What Do Millennials Expect From Financial Advisors?

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1 What Do Millennials Expect From Financial Advisors?

2 INTRODUCTION As a financial advisor, do you have the correct processes and systems in place to attract, retain and serve Millennials? As you will see in this report, Millennials are optimistic about and planning for their financial futures. Considering that they came of age in the country s worst economic crisis since the Great Depression, it is understandable that they may be wary about dealing with a financial advisor and are ideally seeking one who shares a commitment to honesty and open communication. They are also comfortable with and trusting of technology, which significantly impacts how they communicate and make decisions. This new white paper series, Engaging Millennials, provides financial advisors with the solutions to the Millennial mentality by diving into the minds of the generation that has always had the Internet. This report is based on research conducted by Spectrem Group with High Net Worth (HNW) households across the United States. Each quarter, Spectrem conducts online research with approximately 1,500 Mass Affluent households ($100K - $1MM net worth, NIPR*), 1,000 Millionaire households ($1MM - $5MM net worth, NIPR) and 500 Ultra High Net Worth households ($5MM -$25MM net worth, NIPR). The research with HNW households was completed in the 3 rd and 4 th quarters of 2014 and the 1 st and 2 nd quarters of This report focuses on Millennials, and compares them to earlier generations of investors. For this research, 385 Millennials were surveyed. The research on the use of Robo-advisors was conducted in late 2014 with 3,090 respondents with $100K - $24MM in net worth, NIPR. The insights and content in What Do Millennials Expect From Financial Advisors is owned by Spectrem Group and is drawn from The Wealth Spectrem and is fully protected under copyrighted law. Reproduction of this content, in whole or part, may not be done without prior written consent from Spectrem Group. About Spectrem Group Spectrem Group strategically analyzes its ongoing primary research with wealthy investors to assist financial providers and advisors in understanding the Voice of the Investor. Spectrem has been one of the premiere research firms in the wealth market for almost twenty-five years. Spectrem continually conducts research to identify what makes clients choose various advisory firms, what their concerns are and what they consider key criteria for overall satisfaction with a provider. Spectrem s clients represent the full breadth of companies within the financial services industry, including those in wealth management, brokerage, investment management, insurance, banking and trust operations.

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4 KEY FINDINGS ON WHAT MILLENNIALS THINK ABOUT FINANCIAL ADVISORS A third of Millennials with less than $1MM net worth do not have an advisor, compared to 24 percent of the more wealthy Millennials. At the same time approximately 40 percent of Millennials with less than $1MM feel that they know little about investing. Millennials are more honest about their investment knowledge levels than older generations. Millennials will change the financial services industry by turning to different types of advisors rather than full service brokers. These may include robo-advisors as well as financial planners. Approximately 40 percent of Millennials indicate they are likely to use a robo-advisor in the future. Currently about three-quarters of wealthy Millennials use an advisor to some extent. Millennials who utilize an advisor are less satisfied with their advisor than older generations. This is particularly true with responsiveness levels, indicating that Millennials may have higher standards than older generations.

5 ADVISOR TYPES Thirty-four percent of non-millionaire Millennials and 24 percent of those with more than $1MM net worth do not currently use any advisors. This may be because they may not feel they currently have enough assets to warrant an advisor or they remain skeptical regarding the value of an advisor. DO NOT USE AN ADVISOR 34% Millennials with less than $1MM net worth 24% Millennials with more than $1MM net worth ADVISOR-DEPENDENCY Whether because they don t feel they need a financial advisor or because they think it might be too expensive, non-millionaire Millennials are most likely to make all of their own investment decisions. More than half describe themselves as Self-Directed. Among less-wealthy households of any age, advisor-dependency increases among older investors. This trend is also reflected with the Millionaire households. Wealthier Millennials are more likely to seek the help of an advisor. LESS THAN $1MM NET WORTH Millennials Gen X Baby Boomers WWII 51% 47% 37% 34% 29% 32% 38% 37% 18% 26% 13% 13% 4% GREATER THAN $1MM NET WORTH Millennials Gen X Baby Boomers WWII 38% 43% 28% 28% 31% 32% 38% 35% 27% 25% 10% 14% 16% 6% 14% 15% Self-Directed Event-Driven Advisor-Assisted Advisor-Dependent Investors make their own investment decisions without the assistance of an investment advisor Investors make most of their own decisions but use an investment advisor for specialized needs such as retirement planning, asset allocation advice or selecting alternative investments Investors regularly consult with an investment advisor regarding most investment needs, but make most of the final decisions Investors rely on an investment professional or advisor to make most or all investment decisions

