The Tipping Point: Will the Coming Wave of Wealth Value Advice?

Transcription

1 The Tipping Point: Will the Coming Wave of Wealth Value Advice? 1

2 The Tipping Point: Will the coming wave of wealth value advice? Many investors today are seeking different types of relationships with their financial advisors. No group epitomizes this more than Generations X and Y, the coming wave of wealth, who generally seek advice relationships that go beyond investment management. They seek relationships that help them achieve peace of mind and even their life s purpose, as well as realize financial and investment-related objectives. Gen X/Y millionaires are one important cohort in this coming wave of wealth. They are highly attractive to most financial advisors due to the assets they ve already accumulated and are at a critical moment in their lives to engage with financial advisors due to their age and the complexity of their financial situations. But, they are also at a tipping point. Will the wealth holders of the future value advice? Will they choose to work with your firm instead of another? The 2017 Fidelity Millionaire Outlook Study, now in its 9th year, finds that they may not work with advisors unless advisors deliver the value and experience that Gen X/Y millionaires seek. Now is the time for the advice industry to tip Gen X/Y millionaires toward advice before it s too late. This report provides insights on Gen X/Y millionaires: Why they are at a tipping point for advice What the future of wealth looks like What they value in an advisor to help firms position themselves for growth with this important client segment. 1. The terms "study" or "survey" used throughout this report refer to The 2017 Fidelity Investor Insights Study (a.k.a. The 2017 Fidelity Millionaire Outlook Study), which was conducted in two phases. The first was an online, blind study conducted during the period January 18th through February 13th, It involved a total of 1, minute (on average) online interviews, with the sample provided by TNS, a third-party research firm not affiliated with Fidelity. Of the 1,367 respondents, there were 601 millionaire participants, who are defined as those with $1 million or more in total investable assets. The data in this report reflects the sentiments of only the millionaires in the study. The second phase involved a series of qualitative focus groups conducted with 51 affluent investors in 3 geographically diverse locations (San Francisco, Chicago, and Boston). Quotes from these focus groups are reflected throughout the report. For more detail on the study, please refer to the last page in this report. 2. Generational definitions used in this report: Gen Y is defined as those ages Gen X: ages Baby Boomers: Silvers: 71 or older. References to "Gen X/Y millionaires" include surveyed millionaires in both Gen X and Gen Y. References to "Baby Boomer+ millionaires" include millionaires surveyed in both the Baby Boomer and Silver generations All data cited in this report is from the 2017 Fidelity Investor Insights Study unless otherwise noted.

3 The Tipping Point: Key Findings Today s Gen X/Y millionaires may become tomorrow s deca-millionaires. They earn more ($200k vs. $125k income), and have already accumulated more assets ($3.4M total assets vs. $2.5M) than their Baby Boomer+ counterparts. 42% of Gen X/Y millionaires are currently unadvised, presenting a significant opportunity for advisors who want to win their business. In fact, fewer Gen X/Y millionaires have an advisor today vs. five years ago. 1 in 2 Gen X/Y millionaires are open to meeting their parents advisor, opening the door for retaining assets as wealth transfers across generations in families. Across the board, Gen X/Y millionaires are more willing to pay for advice than Baby Boomers+, especially for services higher in Fidelity s Advice Value Stack 1 that support achieving peace of mind or fulfillment. Among millionaires of all generations, helping clients build peace of mind drives greater loyalty (e.g., higher Net Promoter Scores or NPS) than helping with money management. Gen X/Y millionaires have much higher expectations for investment returns from an advisor: 16%. Their Baby Boomer+ peers expect a more realistic7%. Many millionaires do not know what they paid their advisor last year (65% of Gen X/Y vs. 56% of Baby Boomer+ millionaires). Consistently delivering and communicating value will be even more important going forward, since Gen X/Y millionaires are more willing to switch advisors for lower fees. Gen X/Y millionaires generally seek more comprehensive services from advisors (62% of Gen X/Y vs. 25% of Baby Boomer+ millionaires). Technology is paramount. 53% of Gen X/Y millionaires would change advisors if theirs weren t using technology effectively (vs. 29% of Baby Boomers+). 1. A description can be found on Slide 34. 3

4 What s Inside? 1 The Tipping Point 2 The Wealth Holders of The Value of Advice 4 Actions to Consider 4

5 1 The Tipping Point 5

6 The future of wealth is at a tipping point for engaging with advisors Now is the time to engage the wealth holders of the future in order to ensure that they choose the path to financial advice and to your firm. Do-it-yourself or minimal advice usage Comprehensive and collaborative advice 6

