Are You the Choice of the Next Generation?
By Brian M. Finnigan
Vice President, Chief Marketing Officer
Imagine you’re driving down the highway and “blam!” you have a blowout. You save your car and yourself from catastrophe by safely bringing the car to a stop but you find yourself stranded on the side of the road, sweating from the summer sun, without a spare and without a way to get back on your way.
Does this sound like a bad situation?
Knowing what you should’ve done before you left – check the tire pressure and check the tread for wear – you always skipped these essential steps because everything always worked as you’d expected them to.
For the majority of firms in the tax, accounting and financial advisory business, this tire blowout scenario is an apt metaphor. Your well-worn, trusted client base of baby boomers is preparing to “blow out” and apathy toward younger generations of clients has left you without a “spare.”
The Future is Here
One well-circulated data point the past few years is that baby boomers will pass an estimated $30 trillion to their Generation X and Y heirs over the next several decades.¹ While that transfer of wealth is historically powerful, the phrase “over the next several decades” allows too many CPAs and wealth advisors to procrastinate putting a plan together.
The reality is that Generation X and Y investors are sitting on large sums of money right now. A study released by BMO Capital in June revealed that 1-in-4 of all high-net worth Americans are under the age of 40.²
Despite their growing wealth and enviable future earning power, Generation X and Y Americans are being ignored by the financial industry. According to research by Fidelity, less than half of wealth advisors today have engaged with this new generation of investors.³
A major contributor to this is perception – many of the baby boomer advisors believe the younger generations don’t have the wealth to invest. Pershing recently asked advisors to report their current affluent client base by age ranges.⁴ Not surprisingly, participating advisors stated that 60 percent of their affluent clients are over the age of 55.
Pershing then asked the advisors to estimate how those percentages breakdown across America and they then compared those responses against actual market data. You can see from the table that the results are astounding. Responding advisors underestimate the number of affluent clients under the age of 54 and are dramatically over-concentrated in the 55+ demographic segment.
It’s imperative for CPAs and wealth advisors to stop viewing the Baby Boomer generation as their only client base.
Preventing a “Blowout”
If you are a CPA or wealth advisor who thinks Generation X and Y clients aren’t the type you need, think again. These younger generations of investors can offer great growth potential, yet they remain underserved by the tax, accounting and financial planning community. Many advisors are hesitant to take on Gen X and Y clients because they aren’t certain they understand the needs of this group. While these two generations may be living a faster-paced lifestyle and are more digitally connected than Baby Boomers, their investment needs aren’t much different.
Fidelity found that 70 percent of Gen X and Y investors are looking to simplify their financial life. Their top five financial needs include:
- Stock planning
- Tuition planning
- Budget/income planning
- Cash management/bill payment
- Business owner planning
CPAs and wealth advisors can serve these Gen X and Y clients easily by simply learning to open themselves to the opportunity and slightly shifting their business models.
Gen X and Y investors are early in their financial planning careers and are eager to get involved. They, by and large, have a great deal of knowledge and understanding about their financial lives, which means they come to CPAs and wealth advisors with a good understanding of what products are available and how they work. Advisors can really dig in and work with them to develop the right financial path and long-term success.
These investors are also thinking ahead and want to learn from their advisors about products such as life insurance and long-term care. They see the generational challenges of their parents and grandparents, so they want to stay on top of long-term planning and be prepared for the future.
For many Baby Boomers, 401(k)s were something brand new when first introduced, so the learning curve was much steeper before they accepted this retirement platform. Gen X and Y are already familiar with 401(k)s and IRAs, and many have invested in these tools early in their careers. With time as a great ally in investments, many Gen X and Y have already maxed out their 401(k)s, IRAs and other retirement channels and are ready to reap the benefits of these long-term qualified plan vehicles. CPAs and wealth advisors can spend more time providing advice for the next stages of planning rather than having to convince these investors of their value.
Co-Pilot: One key difference of Gen X and Y investors is that they want to “visit their money” regularly, talking quarterly or even monthly with their wealth advisors about their portfolios. While they seek advice from their advisors, they want to “co-pilot” their financial lives and keep on top of how they are developing.
The younger generations want to be diversified right from the start to keep ahead of the major market changes they have experienced in the past. They have access to much more information, so they understand the pitfalls and outcomes of investment products.
A Digital World: Though Gen X and Y are also tech savvy, technology can’t replace direct communication with their advisors. They want to work directly with competent advisors who are able to provide insights and information quickly. They prefer multiple access points so they can get the answers they need to make decisions quickly.
Gen Y investors are born into a truly digital world and they have an expectation of what technology can do. They want to be able to look at information in real time from their devices, while having a conversation with their advisors.
While only 34 percent of Gen X and Y believe it is important for their advisors to have a social media presence, social media is used to vet their own portfolios.³ Their social networks offer them opinions, advice and ideas about how their portfolios are doing, and in turn, they validate this with their advisors.
Seeking the Same Advice
The true value a CPA or wealth advisor can bring to any generation is still the same – making sure the client is discovering and reaching their financial life goals. Those who set out to learn and understand what these younger generations need to find the right solution for their financial success will provide much needed value.
Gen X and Y turn to baby boomer advisors because of their years of experience and deep expertise. These young investors are relying on the veteran knowledge that baby boomer advisors bring. The key to engaging these two generations is to grow relationships with them.
CPAs and wealth advisors can engage and grow their businesses with Gen X and Y investors by simply adjusting their relationships with these younger clients and rethinking their long-term business models.
This way they won’t find themselves stranded on the side of the road, wondering “What if?”
Brian M. Finnigan is vice president and chief marketing officer for 1st Global. Brian leads the company’s strategic marketing efforts, such as market research, firm marketing and brand consulting, and develops campaigns, client marketing collateral, advisor communications and events.
1st Global Capital Corp. is a member of FINRA and SIPC and is headquartered at 12750 Merit Drive, Suite 1200 in Dallas, Texas 75251; (214) 294-5000. Additional information about 1st Global is available via the Internet at www.1stGlobal.com .
¹ Accenture, “The ‘Greater’ Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth,” 2012
² http://newsroom.bmo.com/press-releases/bmo-private-bank-changing-face-of-wealth-study-tw-tsx-bmo-201306130880202001 
³ Insights on Independence Insights on Advice, Fidelity Insights, December 2012.
⁴ Pershing, “Investor of the Future: The Quest for Tomorrow’s Affluent Clients Starts Today” June 2013.