Millennial and Generation Z financial wealth jumped significantly in 2021, from $2.9 trillion to $3.6 trillion, the most of any generational cohort. Providers—long accustomed to serving Boomers and Generation X— will need to focus on these younger households as they age and their financial pictures grow more complex, according to The Cerulli Report—U.S. Retail Investor Advice Relationships 2022: Rethinking the Advice Continuum.
The second-largest generational cohort but the smallest in terms of assets, Millennials and Generation Z have been able to grow their wealth in line with, or even better than, their older peers. This is due in part to Millennials seriously investing in retirement accounts and Generation Z dipping its toes in the investing water through brokerage platforms.
As investors in this cohort make strides early on in their investment journey, they are eager for comprehensive financial advice and are willing to pay for it. Yet, while these “Advice Seekers” know they want more out of their financial advice relationship, they have trouble defining exactly what they want.
“Rather than strategically choosing from a logical menu of potential services from each provider, investors more often end up selecting providers on a just-in-time basis, resulting in ad hoc collection of relationships, each of which falls short of delivering comprehensive financial advice engagement,” remarks Scott Smith, director.
To overcome this pitfall, providers must make every effort to anticipate the evolving needs of each client. As these investors accumulate more wealth, they will likely enter a stage of increasing financial complexity, navigating newfound challenges such as home ownership or saving for college education. “To retain these investors long term, providers will need to provide timely input on these crucial subjects or face expected attrition as consumers seek more holistic wealth management advice,” adds Smith.
An increasing focus for financial providers looking to compete with one another is to expand services that were once the domain of the affluent to mass-market households.
This is achieved either by leveraging technology to bring services such as direct indexing to scale, or through mergers and acquisitions of retail brokerages or robo-advisors to create a pipeline for self-directed investors to receive more formal advice from the acquiring firm.
“While services are crucial, particularly as larger asset managers acquire smaller outfits to build out their capabilities, attention on the client-facing side, particularly on growing marketshare and mindshare among Millennials and Generation Z, can’t be ignored,” he concludes.