7 100% Generational share of net household wealth 1 4% 16% 14% Gen Y By 2030, Gen X/Y will surpass Baby Boomers in terms of holding the most wealth in the country. 50% 31% 45% Gen X Baby Boomers 0% 33% % Greatest Generation 1. The Future of Wealth in the United States. Deloitte Center for Financial Services

8 800 Bequests forecast to be received ($ billion) Their inheritances will surpass those of Baby Boomers as early as 2023, enabling them to capture a significant share of an estimated $24 trillion 1 in wealth transfer Greatest Generation Baby Boomers Gen X Gen Y 1. The Future of Wealth in the United States. Deloitte Center for Financial Services The estimated $24 trillion in wealth transfer is projected for the period , is after taxes and charitable giving, and reflects spousal, 8inter- and intra-generational transfers.

9 Gen X/Y Millionaires are leading this wealth shift and their ranks are growing: I'm 27. I spent my 20s so far: saving after college, paying very cheap rent, with a good job, and not in Boston but in Atlanta, where I could save a lot more. I have these goals, and I might be naïve about them, but I'm going to work really hard to get there. Daniel, 27, Healthcare 2012 % of Gen X/Y millionaires in U.S. millionaire population % 8% The cohort has increased 2.3x since 2012 Given their current asset and income levels and the years they have left in the job market, today s Gen X/Y millionaires may become tomorrow s deca-millionaires, representing an even greater opportunity for advisors. Based on the Survey of Consumer Finances, there are approximately 869,000 Gen X/Y millionaire households in the U.S. today Federal Reserve Survey of Consumer Finances 9

10 Gen X/Y millionaires offer opportunity 44 Retirement With an average age of 44, Gen X/Y millionaires are at the perfect age to create relationships with advisors. Fidelity research shows that 43 is the age that most millionaires start working with an advisor. Once we got married, got a house, and had our first child, [finding an advisor] just seemed like the right thing to do. We just wanted to make sure that we were getting solid advice and proper direction, and to make sure that all of our efforts were not going to be jeopardized. The first advisor I talked to was a friend of my parents. Establishing relationships with these clients early sets up relationships with high customer lifetime value. Brian, 44, Information Technology 10

11 Many are unadvised, and even more are open to meeting their parents advisor 42% of Gen X/Y millionaires are not using an advisor today However, 49% of Gen X/Y millionaires are likely or very likely to meet their parents' advisor if asked The opportunity exists to educate and "tip" these investors toward valuing advice by addressing their concerns and seeking introductions through their parents. Why are 42% of Gen X/Y millionaires unadvised? 1. Enjoy investing on my own 2. Want to retain control of investment decisions 3. Don t want to pay an advisor s fees 4. Don t trust advisors to have my best interests as their priority 5. Know enough to make investment decisions on my own Conflict of interest is one issue I have with advisors. I don't want someone pitching me to buy a high-fee product. I just want to make sure the interests are aligned almost like a doctor relationship. If I were to have an advisor, they'd be like a doctor. They'd have the Hippocratic Oath: first, do no harm and always have their patient's interests in mind. Allen, 41, Web Development 11

12 They have a propensity to refer Of those Gen X/Y millionaires with an advisor, 69% have referred at least one person to their advisor in the past year (vs. 48% of Baby Boomers+). They want to consolidate assets Many Gen X/Y millionaires are seeking to simplify their financial lives by consolidating assets with one advisor. Gen X/Y Baby Boomers+ 48% 18% 12

13 They see value in what advisors do Contrary to conventional wisdom, Gen X/Y millionaires are generally willing to pay more for the services of an advisor than their Baby Boomer+ counterparts. Find out more in section 3. I don't mind paying for something if I feel the value creation is higher. If it's a basic service like asset allocation that can be done by an algorithm, it s pretty low value in this day and age. But, if we're getting someone that's going to beat the market, that has a much higher value prop and I'm willing to pay for that. Marco, 47, Consultant I definitely think [robos are] integrating some of the benefits of models, technology and analysis, but I still put a value on the human part a little bit more. Thomas, 44, Real Estate Law 13

14 However, some Gen X/Y millionaires may be seeking advisor alternatives Fewer Gen X/Y millionaires have an advisor now vs. 5 years ago 72% 58% 9% are currently using a digital advisor 9% 58% say that, because of access to online financial tools and resources, they are more comfortable making their own investment decisions 58% 14

