The next generation investor has moved into finance with force. How your firm can dominate in the future that is now.
Six years ago, we were sitting with a multi-family office firm in Dallas. The senior partner asked the pivotal question, “What should we put all the chips on for the future of our firm?”
Our response: “The next generation.”
$68 trillion passing to over 90 million next-generation investors, coming soon. That was six years ago. The future is now.
We can no longer write about the next generation. The next generation is here. This new generation of investors is now involved in investing, planning, and fully engaged with their lives and purposes. This new flow is one of the reasons for the rapid rise in equity markets as the barrier to entry has never been easier. They’re embracing current technologies such as Robinhood and demanding more from independent financial professionals.
Financial services businesses no longer have a choice in evolving into the younger marketplace. They’re either going to adapt, or they’ll be passed on instantly as stale, old, and lacking value.
The changes required to adapt aren’t overly costly or require complete makeovers. In fact, subtle adaptiveness is ideal as this new client will continuously evolve. In other words, there’s no end to firm-level adjustments.
Changing Service Models
The first required shift is to the service model. There are multiple adjustments required. First, these investors are nimble. They shift quickly. Out with the old app and in with the new.
The firm must allow for nimbleness in all things. Be quick to adjust and be prepared to have fluid service models per individual client. This will test standardization but will pay dividends.
Second, younger markets want instant messaging (IM) more than scheduled calls and meetings. They can get on an app to chat with every other service or vendor they use. This can certainly cause compliance issues that’ll be solved with technology over time.
Third, they want on-demand education. Netflix is now standard. Create on-demand educational content regularly. This is used for personal education but also becomes a major referral marketing opportunity as they “share” and “like.” One good video on the difference between capital gains tax and federal income tax will prove profitable in many ways. Content must be fun, remain fresh, and free. Younger markets are self-education readied and want to know an expert is behind the content.
Finally, it’s virtual or bust! Everything in the firm must move towards virtual. Younger clients next door to you will still prefer to meet over Zoom or FaceTime. One day soon, we’ll all meet as holograms. These are the required basic service alterations of the demand side of the equation.
Change the Charge
Financial services firms have three basic groups of younger investors: those the money has transferred to, those the money will come to one day, and those that are income rich and asset-building.
Altering the way financial services firms charge for service will be changed forever. The past of AUM advisory fees or brokerage commissions is over. By changing fee models, the firm will be able to accommodate all three groups at once. The most successful firms will charge for the advice. The ongoing, direct-access, knowledgeable, and counseling advice fee.
Generally, can be accomplished in two ways selected by the firm: a retainer model or hourly fee. One isn’t better than the other. Firm-level financials, offerings, psychology, and marketing will decide which to implement. And some firms may conduct a hybrid approach depending on factors such as assets and income, usage, minimum allowances, and others.
The younger marketplace is familiar with paying regular and ongoing fees because they recognize the ongoing access to advice.
As the younger generation has matured, they’ve witnessed more junk, more lies, and more scandals than any generation before. And they’ve witnessed it electronically on their phones. This has hardened them and made them into a “no-more-BS” generation.
This is especially true with finances. They want to know what you do, how good you are, how you charge, what they can expect, and how it’ll be delivered. Financial services firms must have an ongoing overlay of complete see-through transparency.
They Want It All!
Older generations frequently view financial planning and assets with compartmentalization. Often, financial instruments are separate to them. They bought from multiple parties. The insurance from one professional, the investments from another.
Younger generations want it all from one source, and they don’t have a predisposition against insurance products like their parents. In fact, with the more risk-off mentality of some younger investors, insurance products have real value. Especially those with market correlating accumulation options.
They want to be surrounded by a personal plan. A living plan that transforms to a death plan at their demise. This plan is universal, integrated, and regularly pivots. Remember nimbleness earlier? The same applies to the plan.
Returns are back! Many independent financial professionals have gotten away from alpha as a goal. As it’s been too hard to beat the array of index options, the sentiment over the years has been median returns with more-emphasis on preservation.
Younger investors have all been witness to this market run-up. Younger investors won’t accept a lack of attempt at alpha and not talking about it transparently. Regardless of “gravity always wins,” everything from TikTok and Robinhood to options trading has made returns fashionable once again.
Giving back is likely the most important shift. Impact, social governance, and good-old giving. Younger investors are all about the impact they’ll make in this world, and how their money can help do that.
They want to know what the companies they’re investing in are doing with their social impact and the same with their financial services firm. They’re looking at impact investing, and they want to be impactful via junior boards. They want to give their time and their money. And, young investors want the firm they’re with to do the same.
It’s with conviction we posit every financial services firm should create a special ongoing internal task force to be attentive to this opportunity. It’s paramount this task force be proactive and not wait to be discovered. Younger investors are interested in their firm’s aggressiveness in social planning.
The future investor is here. This younger investor will require more from the firms they choose to invest with. The wealth will land with them. Appropriate changes now can lead to massive inflows and opportunities for financial services firms that choose to adjust with an everlasting nimble mindset.
This will require adjustments to service and offerings, newly defined revenue models, ensuring the inclusion of all investment and insurance products, perpetual planning, seeking alpha, and last but most important, an outreach plan for helping the world.
The good news is this won’t be required overnight. There’s still time to begin. Those firms that can take their new modeling to market fastest will have the first shot and amazing opportunity.
The content within this article is intended for informational purposes only and does not represent legal, tax or investment advice. This article does not represent an offer to buy, sell, replace or exchange any product. The views and opinions expressed herein are those of the author and may not necessarily reflect those of Financial Independence Group, LLC or its affiliates.