Young millionaires-in-the-making are a promising - yet uncrowded - market for RIAs, new research suggests.

There is no doubt that Millennials represent a significant business opportunity for wealth managers, particularly as they are set to inherit trillions of dollars from the US' growing cohort of Baby Boomers in the coming years.

But a new report by TD Ameritrade has revealed which subset of this investor population could be the biggest boon to an advisor's business: those who are entering their peak earning years and thus defined as “high-potential.”

These individuals have less than $500,000 to invest but earn more than $150,000 a year, TD Ameritrade said. They aren’t rich, but are building wealth and have prospects such as inheritance, putting them on an upward wealth trajectory.

Crucially, this group are more likely to hire their own advisor than their wealthy peers, who typically already have an advisor and therefore probably aren’t looking to switch.

For example, the survey found that, among high-potential Millennials with an advisor, 55 per cent hired their own while just 29 per cent plan to keep the incumbent family advisor. By comparison, 63 per cent of wealthy Millennials with an advisor said they kept their family’s advisor and had no plans to change the arrangement. Although previous research suggests that younger investors are more willing to leave their family’s advisor, the latest findings could mean that advisors are doing a better job at engaging their clients’ children, the firm said.

Overall, however, this group is “mostly overlooked by financial firms,” creating a possible opportunity for RIAs, it added.

With that said, NextGen Wealth is an example of a firm which recently opened its doors in Kansas City to tap the US' growing cohort of young, successful business owners and entrepreneurs. Having worked in the wealth management sector for around 13 years, Clint Haynes believes many big industry players disregard “smaller” clients with $1 million or less because they weren't deemed lucrative enough (see more here).

Millennial mindset

Millennials - also referred to as Generation Y - are typically defined as the some 80 million US individuals born in the 1980s and 1990s. TD Ameritrade believes that attracting this generation may be “critical” to the investment advisory business, where fewer than 10 per cent of clients are under the age of 40 and half are over the age of 60.

“Advisors can’t wait until this next generation is wealthy before they start rolling out the red carpet. This transition is happening now,” said Tom Nally, president of TD Ameritrade Institutional. “Our latest research shows RIAs would be well-served pursuing young investors who may not have great wealth yet, but who have high earnings potential and are eager to work with a professional advisor.”

The firm's Millionaires in the Making Survey defined two other Millennial subsets: the high net worth, with over $500,000 to invest but who are more likely to retain their family’s advisor, and the mass affluent, who earn less than $150,000 and have less than $500,000 to invest.

The research also revealed variations in Millennials' “money mindset,” depending on their level of wealth, which may be of interest to those advisors looking to generate business from a particular group, as they can then tailor their value proposition accordingly.

The HNW, for instance, are more inclined to seek an advisor who is “contemporary,” rather than someone older, TD Ameritrade found: “So attracting this group may require hiring young advisors,” it said. Moreover, almost half of these individuals are women, highlighting the growing need for female advisors, according to the survey.

Meanwhile, mass affluent Millennials indicated more strongly that they are worried about outliving their savings, meeting healthcare costs and having to work longer (yet they are less likely to hire an advisor and instead tend to seek financial guidance from family and friends.)

For wealthy Millennials, success means not depending on a job for income, having enough to indulge in luxury items and setting aside money for retirement and education. High-potential and mass affluent Millennials, meanwhile, are more concerned with having enough money for a comfortable retirement.

On that note, it also emerged that wealthy Millennials are generally more pessimistic about achieving their goals than their high-potential counterparts - at 26 versus 5 per cent - suggesting that a goals-based approach to investing might be more appealing to the former cohort. 

And, when it comes to how they can acquire wealth, all Millennials - somewhat unsurprisingly - rate “making smart investments” and “hard work” as fundamental factors.