Even though the majority of investors under of the age of 40 are self-directed, they are open to working with financial advisors, if the advisors can demonstrate they have more to offer than the online tools investors use. Thats one of the main findings of a new report from Hearts & Wallets, a retirement and savings trends research firm based in Hingham, Mass.
According to the report, 80% of emerging investors between the ages of 21 to 29 and 68% of early career investors between the ages of 30 to 39 say they make decisions and manage money on their own.
Every generation starts out managing money on their own and traditionally turns to financial advisors once theyve accumulated wealth, Chris Brown, a principal of Hearts & Wallet, said in a statement. What differentiates Gen Y and the younger Gen X is their technology use. Now, they can perform investment selection and retirement planning tasks that could only be done with an advisor just a few years ago. As a result, younger investors expect a lot more in a financial advisor.
Advisors and their financial institutions should clarify what it is they can do for their clients, Brown explained in a telephone interview. Part of it, we think, is defining your mission and how you can help these investors, Brown said, noting that most investors, particularly the younger set, do not understand the difference between a full-service brokerage firm such as Merrill Lynch and a self-directed firm such as Fidelity.
Brown urged firms to develop distinct service offerings for investors in different age groups, including those just starting out. Its important, Brown said, to define offerings for investors that speak to them at their life stage.
Large financial institutions havent done a good job of showing young investors how they will add value, Brown added. They assume that young people are looking for rollovers and trading stocks when in fact theyre looking for someone to guide them along a path, he said.
The report identifies key life events that open the door for advisors seeking to woo affluent, young, do-it-yourself investors. Young investors first financial relationships often start when they buy their first home or purchase life insurance after the birth of their first child. Unfortunately, their first-time experiences are less than optimal.
In some cases, the advisor wasnt so much interested in solving a need as in selling a product, Brown said of these key life moments. In other cases, the advisor simply didnt have the training to meet the investors needs.
For example, newly married investors often look to advisors to help them get on the same page as their spouses, Brown said. However, advisors arent trained or simply dont have the time to help couples find out what their differences are.
Given the lack of targeted service offerings, its not surprising that young investors only occasionally use financial advisors, according to the report. Most rely on workplace providers, online brokerages, family, friends and the media for investment information.
Still, Hearts & Wallets sees a great opportunity for financial institutions to do business with Gen Xers and Gen Yers. Theyre doing online investing, but that doesnt mean theyre going to be doing online investing forever, Brown said.
The report is based on nine focus groups held this March as well as Hearts & Wallets annual quantitative survey of more than 5,400 U.S. households conducted in June of 2012. The focus groups, which were held in San Diego, St. Louis and Boston, included 72 investorsbetween the ages of 25 to 39 who had good savings habits and/or a minimum of $100,000 in investable household assets.