Data & Research June 30, 2016

Millennials Have More Investment Confidence Than Boomers

However, more Millennials than Baby Boomers expressed high levels of concern about market volatility and its impact on them reaching their retirement goals.
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Forty-two percent of Millennial investors say they are very knowledgeable about investments, compared to 17% of Baby Boomers, according to a survey by Securian Financial Group.

Twelve percent of Millennials say they are not very knowledgeable about investments, compared to 25% of Baby Boomers.

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While $1 million was most frequently cited by both generations as the amount they would need to save to feel confident in retirement, more Millennials (52%) than Boomers (45%) are confident that they’ll reach their savings goal. More Boomers (11%) than Millennials (4%) are not confident that they will reach their goal.

“Confidence is a trait younger generations of Americans have never possessed in short supply,” says David Kuplic, Securian’s chief investment officer and executive vice president of Advantus Capital Management, a Securian asset management subsidiary. “Their natural self-assurance, along with the market growth most have experienced since coming of investment age after the financial crisis, could explain the gap between Millennials and Boomers, who have experienced many more highs and lows.”

However, because Boomers have more experience with market volatility, more Millennials than Baby Boomers expressed high levels of concern about market volatility (42% and 29%, respectively) and its impact on them reaching their retirement goals (49% and 39%, respectively). Millennial investors also are more concerned than Boomers about protecting themselves from a volatile market (54% and 43%) and understanding the reasons behind a volatile market (51% and 37%).

Millennials are far more likely than Boomers to take action (i.e., buy more shares, sell shares, shift shares) during periods of market volatility. Most Boomers—59%—say their typical reaction to a falling market is to leave their portfolio alone, compared to 37% of Millennials. Similarly, in a rising market, 61% of Boomers say they make no changes to their portfolio, compared to 40% of Millennials.

Thirty-nine percent of Millennials and a majority of Boomers (51%) say they are moderate investors, but surprisingly, more Millennials (15%) than Boomers (8%) say they are very conservative investors.

Nearly two-thirds (65%) of both Millennials and Boomers seek investment advice from financial advisers. The second-most cited source of investment advice for Millennials is family (54%) and for Boomers is news outlets (39%).

Millennials are much more likely than Boomers to seek advice from money management websites (49% and 29%, respectively), banks (41% and 15%), friends (39% and 18%), blogs (25% and 7%) and social media (13% and 3%).

To compare generational investment behaviors and reactions to the market volatility that began late last summer, Securian Financial Group conducted a survey of 1,997 investors, inclusive of 1,040 Millennials and 957 Baby Boomers. The survey report is here.
In Practice June 30, 2016

J.D. Power Sees Advisers ‘In the Eye of the Storm’

A confluence of generational, technological and consumer preference trends is driving a sea change in the traditional investment advisory business, according to J.D. Power researchers. 
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The J.D. Power 2016 U.S. Financial Advisor Satisfaction Study shows independent advisers are slightly more satisfied at work than their employee adviser counterparts.

The study measures satisfaction among both “employee advisers,” those who are employed directly by an investment services firm, and “independent advisers,” those who are affiliated with a broker/dealer but operate independently, based on seven key factors. These include client support; compensation; firm leadership; operational support; problem resolution; professional development support; and technology support.

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Satisfaction is measured on a 1,000-point scale, J.D. Power researchers explain: “Overall satisfaction averages 722 among employee advisers, up 21 points from 701 in 2015, and 755 among independents, down 18 points from 773 last year.”

These figures represent fairly high levels of satisfaction among those working as both independent and employee advisers, researchers explain, but this does not mean the advisory industry at large is in a stable place. Advisers polled by J.D. Power cited firm leadership retirements, the growing consumer preference for robo-adviser models and the ongoing evolution of fee structures as “setting the stage for a major disruption in the market for financial advisory services.”

“No doubt, the wealth management industry is in the eye of the storm right now, and the implications are far-reaching for firms that have been rooted in the traditional financial advisory services business model,” adds Mike Foy, director of the wealth management practice at J.D. Power.

Financial advisers will “obviously still be a critical part of the future of the business,” he adds,  “however, key industry trends—such as the availability of low-cost robo-advice; the rise of so-called ‘validators’ who want to make more of their own financial decisions even while supported by an adviser; and the new fiduciary rules putting clients’ best interests ahead of an adviser’s own profit—together set the stage for fewer and different kinds of advisers and an increasingly exclusive focus on the high net worth segment where advisers can add the most value.”

NEXT: What’s at stake in industry change 

From an industry-wide perspective, J.D. Power finds nearly one-third (31%) of advisers are poised to retire in the next 10 years, including 3% who plan to retire imminently. At the same time, the number of employee advisers indicating they will likely go independent in the near future doubled from 6% in 2014 to 12% in 2016. “Another 12% of advisers say they are likely to join or start an independent registered investment adviser (RIA) practice in the next several years, up from 7%,” researchers explain.

The researchers go on to suggest “billions in losses are at stake” if advisory firms do not act now to prevent disorderly staff retirements or transitions to independence.

“At the current expected rate of attrition due to retirement and firm switching, a firm with 10,000 financial advisers may have more than half a billion dollars in annual revenue at risk during the next one to two years, highlighting the critical need to retain top producers and to effectively manage succession planning to transition assets to newer advisers,” J.D. Power finds. "Investment firms must figure out how to satisfy their advisers because the stakes are so high.”

The research further shows that, among employee advisers who are highly satisfied, only 1% say they “definitely will” or “probably will” leave their firm in the next several years, compared with 46% of dissatisfied employee advisers who say the same. “The same trend holds true for independent advisers, at 2% and 45%, respectively.”

“These changing dynamics in the advisory business create new challenges for firms to focus retention efforts on top producers; attract new talent with skills aligned with the direction the business is heading; and create or refine hybrid business models that incorporate more technology and self-service options into their offerings,” Foy concludes.

Additional findings and information are here. 

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