BRIDGING THE FINANCIAL ADVICE GAP

Briefing

Introduction

According to a report by Cerulli Associates via CNBC, over the next 25 years 45 million households will be passing on upwards of $68 trillion to their Generation X and Millennial children. It’s an astounding figure, and the phenomena has taken on a conceptual life of it’s own coined the “The Great Wealth Transfer”. Yet, financial advisors and asset managers aren’t particularly excited by the prospect. The question is: What are the Baby Boomers’ heirs going to do with their inheritances?

A few different studies and surveys have been done on the subject. The numbers don’t look good for current financial fiduciaries. Analysts estimate that anywhere from 66% to 95% of children fire or plan on firing their parents’ financial advisor after they receive their inheritance.

This is, or should be, a huge red flag for current financial advisors with older clients and future financial advisors that will inevitably compete for the tens of trillions being handed down.

So what will the financial advising industry look like after all the dust has settled? Where will Millennials and Gen Z take their inheritances? And is there any way for financial advisors to get ahead of this trend and keep their businesses intact?

Digging Deeper

There’s one important question we need to answer before we figure out where things are going: Why? Why are Millennials and Gen Z planning to fire their parents’ advisors?

The National Association of Personal Finance Advisors (NAPFA)’s 2021 consumer survey may be able to shed some light on this, or at least give us a couple of hints.

One of the insights that jumps off the survey results is that 39% of Americans under 65 get most or all of their financial advice online or from social media, and over a quarter of Gen Z respondents report using social media like YouTube and TikTok to find financial advice.

A full 60% of people who said they find their financial advice online reported acting on that advice, which may suggest that many prefer a sort of DIY investing strategy that doesn’t require them to go into someone’s office or pay any fees. Over 67% of Gen Z and Millennial respondents reported acting on advice they received online, while only 55% of Gen Xers and 48% of Baby Boomers did the same.  

Only 17% and 21% of Gen Z and Millennial respondents, respectively, report receiving most of their advice from a financial advisor (compared to 28% of Baby Boomers).

Gen Z and Millennials are also significantly more likely to use app-based investment platforms for retirement planning than older respondents. The difference is even more pronounced when asked about whether using a micro-investing app like Acorns, Robinhood, etc could provide for their retirement. Only 46% of Baby Boomers agreed with the premise compared to 61% of Gen Z, 68% of Millennials, and a surprising 69% of Gen Xers.

One last thing before we draw some conclusions. Just 35% of Baby Boomers agreed when asked if they felt they didn’t have enough money to qualify to speak with a financial advisor, while 48% of Gen Z, 56% of Millennials, and 50% of Gen Xers agreed.

Context Clues

There are a few conclusions to draw here.

First: Younger generations are much more likely to find and act on financial advice on the internet. This isn’t much of a surprise, though their reliance on social media and sites like TikTok and YouTube may raise some eyebrows.  

Second: Younger generations probably feel like they don’t have enough money to consult a financial advisor.

Third: Millennials and Gen Z are more likely to trust an investment app with their money than they are to seek out advice from a financial advisor.

What Can We Learn?

We can all have our opinions and critiques on how we think people should learn about and invest their money, but the truth is, the landscape has changed and we’re not going back. It’s the industry’s job to adapt now. 

The players in the financial advice industry have to change their approach if they want to remain relevant and serve future generations. Reaching audiences via the internet, changing the monetary and incentive structures of their businesses, and working with technologies that may seem like a threat - some or all of these are going to be necessary steps for individual advisors and/or the industry at large. 

Keeping our finger on the pulse of this transition, we hope to dive deeper into these behavior changes in the future. So stay tuned.

Conclusion

In the midst of a generational “changing of the guards”, everything seems to move slow, and then all at once. Financial advisors can’t count on being handed the next generations’ money - they’ll have to proactively prove their value and adapt to the demands of an evolved market.

At Daizy, we consider ourselves among the trailblazers looking to change, learn, and grow through the new needs of the financial advice market. We believe in the humans and the technology of this industry, so we’re pushing the boundaries of what’s possible for both. We may not have the answers, but we have a few ideas of where to start.

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