their advisers. Slightly more than two-thirds (67%) of pre-Boomers (born before 1946) indicate their adviser always makes recommendations in their best interest, the report finds, while just 40% of Generation Y (born 1977 to 1994) and Gen Z (born 1995 to 2004) say the same.

J.D. Power finds higher client satisfaction generally translates into significant increases in advocacy, loyalty and share of investment wallet for firms. Among firms ranking above the industry average, 48% of client investors say they “definitely will” recommend their firm, versus 37% of investors with firms ranking below average. 

With respect to loyalty, 46% of investors of firms that perform above industry average say they “definitely will not” switch firms, compared with 38% of investors with firms that perform below average. While there is only a two-point gap in share of wallet between above- and below-average firms (86% vs, 84%, respectively), this can still translate into a meaningful increase in a firm's assets under management, the report concludes.

The 2015 U.S. Full Service Investor Satisfaction Study was fielded in January and February 2015 and is based on responses from more than 5,300 investors who make some or all of their investment decisions with an investment adviser.

Additional findings, including firm-by-firm satisfaction rankings from this and other J.D. Power advisory industry research, are available here.