Prepare for the future of wealth management by understanding priorities of next generation clients and advisors.
“Stereotypical” millennials, at times thought to be indulgent and financially unprepared for the future, have outgrown that reputation and matured into their wealth.
Is your financial services business ready to seize this opportunity? As a decision-maker for your firm, it may be worthwhile to consider the next generation of clients and financial professionals who are shaping the future of wealth management.
Contrary to popular stereotypes, results from a recent survey conducted by our sister company RBC Wealth Management–U.S., show that high-earning and high-net-worth millennials are very concerned about their long-term financial security.
Born between 1981 and 1996, millennials now surpass baby boomers as the nation’s largest living adult population, according to U.S. Census Bureau data. Similarly, millennial wealth has increased significantly, jumping from $4 trillion in 2019 to $9 trillion at the end of 2021, according to data from the Federal Reserve Board.
For these reasons, millennials represent the next big wave of wealth. Just like the generations that preceded them, millennials have spent their younger years quietly advancing their careers and building wealth while also starting families and tackling the financial basics. As they reach these key milestones, more and more millennials are likely at a point where they could benefit from the wealth management expertise, recommendations and solutions that only a financial professional like you is able to provide.
According to the RBC Wealth Management Millennial Mindset Survey, which included 750 high-net-worth and 250 high-earning-but-not-rich-yet (HENRY) millennials (usually defined as having $250,000 in household income), a large majority (84 percent) worry about financial security but are unsure how to attain it. For example, 72 percent of survey respondents said that after paying off debt, saving for an emergency fund and maxing out a 401(k), they have no idea what their next financial priority should be.
These survey results may indicate that millennials appear to be very pragmatic about their finances. Generally speaking, they know they need to achieve financial security, but they are also keenly aware of their limitations.
To best serve millennial clients, you and your team may want to better understand the issues standing between this group and financial confidence. Many high-earning millennials are busy juggling important responsibilities for the first time (e.g., buying a home, starting a family, caring for aging parents, saving for their children’s education, starting a company, building a career) as well as preparing for other, future milestones.
Many also need assistance with their employee benefits, such as understanding the difference between a 401(k) and a Roth, managing equity shares they receive as part of their compensation package, and more. And as their lives grow in complexity, so, too, do their financial questions.
Given millennials’ goals and circumstances, feeling overwhelmed by decisions and not having time to manage their finances may be two major obstacles to growing their wealth. However, these roadblocks also mean that financial advisors—especially those who are the same age and experiencing the same issues—may be well positioned to help millennials with many aspects of their financial lives.
To further explore the financial mindset of millennials, RBC Clearing & Custody recently collaborated with WMIQ, a division of wealthmanagement.com/Informa Connect on a report comparing next-generation financial professionals (age 41 and under) with their older, more established peers (age 50 and up).
The Next-Gen and Established Advisors Report found that the two groups look very much alike in terms of median assets under management, even though their median time in the industry is separated by nearly 20 years.1 Three key differences between your firm’s next-generation financial professionals and established financial professionals may be their business model preferences, their purpose for using financial services technology and the role financial planning plays in their business.
Business model: The top three business models for survey participants from both groups (in descending order of frequency) are registered investment advisor (RIA), independent broker-dealer and hybrid. However, 31 percent of next-generation advisors favor the RIA model, compared with 21 percent of experienced advisors.
Financial services technology: While both next-generation and established advisors invest in technology to improve productivity and provide a better client experience, next-generation advisors are much more likely than established advisors (39 percent vs. 25 percent) to invest in technology in order to differentiate themselves and their firm from competitors.
Financial planning: Of their top three business priorities, next-generation advisors are far more likely than established advisors to consider planning as essential. Nearly half of next-gen advisors say that financial planning is critical to their success, but less than a third of established advisors say the same.
Another key finding of the RBC Wealth Management Millennial Mindset Survey is that these individuals have developed their own priorities when it comes to how they invest. Nearly 85 percent of survey respondents said it’s important to align their investments with their values, such as environmental, social and governance (ESG) principles, and that these types of investments are an integral part of their investment strategy.
