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Younger UHNW Investors Are Less Loyal, Have Higher Expectations Of Advisors - Research

Eliane Chavagnon

8 December 2014

Younger ultra high net worth investors are less likely to stick with their advisor in the long term if they aren't satisfied with how they are being served, warns George Walper, president of Spectrem.

“If they have been at a firm for a few years and don't think their advisor is a good fit, they'll just change,” Walper said, speaking about the research firm's Advisor Relationships and Changing Advice Requirements report – the UHNW edition. “Loyalty is nowhere near what it is among older people,” he told Family Wealth Report.

Spectrem said its research highlights the importance of forming relationships with UHNW investors while they are younger, and growing the relationship through providing interesting information and value-added recommendations designed specifically for them. The insights also resonate with findings from a report by Accenture last year, which suggested that Millennial investors are more conservative and less trusting of financial advisors than Baby Boomer and “Gen X” investors.

With fewer investors today likely to follow their advisor if they switch firms than was the case previously, Spectrem believes that financial advisors must reassess what their “value-add” proposition is for younger wealthy households. Specifically, the firm anticipates that deeper content knowledge on more specialized products and services will become increasingly important. 

Reinforcing this, the younger UHNW investors surveyed by the firm were less satisfied with their financial plan: those under the age of 49 logged an overall satisfaction level of 73 per cent, compared to 75 and 89 per cent among those aged 50-54 and 55-64, respectively, and 94 per cent among those over the age of 65. Somewhat unsurprisingly, then, they were also less upbeat when ranking specific financial products – as low as 67 per cent among those under the age of 49 compared to 91 per cent among those aged 65 and over. One reason for this could be linked to how young investors today are often very entrepreneurial-minded, with a stronger appetite for more “dynamic” products.

On a related note, Walper remarked that younger investors tend to think they're very knowledgeable about investments, which is conceivable given that the amount of financial and investment-related information available online is significantly greater now than in the past.

However, “this is an interesting issue because we feel that younger people aren't actually as knowledgeable as they think,” Walper said. As he has told this publication previously, the expectation of many younger investors today tends to be that their financial service providers offer the expertise that they are unable to develop on their own.

Meanwhile, Spectrem's findings suggest that the UHNW sector now represents a more balanced age demographic.

“Now we're seeing in the $5-25 million bracket that the 45-year-olds are just as wealthy as the 65-year-olds,” he said. “That's important relative to some of these issues because many advisors think that younger investors don't have as much money.”

He added that Spectrem encourages wealth managers to look at how clients created their wealth- rather than just their wallet size – because this will often dictate their financial planning needs and preferences.

“We find that not many advisory firms think about that first – they think instead about a client's assets, their age and gender, before their source of wealth and overall profile,” Walper said.
For example, the needs of an individual who has just experienced a large liquidity event – or what is sometimes referred to as “sudden wealth” - will differ vastly to those required by a sports or entertainments professional. While it is fair to assume that every advisor will have detailed knowledge of their client's source of wealth Walper believes this factor should be given more prominence in the client acquisition and wealth planning process.

SEI explored this issue in a report earlier this year, arguing that segmenting clients based on their wallet size alone limits how many clients a wealth manager can serve because firms “tend to focus on providing their wealthiest clients highly customized solutions.”