03.05.24
For Savvy Bank Advisors, Fountain of Youth Awaits
by: Rich Blake
Cerulli, a strategic consultant to the asset management industry published its Q1 "Cerulli Edge" report in late February, focused on retail investors. In it was a startling statistic regarding young money: Financial assets of millennials and Generation Z saw the highest rate of increase relative to any other generation over the past three years.
"Gen Z," the ripest generational cohort — including a subset of young adults now between the age of 18 and 27 — recorded nearly $6 trillion in financial wealth. That's up threefold compared to 2019.
As it turns out, millennials and Gen Zers experienced significant increases in terms of holding securities and opening retirement accounts.
Some 22% of this combined camp now owns individual stocks, up from 13% three years ago; and 9% own pooled assets, including mutual funds and exchange-traded funds (ETFs), up from 6%.
Not surprisingly, the Robinhood-platform-abetted retail trading boom of the early part of this decade proved particularly impactful on younger investors (also sometimes called the iPhone generation or "iGen") compared to Generation X and baby boomers (although do note that some millennials are middle aged).
‘Strong Incumbency Advantage’
By any demographic moniker, Cerulli pegs the freshest-faced crowd at 44 million households and counting.
"This younger cohort increasingly is becoming impossible to ignore,” says John McKenna, a Cerulli research analyst.
With their financial wealth growing at a massive rate alongside the complexity of their assets, younger investors are “prime candidates for formal advice relationships,” going beyond just a brokerage account and a local bank teller, McKenna explains.
"As the retiree and near-retiree markets become more saturated, younger investors represent a chance for advisors to build relationships that could last through five decades, growing in wealth each step of the way,” he adds.
Research conducted last year by Cerulli on behalf of BISA produced several key takeaways, mainly that bank channel advisory teams were running far too lean talent-wise and also that new types of incentive structures needed to be embraced, particularly with respect to retaining senior advisors who find themselves in demand.
Securing younger talent, though, is front of mind as advisory practices set about to capture new opportunities in the burgeoning Gen Z realm.
“Bank channels still have a strong incumbency advantage when it comes to storing assets like checking and savings accounts,” Cerulli’s McKenna adds. “That advantage should be leveraged when it comes to introducing financial advice as it reduces a potential point of friction that comes with changing provider channels.”
Some Traditions Still Hold
Conventional wisdom suggests Gen Z members expect a digital experience when it comes to getting assistance with their financial goals. Indeed, the advisory industry may well be heading for a Netflix-style model that is data-driven and hyper-personalized.
And yet it's a misconception to think that these youthful investors are somehow less interested in traditional products, as that's not the case, as the Cerulli research shows. A few other industry-authored studies also illustrate this counter-narrative.
For example, a recent report from the Financial Industry Regulatory Authority and the CFA Institute found 41% of Gen Z in the U.S. have money in individual stocks, and that 35% invest in mutual funds. Additionally, a recent Vanguard study found that Gen Z's 401(k) participation rate in 2021 was 62%, more than twice the participation rate for employees of that same age in 2006.
By the end of 2022, a majority of millennials and Gen Zers (55%) held a retirement account either through their employer or set up independently, according to Cerulli. That’s a six-percentage-point increase from 2019.
According to a survey from creditcards.com, cited by WealthManagement.com, Gen Z investors are up to five times more likely to seek investing tips on social media compared to adults 41 and over; and nearly one in three Gen Zers sought guidance from friends/online influencers.
As WealthManagement.com points out: "It used to be that financial advisors were among the few sources of investment advice and guidance; but now young investors know how to source information from all corners of the internet."
For asset managers, employing advisors of these young generations will provide perspective on unique challenges and will help deliver the strongest advice solutions, Cerulli says.
“Advisors willing to take the leap could be rewarded with long-term clients and a strong competitive advantage as older households fully enter the decumulation phase of their lives,” McKenna says.
Advisors of all stripes, ages and channels can do a few specific things to better serve young investors, WealthManagement.com says, pointing to technology platform upgrades (allowing for anytime, anywhere communications and/or transactions, via smart phone) and AI tools which are quickly changing how people and companies interact (e.g., automatically researched, composed and delivered text messages), upping the amount of spare time for meaningful conversations.
But just be sure you know how to use FaceTime or GoogleChat.