Given this inflection point, Fidelity decided to find out how many Gen X/Y millionaires work with a financial adviser and what they expect of that professional. Only 58% of this group of millionaires work with an adviser, down from 72% in 2012.
Among those who do, expectations are high. They expect their adviser to generate returns of 16% for their portfolio, compared with Boomers’ hopes for 7% returns. Nearly two-thirds of Gen X/Y millionaires, 62%, want their adviser to comprehensively handle their financial situation, compared with 25% of Boomers. And 53% of the former group expect their adviser to have robust technology, specifically data aggregation tools that can give them a complete picture of their financial holdings. Less than a third, 29%, of Boomers have this expectation.
“With the percentage of Gen X/Y millionaires using an adviser on the decline, the industry needs to take a step back and ask: What can we be doing to ‘tip’ these investors toward valuing advice?” says David Canter, head of the registered investment adviser (RIA) segment at Fidelity Clearing & Custody Solutions. “Gen X and Millennials don’t manage their finances in the same way their parents did—they want an adviser who will be their own personal CFO [chief financial officer] and organize and simplify their financial lives.”
NEXT: How to best serve this market
Fidelity offers five approaches that advisers can take to resonate with Gen X/Y millionaires. First, the firm says that 69% of Gen X/Y millionaires who work with an adviser have referred at least one of their acquaintances or family members to that person in the past year, so Fidelity stresses building a rapport with the millionaire clients and finding out what they value; this can be done by conducting client satisfaction surveys and/or serving on advisory boards.
Second, Fidelity learned that 49% of the children of Gen X/Y millionaires would
be willing to meet with their parents’ adviser, but only 16% of advisers are
targeting younger investors. Therefore, Fidelity urges advisers to establish
relationships with the younger generation.
Third, Fidelity says, “Make sure you’re providing online access to statements, reports and financial records via your website, an online portal and/or an app, and staying on top of the latest ways to enhance the client experience through technology.”
Fourth, because these investors are looking for more
comprehensive services than just management of their portfolio, Fidelity says
it might very well be worthwhile to help them establish a financial
And, finally, Fidelity notes that the members of Gen X/Y prefer to work with one adviser, so data aggregation tools are invaluable.
NEXT: ‘The Tipping Point’
Fidelity says that Gen X/Y millionaires earn, on average, $200,000 a year, compared with $125,000 among Baby Boomer millionaires. They have average assets of $3.4 million, compared with the $2.5 million Boomers have saved.
Advisers would do well to emphasize fee transparency, Fidelity says, as 65% of Gen X/Y millionaires do not know what they paid their adviser last year. This is also true for a large majority of Baby Boomer millionaires: 56%. However, advisers will need to justify those fees, as 52% of Gen X/Y millionaires say they would switch to an adviser who charges lower fees—a far higher percentage than in other generations.
Fidelity urges financial advisers to reach out to this cohort: “Now is the time to engage the wealth holders of the future in order to ensure that they choose the path to financial advice—and to your firm.” In fact, by the time they retire, members of Generations X and Y could become decamillionaires, i.e. having a net worth of $10 million or more, Fidelity says.
NEXT: The perfect age
Fidelity says that the average age of Gen X/Y millionaires is 44—“the perfect age to create relationships with advisers,” as Fidelity research shows that most millionaires start working with an adviser at 43.
Among the 42% of Gen X/Y millionaires who are not working with an adviser, some said they like managing their money on their own. Fifty-eight percent said because online financial tools and resources are available, they are more comfortable making their own investment decisions. Others said they don’t want to pay adviser fees or don’t trust that the adviser will put their best interests ahead of his own.
Fidelity says, despite these objections, it is critical for advisers to pursue this market—otherwise they might experience a decrease in assets and revenue.
So, taking a closer look at the characteristics of Gen X/Y
millionaires, Fidelity says the group is more diverse and includes more women. Members
are more hands-on with their investments, are primarily self-made and are
college educated. Sixty-eight percent of them have debt, compared with only
41% of Boomers.
To best serve this market, Fidelity suggests, advisers should allow their clients to handle some of their money, but should take control of the rest—particularly with respect to increasing their household wealth with investments that are more high risk, such as alternative investments, venture capital investments, foreign currency and derivatives.
They are also more likely to use managed accounts and socially responsible investing (SRI) or environmental, social and governance (ESG) investments and less likely to have fixed income and individual stocks in their portfolios, Fidelity says. Additionally, they are looking for advisers who can help minimize their taxes and who take a deep dive on portfolio managers before recommending a fund. They want the adviser to refer them to other professionals such as tax accountants and lawyers and to help them build a legacy.
Get to know the unique circumstances of these clients, Fidelity recommends, and get to know them as a person, not just a client. Include their spouse or their partner in financial conversations—and consider the entire experience you are offering them.
Fidelity’s full “Tipping Point” report, including three cases studies of how financial planners successfully have served the Gen X/Y millionaire market, can be downloaded here.