Advisors Need To Communicate Their Value To Younger Investors

Friday, April 29, 2011 05:34
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Advisors Need To Communicate Their Value To Younger Investors

Tags: niche management

Investors in their thirties and early forties grew up steeped in market data and are wondering why they need an advisor at all.

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According to new research from Cogent, members of Generation X are less satisfied with their advisors than any of their predecessors.

 

Only 42% are happy with existing advisory relationships and a full 51% would be willing to switch.

 

The fact is that these people watched their self-directed friends capture 28% returns last year while their own accounts earned them maybe 11% -- and the difference bothers them.

 

Cogent theorizes that these assets are being managed as though their 30- to 45-year-old owners are actually much older, and so the portfolios are more conservative than necessary.

 

But it's the usual story. Younger self-directed investors are apparently getting those big returns by being overweight equities.

 

That's not a strategy that can outperform if stocks go south. But simply pontificating about the power of diversification isn't going to convince Generation X -- when confronted with the gap between 28% and 11% returns, advisors need to come up with hard numbers of their own.

 

Take that equity-rich portfolio and back-test it. How did it do in 2008-9? In 2000-2? Your younger clients remember these bear markets.

 

Compare those numbers to what one of your portfolios would have delivered. Maybe both lost money, but which lost least?

 

This is important because Generation X is not a fringe advisory demographic any more. These people have 75% of the assets, on average, as their older counterparts -- and they now account for 20% of the affluent population.

 

Furthermore, if the advisory business is going to outlive the Boomers, it's got to keep evolving. Cogent didn't look at Generation Y or the "millennial" generation, presumably because they're so young. 

 

But wait until these people -- steeped in Facebook -- become prospective clients.

 

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