While investors of all ages are increasingly interested in ESG investments, it’s especially important for millennials. They have grown up in a world where climate change is a reality. Their formative years were shocked by the dot-com bubble, the September 11 attacks, prolonged wars in Iraq and Afghanistan, the Great Recession and other events. And their collective social conscience puts a heavy emphasis on social equity and equal rights.
With this generational life experience influencing their wealth management decisions, if you ask millennials what drives their desire to invest in a particular company or security, many of their reasons aren’t financial. Indeed, much of their interest is derived from what effect that investment may have on the world.
In fact, 80 percent of survey respondents said that ESG guides all or most of their investment decisions. But these investors aren’t driven only by altruism; they also believe a focus on ESG investments is the best way to achieve financial security. Seventy-seven percent agreed that climate change will significantly affect their financial futures, and 85 percent said that, over the long term, ESG investments will outperform the market.
The Next-Gen and Established Advisors Report results show that both groups have many of the same strategic initiatives for their firms when it comes to implementing and leveraging technology.
However, while initiatives are mostly aligned, next-generation advisors clearly place a higher emphasis on the role technology can play in improving the client experience, with 20 percent of next-generation advisors calling digital capabilities “critical” to improving the client experience, vs. just nine percent of established advisors.
The role of technology says a lot about the value these groups believe they provide for their clients. Established advisors use technology primarily to enhance client relationships; next-generation advisors use it to enhance client convenience, placing higher emphasis on client portals, deliverables and ease of implementation. Established advisors tend to see tech as something that enables them to be in front of clients as much as possible; whereas next-generation advisors view tech as a core factor of their client experience.
This view of technology’s critical role in developing digital experiences shows up in other ways throughout the Next-Gen and Established Advisors Report. Among next-generation advisors, 39 percent believe technology is a differentiating factor for their firm, vs. just 25 percent of established advisors.
Why the gap? Again, it may be useful to look at where both sets of advisors work. Next-generation advisors are more concentrated in RIAs, which means they have more freedom to choose their own technology; whereas advisors working at a wirehouse or large broker-dealer typically have to use a prescribed set of options. As a result, they are more likely to adopt and experiment with new technology more frequently, rather than being held to a single set of options chosen by a parent organization.
The good news is: millennials will likely seek out personalized advice from a financial professional—even though they have access to digital tools and sources of information that were unavailable to previous generations. According to the millennial survey, 71 percent believe their investment portfolio is too complicated to be trusted to a robo-advisor, and 91 percent put a high level of trust in a reputable financial professional.
That personalized guidance can help millennials confidently work toward their goals of building wealth and creating a socially responsible world. Because despite all the setbacks they’ve encountered along the way—ranging from the Great Recession to the recent COVID-19 pandemic—they still have time on their side.
RBC Clearing & Custody can equip you to better navigate the business changes driven by the needs of next-generation clients and financial professionals. Our best-in-class product platform and wealth management expertise will help your financial professionals provide solutions for your clients.
This includes the RBC ESG Select Portfolio, which provides investors with globally diversified multi-asset-class strategies that combine a strategic and active approach with a view toward integrating ESG into each investment. Overlaid with disciplined risk management consistent with each strategy’s investment objective, this suite will appeal to financial professionals and investors who seek a one-stop solution for gaining exposure to a global asset allocation strategy with ESG as a primary consideration.
We also provide the innovative financial services technology and beneficial client self-service capabilities your financial professionals expect. To help unify, simplify and elevate the technology experience at your firm, RBC Nexus seamlessly integrates into one convenient technology platform the many tools and sources of information needed to serve clients. We also offer sophisticated planning functionality through our award-winning productivity solution RBC BLACK.
And if you aren’t already offering your financial professionals the opportunity to serve clients as an RIA, we can help you establish that independence or integrate being a registered investment advisor into your current business model.
We want to help you improve your business. And we’re committed to your success. Please contact us today to discuss these opportunities.