Advisory Industry frets over serving Gens X & Y

While straining to meet the retirement needs of baby boomers, the advisory business is starting to recognize that it faces another demographic challenge: finding a profitable way to deal with Generation X and Y investors who have less affinity to financial advisers than older investors do. “I don't see my son bonding with a 55- or 56-year-old [financial consultant],” said Richard Franchella, senior managing director of RBC Wealth Management's private-client unit and moderator of a panel at the private-client conference of the Securities Industry and Financial Markets Association last week in New York. Judging by a swath of retail executives at the conference, younger investors represent a scary prospect for typically middle-age to older advisers and their firms, who may not be prepared to offer the kind of service that younger investors want. “This younger group is less engaged [with their investments] and they need more-customized solutions,” said Stephen Gresham, a senior vice president in Fidelity Investments' private-client segment and a participant on the wealth management panel. Typically, a Fidelity adviser's first contact with these investors involves a potential rollover of a 401(k) plan into an individual retirement account. With the increasingly job-mobile nature of younger Americans, 5,000 to 6,000 of these rollovers happen every day. “To a person, their level of interest in investing is not high,” Mr. Gresham said. His fellow panelists shared similar observations on the challenge of serving younger investors who don't act like their parents and don't want what their parents want. “Some of the younger family members we see just don't want to work with their parents' experts,” said Melanie Schnoll Begun, a managing director at Morgan Stanley Smith Barney LLC, who works on philanthropic-giving programs for ultrahigh-net-worth clients.

HARD-TO-REACH GROUP

The Gens X and Y investor profile emerging from research and anecdotal evidence is that of a group less engaged in investment planning and finances than their parents and also harder to reach and more risk-averse. They appear to be less loyal to their advisers and seek several sources for investment advice. Another major differentiator is that younger investors clearly want and expect to use online media and non-traditional forms of communication for help with their finances, said Robert Waitman, director of financial services for the Internet Business Solutions Group at Cisco Systems Inc. A recent study of 1,000 wealthy investors conducted by Mr. Waitman's group found that investors under 50 represent an underserved $18.6 billion revenue opportunity for the advisory industry. The study confirmed that younger investors are using more advisers and are apt to drop advisers if they don't get what they want. Mr. Waitman said what they want is more interaction, access to advisers through social networks, webcam conferencing, tablet PC applications and other high-tech tools that baby boomers and older investors aren't particularly interested in. “They're used to texting, instant messaging and using all the tools,” Mr. Waitman said. “If they're not satisfied with the service they get, they're not very loyal. Firms are starting to wake up to this. There's a real opportunity for first-mover advantages in this regard.” The challenge is not lost on Thomas Butch, executive vice president at Waddell & Reed Inc., which has 1,700 affiliated financial advisers. “These new investors want to engage through new media that advisers haven't grown up with,” he said, noting that advisory firms should have age peers for these clients. Waddell & Reed plans to expand its adviser force this year and actively recruits younger candidates — typically those several years out of college or career changers. To address the challenge of meeting the expectations of younger clients, J.J.B. Hilliard W.L. Lyons LLC is training its advisers in the new technology. “We want to equip our financial consultants to provide higher levels of service, often to younger clients,” said James Allen, the firm's chief executive. But like most securities firms, Hilliar Lyons is steering clear of social networking until it has more certainty concerning how much leeway the Financial Industry Regulatory Authority Inc. will grant advisers to communicate in such a freewheeling environment. Still, some see opportunity in the generational shift. In the ultrahigh-net-worth area, for instance, younger family members who now handle their finances through family offices may go out on their own. “Over the next 10 to 15 years, we expect a number of single-family offices will close down” as younger members leave, Ms. Begun said. “That's the opportunity.” E-mail Andrew Osterland at aosterland@investmentnews.com.