6 ADVISOR TYPES Full service brokers are, overall, the most common type of advisor used by wealthy investors. This is consistent among older wealth segments but not among Millennials. Non-Millionaire Millennials are likely to utilize an investment manager, and are just as likely to use an independent financial planner or friend or family member as a full service broker. Millennials, regardless of wealth, are more likely than their older counterparts to use the services of a banker. This makes sense because for many a bank is their introduction to financial issues. Bankers are not commonly utilized among older wealthy investors. TYPE OF ADVISOR USED Accountant Attorney Banker Online Broker 3% 6% 5% 14% 14% 14% Full Service Broker 16% 27% 22% 32% 29% 38% Family Office Representative Full Service Broker Independent Financial Planner Independent Investment Advisor (RIA) 0% 0% 6% 5% 14% 19% Banker 5% 8% 8% 7% 7% 8% Insurance Agent Investment Manager Mutual Fund Company Representative Private Banker/Trust Officer 0% 3% 5% 3% 9% 10% 10% 17% Gen X Less Than $1MM Gen X More Than $1MM Baby Boomers Less Than $1MM Baby Boomers More Than $1MM WWII Less Than $1MM WWII More Than $1MM Other Professional Advisor Friend or Family Member (nonprofessional) 0% 3% 5% Millennials with less than $1MM net worth Millennials with more than $1MM net worth

7 ADVISOR SATISFACTION While WWII investors are the most satisfied with their advisors, the Millennials have similar satisfaction levels with their advisors as do Gen Xers and some Baby Boomers. Millennials are most likely to be dissatisfied with their financial advisor s responsiveness to requests. This will be a recurring theme among the youngest wealthy investors, for whom the accessibility and immediacy of mobile technology and social media has elevated their expectations of service. Additionally, financial advisors may potentially ignore these younger, less wealthy investors or service them at a different level than older wealthy households. BY GENERATION Gen X <$1MM Gen X >$1MM Baby Boomers <$1MM Baby Boomers >$1MM WWII <$1MM WWII >$1MM Overall satisfaction with your advisor 64% 63% 61% 63% 69% 75% 80% 78% Knowledge and expertise of your advisor 64% 63% 70% 62% 78% 78% 83% 81% Responsiveness to requests 52% 69% 63% 63% 76% 80% 84% 85% Performance 60% 69% 59% 57% 69% 72% 77% 76% Millennials With Less Than $1MM Millennials With More Than $1MM

8 ROBO-ADVISORS FAMILIARITY AND LIKELIHOOD TO USE The youngest investors, those 35 and younger, are the most familiar with the term robo-advisor. As age increases, the familiarity decreases. Among those that use a robo-advisor, the majority fall in the youngest segment (primarily Millennials) at 17 percent. This is not surprising considering these advisor types are geared toward those with less wealth, which Millennials tend to have, considering their age. These technology-based advisors appeal to young investors who are comfortable with this type of service, having grown up with technology. FAMILIARITY WITH TERMS (0 = NOT AT ALL FAMILIAR, 100 = VERY FAMILIAR) Robo-Advisor < > 65 17% SERVICES USED 6% 4% 4% A service that is 100% technology based where I provide my information and the advisor service recommends a portfolio for me to invest in, or "robo-advisor"

9 ROBO-ADVISORS SERVICES USED Not surprisingly, the younger the affluent investor, the more likely they are to be willing to use technology-based advisor services in the future. When asked to rate their likelihood on a 100-point scale, Millennials find themselves near the middle of the road. This indicates a need for advisors to acknowledge these types of services and to adapt and provide these services for their younger investors (particularly in conjunction with the ability to Skype or FaceTime with their clients). LIKELIHOOD OF USING THE FOLLOWING (ON A SCALE OF 0 TO 100) A service that is 100% technology based where I provide my information and the service recommends a portfolio for me to invest in A service where I communicate with my advisor through Skype/FaceTime video or online chat communication and do not meet in person with the advisor < > 65

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