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With the rapid proliferation of robo-advisors and social media-driven investing, some investors may be thinking they can go it alone. As such, some advisors may feel their business models are threatened.
Good news: The opposite appears to be true. In fact, a variety of data points and studies confirm investors and prospective clients across a broad swath of demographic groups want to work with registered investment advisors (RIAs).
Experienced advisors probably aren’t surprised by the sentiment, but the current market environment – one marked by rising interest rates and soaring inflation – is motivating retail investors to embrace RIAs. The Inflation Impact Survey: Advisor Edition, released Monday courtesy of State Street Global Advisors (SSGA), indicates the top concerns on investors’ minds today are getting involved with markets following rough performances through the first eight months of 2022 and how to buffer portfolios against inflation.
“The release of this advisor-related data follows the initial findings of State Street Global Advisors’ Inflation Impact Survey which found inflation-induced stress and anxiety is influencing investor behavior when it comes to short-term budgeting and committing to long-term financial goals. It also analyzed the value provided by financial advisors during a period of heightened volatility and uncertainty,” according to the asset manager.
Interesting Demographic Data in SSGA Survey
As advisors know, each generation – whether its baby boomers, Gen X, millennials and so on – have specific emotions, goals and needs. Working with them isn’t uniform across age groups.
On an important, related note, the SSGA Survey highlights an important generational gap. More than 40% of Gen X’ers don’t want to work with advisors. For RIAs, that’s potentially alarming because Gen X is the first age group enjoying the spoils of the great wealth transfer. In better news, nearly two-thirds of millennials do want to work with advisors. Still, advisors shouldn’t forgo nurturing relationships with Gen X.
“Advisors have an opportunity to cultivate trusting, collaborative relationships with Gen X clients who want to remain involved in making their own investment decisions to a greater extent than other generations,” said Allison Bonds, head of Private Wealth Management at SSGA. “Gen X’ers are in their peak earning years and in the accumulation phase of their financial planning, yet they are also juggling multiple financial priorities. This generation is currently sandwiched between taking care of their children and aging parents. Gen X is more likely to have children under 18 in the household, so discretionary spending can become stretched if they are also supporting aging parents.”
One of the primary reasons Gen X’ers aren’t clamoring to work with RIAs is something advisors can easily do something about: Trust. Remember what this generations has seen and experienced in financial markets. It goes back to Black Monday in 1987, the dot com boom/bust cycle, the global financial crisis and today’s historically high inflation.
Their distrust of financial institutions and government response to crises is warranted, but these barriers can be broken.
Other Outlooks for Advisors to Consider
Conversely, millennials – themselves having experienced their share of financial market turbulence – are rather optimistic and that’s something RIAs can’t ignore.
“Millennials possess a glass half-full mentality when it comes to their financial futures. They know they have a longer time horizon to ride out the downturns and inflationary pressures. Sixty-three percent are optimistic they will reach their financial goals despite record inflation, whereas most investors in other generations believe inflation is an obstacle to meeting their objectives,” said Bonds.
Broadly speaking, a third of investors polled by SSGA believe now is a good time to invest, but that figure surges to 47% among millennials. That data point could also be a sign that is now a good time to be a generation-savvy advisor.
Related: How Advisors Can Work More Effectively with Black, Hispanic Clients