15 Still, other Gen X/Y millionaires who work with an advisor today may be tempted to switch firms for lower fees Even though 65% of Gen X/Y millionaires (vs. 56% of Baby Boomers+) don t know how much they paid their advisor in fees last year, a significant portion would consider moving to an advisor with lower fees. 52% Gen X/Y 27% Baby Boomers If my advisor increased their fees, I would consider switching to another advisor 42% Gen X/Y 8% Baby Boomers I could be easily swayed to switch my primary financial advisor if another advisor had lower fees This underscores the importance of consistently demonstrating and communicating the value that your firm provides to these younger clients to tip them to your firm as opposed to another. 15

16 Gen X/Y millionaires also are more likely to express interest in alternative fee structures. Although most millionaires pay asset based fees today, Gen X/Y millionaires are more likely to prefer other fee structures (e.g., annual retainer, onetime flat fee, hourly fee) than older millionaires. Preferred Fee Structure for Millionaires Using a Financial Advisor Charges an overall fee that is a percentage of your total account value Gen X/Y Boomers+ 38% 38% Charges a one-time flat fee (specific to individual services) 21% 8% Charges a commission per trade 21% 17% Charges an annual retainer (specific to individual services) 16% 5% Charges an incremental fee specific to an individual service that is a percentage of your total account value 12% 8% Charges an overall annual retainer (for multiple services) 10% 7% Charges an hourly rate or fee 9% 2% I would ideally want to pay by fee for service - a fee schedule based on work performed and defined upfront - definitely not percentage of assets under management, because that's just a tax. Don t know 8% 18% Percentages may sum to more than 100%, because respondents could choose multiple fee structures based on services their advisor performs, or which they would prefer their advisor performs. Matt, 51, Finance 16

17 A Trend to Watch Across Gen X/Y: FIRE (Financially Independent / Retiring Early) Some Gen X/Y investors have their sights set on achieving financial freedom at an early age, as opposed to waiting until later in life to retire. Those that adopt this approach are opting out of the traditional workforce after only a decade or two of employment, and retiring as early as age 35 or 40 through a focus on spending less and earning more. Most people in the FIRE segment are living well below their means and saving anywhere between 50-80% of their income. Their objectives can vary from having the freedom to pursue activities and passions outside of work, to not being reliant on a job for financial security, to creating sources of passive income. They tend to favor lower cost investment products, and may be reluctant to pay an advisor s fees. Financial independence. Since a very early age, I would say more than my peers, I've been focusing on saving as much of my salary as possible for early retirement. I don't want to be dependent on a job. I want to be able to travel, and do other things. Jessica, 32, Real Estate I want financial independence. Not retirement. I think that's a dirty word I d like to achieve escape velocity. In other words, to have enough money that it grows and sustains me. Financial independence means not needing to have an earned income from a 9 to 5 job, so that I can focus on things that I enjoy doing. Matt, 51, Finance Sources: Various online resources such as: The Secret World of the 'FIREd, Forbes, August 1, 2016 and She retired at with $2.25 million, CNN, August 2, 2017.

18 By not adapting their offerings to meet the needs of Gen X/Y investors or taking steps to prove the value of professional advice to this group, firms may experience a decrease in assets and revenues. $600 $500 Corporate DC Contributions and Distributions 1 Evidence of this can already be seen in retirement plan flows, with distributions outpacing contributions since 2013 when the first wave of Baby Boomers reached age 70. $400 $300 $200 It is critical for advisors to engage now, $100 before the wealth holders of 2030 are tipped away from advice or away from your firm towards another. $ E 2017E 2018E 2019E 2020E 2021E Contributions Distributions The Cerulli Report: U.S. Evolution of the Retirement Investor, 2016

19 2 The Wealth Holders of

20 The demographics, behaviors, and preferences of Gen X/Y millionaires provide a window into what the majority of wealth holders could be like in Gen X/Y millionaires at a glance: Are more diverse and female Expect good technology Let's take a deeper look at Gen X/Y millionaires... Are more hands-on with investments Look for comprehensive advice Have different expectations for investment returns, and their advisor relationship 20

