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Advisors Need To Earn The Confidence Of Next Generation Millionaires

By Cyril Tuohy


Message to financial advisors: Many millionaires of tomorrow just aren’t that into you – for the time being.

Advisors needn’t despair. There are ways for them to reach tomorrow’s millionaires. When younger generations become millionaires, those investors will have plenty to offer.

Bob Oros, executive vice president of Fidelity Institutional Wealth Services, said financial advisors are “well positioned” to help tomorrow’s potential millionaires, a group with an average age of 51, and an average of $797,000 in total household and employer-sponsored retirement plan assets.

Even so, attracting today’s millionaires-to-be is going to take work. “The challenge for advisors will be to prove their value – and the value of taking on risk – to a group that is somewhat unsure of professional advice,” Oros said.

While 70 percent of tomorrow’s millionaires said they lacked investment knowledge, only 51 percent said they are turning to financial advisors, a 2013 Fidelity online survey of 813 respondents found. The survey, conducted in May for Fidelity’s “Insights on Advice” series, also revealed that 77 percent of respondents have not developed a financial plan.

The Great Recession chastened many of today’s young and midcareer working professionals. Some saw their parents’ savings disappear. Others shuddered as their own 401(k) accounts shrank by 100 percent. Still more young adults witnessed losses in the form of layoffs or foreclosures.

For much of the past six years, the story for many millionaires-to-be is one of lower asset values, and in some cases lower or stagnant incomes. And still, the bills keep coming: school loans, car payments, the mortgage or the rent, day care, the groceries.

Where were all those advisors to steer Gen Xers and Gen Yers – 21 to 48 year olds – into purchases within their means and with long-term growth potential. The affordable starter home can be a wise first investment that fits into both categories.

A reckoning of the defined contribution system followed. Advisors and financial intermediaries were excoriated for charging high fees, ignoring conflicts of interest borne of commission-based sales, and delivering advice easily available for free for people willing to do the research.

Can you blame today’s younger investors for casting a wary eye on the advice business?

Nevertheless, tomorrow’s millionaires, whose assets have a good chance of growing into $1 million or more in their lifetimes, “appreciate the importance of saving for retirement now” to prepare for later, the survey found. They have understood the link between asset growth and time horizons.

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“But without a plan in place to reach their goals, they may not be taking the necessary steps to save for retirement,” he said in a statement released along with the findings, which were included in a research brief published earlier this month.

Many respondents – perhaps suffering from the lingering effects of the Great Recession – seem to be more comfortable with minimizing risk than they are with maximizing investment returns, the survey found. As a result, they are invested too conservatively for the long time horizon before them, Oros said.

Saving, though, isn’t the same as investing – certainly not in this interest rate environment. Investors need to get ahead of inflation and that means tilting their mental outlook from hoarding cash to investing.

Advisors need to explain that 20-something investors need to invest for growth and take on more risk, and only then gradually reduce exposures as they age. That will give investors the best chance of getting across the million-dollar mark finish line, Oros said.

Of the 49 percent of respondents who are not using advisors, 46 percent said advisors simply weren’t interested in investors with smaller assets, and 53 percent said they were put off from seeking advice due to high fees, the survey found.

Advisors may want to alter their fee schedules or adjust their services to attract younger clients so as to retain the long-term value of the relationship, Oros also said. Advisors need to make a compelling case for themselves if they want to attract and nurture the millionaires of tomorrow.

With many respondents saying they don’t enjoy investing, advisors might consider outlining the benefits of outsourcing the investing function – particularly to women, many of whom say they don’t feel knowledgeable about investing.

The shift in the number of women represents one of the largest demographic changes taking place with tomorrow’s millionaires. As many as 49 percent of tomorrow’s millionaires will be women, compared to 33 percent of today’s millionaires, the survey found.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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