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Study profiles unique needs of millennials to help RIAs and fee-based advisors engage with expanding market of emerging investors

Written on Feb 28, 2019

A new report takes an in-depth look at Millennial investors and their unique needs.

The underlying study was designed around individuals age 18 to 37 with investable assets of $100,000 or more, to determine how they differ from the cohorts of Gen-X, Baby Boomers and Matures who precede them. RIAs and fee-based advisors can tap into these insights to understand this younger generation and compete more effectively to win their business. Conducted online by The Harris Poll, the Advisor Authority study surveyed roughly 1,700 financial advisors and individual investors nationwide.

"Year-over-year, RIAs and fee-based advisors say that adding new clients is the number-one driver of profitability, and Millennials are a prime target—poised to grow more wealth and inherit their share of the $30 trillion Great Wealth Transfer," said Craig Hawley, Head of Nationwide Advisory Solutions. "But this generation faces distinct challenges and fosters unique preferences—which advisors must understand in order to build productive relationships."

The opportunity is substantial. Millennials now make up over a third of the U.S. population, and are the most diverse and most educated generation so far. But this generation is not without their challenges, according to this latest Advisor Authority Special Report, "Looking to the Future—Reaching Millennial Investors." Coming of age in the wake of 9/11, the Market Crash of 2008 and the Great Recession, has impacted Millennials' financial concerns, investing habits, and future earnings potential. They are proceeding with caution, and this aversion to risk may impact their ability to reach their future financial goals. Yet, four in 10 of these younger investors (40%) still do not have a financial advisor—and could benefit from long-term holistic planning.

Millennials are much less likely than Gen-X and Boomers to have a mortgage, but much more likely to have student loans. Perhaps as a result, Millennials say that managing debt (31%) is their number-two financial concern over the next 12 months. In comparison, managing debt is rated fourth by Gen-X (25%) and does not break the top five for Boomers (13%) or Matures (4%). This younger generation may be dealing with the repercussions of their debt for decades to come. Millennials are far more concerned than other generations with financing a large expense, rating it fourth (20% vs Gen-X 6%, Boomers 6%, Matures 4%), and financing a home (19% vs Gen-X 8%, Boomers 1%, Matures 3%), rating it fifth.

While taxes are among the top three financial concerns for every generation, only Millennials rate taxes as their number-one financial concern (33% vs Gen-X 29%, Boomers 31%, Matures 30%), and needing help managing their taxes as their number-four reason for having an advisor. They are also among the most likely to say that tax reform will increase the likelihood that they will work with an advisor in the next 12 months (46% vs Gen-X 38%, Boomers 18%, Matures 8%).

Impacted by their proximity to the Market Crash of 2008 and the Great Recession, Millennials are risk averse and reluctant to invest in the stock market. Numerous studies show that they favor cash for long-term investing, ahead of stocks, bonds and other asset classes—and are likely to hold twice as much cash as any other generation in their investment portfolios. There is a tremendous opportunity for advisors to help them start early and establish a lifetime of smart investing habits to reach their financial goals.

Given their younger age, it may be somewhat surprising that Millennials are already focused on saving for retirement, which is tied for fourth (20%) among their top financial concerns and concern for saving enough for retirement is rated third (13%) among their reasons for having an advisor. Meanwhile, Millennials (76%) are also as likely as Gen-X (68%), Boomers (75%), and Matures (77%) to say that they have a strategy to help protect themselves against outliving their savings.

Likewise, a majority of Millennials (53%) say that they have a strategy in place to protect their portfolio against market risk. And among those who have a strategy, they are somewhat more likely than other generations to rely on liquid alternatives as their top solution (50% vs Gen-X 27%, Boomers 33%, Matures 22%) and somewhat less likely to rely on traditional diversification as the foundation for risk management (43% vs Gen-X 77%, Boomers 76%, Matures 58%). Millennials are also generally somewhat more likely to use fixed index annuities (47%), fixed annuities (40%) and market-linked CDs (39%) and somewhat more likely to rely on sophisticated instruments such as put options (20%) and smart beta ETFs (16%).

When choosing an advisor, Millennials focus on different values and priorities compared to other generations. Millennial investors, like all other generations, say experience matters most (35%, Gen-X 49%, Boomers 49%, Matures 67%). However, Millennials are the only generation to say that socially responsible investing is rated within the top two factors for choosing an advisor, suggesting that this generation cares deeply about where their money goes (26% vs Gen-X 9%, Boomers 10%, Matures 9%). Reducing fees for younger clients rounds out Millennials' top three (25% vs Gen-X 16%, Boomers 3%, Matures 6%).

While all other generations say that serving clients using a fee-based fiduciary standard is among their top four (Gen-X 29%, Boomers 22%, Matures 28%), Millennials (16%) rated it as less important than factors such as historical performance (19%), increased use of mobile technology (18%), increased use of social media (17%) and robust cyber security procedures (17%). A significant departure—and important opportunity—for advisors to provide more education on the importance of finding an advisor who puts clients' best interests first.

It's not surprising that Millennials, often referred to as "digital natives," are the generation most familiar with Artificial Intelligence (47% very/extremely familiar vs Gen-X 18%, Boomers 15%, Matures 9%). Yet, among these younger tech-savvy investors who have a financial advisor, they still say that their preferred form of communication is face-to-face (35%), surpassing phone calls (26%) and all other digital channels such as emails (11%), social media (7%), video chat (6%) and text messages (3%). For Millennials, the human touch still wins, hands down.