21 In some ways, Gen X/Y millionaires look similar to their older counterparts. Their wealth is primarily self-made rather than inherited. Gen X/Y Self-made 88% Bestowed 12% Baby Boomers+ 88% Self-made 12% Bestowed About 6 in 10 work with an advisor today. Gen X/Y Baby Boomers+ 58% 63% The vast majority are college-educated. Gen X/Y Baby Boomers+ 91% 85% They work in similar professions. Approximately 3/4 are married. Gen X/Y professions: Information Technology 15% Medical / Healthcare 10% General Management 9% Baby Boomers+ professions: 9% Finance/ Insurance 9% Information Technology 9% Medical / Healthcare 74% of Gen X/Y are married/partnered Of unmarried Gen X/Y: 77% of Baby Boomers+ are married/partnered Of unmarried Baby Boomers+: 18% single, never married 3% divorced, 6% widowed 9% single, never married 6% divorced, 7% widowed 21

22 However, in other ways, Gen X/Y millionaires look quite different than the investors that precede them with higher assets and incomes, more complex families, and greater diversity They are more diverse. They have higher household incomes. They are more likely to have debt. % Female 44% Gen X/Y vs. 32% Baby Boomers+ % Non-Caucasian 17% Gen X/Y (mostly Asian/Hispanic) vs. 5% of Baby Boomers+ Gen X/Y Baby Boomers+ $200K (median) $125K (median) Gen X/Y 68% 41% Baby Boomers+ Particularly mortgage debt: 49% Gen X/Y 22% Baby Boomers+ They are more likely to be supporting both children and parents financially. They have more assets. Gen X/Y Baby Boomers+ Supporting children / grandchildren financially or in their day-to-day lifestyles: 61% Gen X/Y 20% Baby Boomers+ Investable assets (Median) Gen X/Y $1.75M Baby Boomers+ $1.75M Have children: Have children under 21: 69% 71% 42% 6% Similarly supporting parents or grandparents: 20% Gen X/Y 8% Baby Boomers+ Retirement assets (Median) Total assets $1.65M $3.40M $0.75M $2.50M 22

23 Gen X/Y millionaires take a more hands-on approach to their investments than their Baby Boomer+ counterparts. 20% 43% 37% They are more self-directed, or validators with an advisor, than delegators of investment decisions 1. 58% Gen X/Y Baby Boomer+ 44% They are more comfortable making investment decisions on their own due to access to online financial tools and resources. 58% 39% They like investing some on their own but letting an advisor take care of the rest. 1. Self-directed: I do my own research and make my own investment decisions without the help of a professional advisor. Validators: I make my own decisions, but work with one or more professional financial advisors or an online-based computer 23platform for information and a second opinion. Delegators: I delegate decisions about my investments to one or more professional financial advisors.

24 Gen X/Y millionaires consider technology a key factor in advisor selection, and an integral component of the advisor relationship. Gen X/Y 53% Baby Boomers+ 29% More Gen X/Y millionaires said they would find a new advisor if theirs weren t using technology to enhance services. Gen X/Y 23% Baby Boomers+ 2% Some consider the "use of technology for collaboration" as a top 3 factor in choosing an advisor. Lack of web portal access to their financial documents is a key area of frustration. It's not technology for technology's sake. I want technology, so that I can have full visibility and know what's going on. A lot of these groups just don't have that - even the monthly statements are just a garbled mess. Colt, 32, CEO 24

25 Gen X/Y millionaires turn to their advisors for a broader set of services, and a more holistic approach. 62% of Gen X/Y millionaires would like their financial advisor to provide more comprehensive services (vs. 25% of Baby Boomers+). It would be helpful to just have a very basic plan to help us with a strategy as to how we can best budget for things, pay down debt, save for college. I feel like we're just kind of flying by the seat of our pants. Kelli, 48, Fitness Professional 25

26 The goals of Gen X/Y millionaires reflect their focus on accumulating wealth and reaching financial freedom, while their older counterparts are focused on maintaining wealth. Baby Boomer+ Top 3 Goals: Gen X/Y Top 3 Goals: Maintaining wealth Supporting current lifestyle Supporting lifestyle in retirement Increasing household wealth Providing for their family s financial security Supporting their lifestyle in retirement 26

27 Given their relatively younger age and goal to increase assets, Gen X/Y millionaires have aggressive targets in mind for investment growth. Gen X/Y millionaires expect advisor investment returns to be 16% on average. Compare that to Baby Boomers+, at a more realistic 7%. These expectations may be artificially high due to the bull market of the last 9 years. 27

28 Their current portfolios reflect this more aggressive stance, with more Gen X/Y millionaires owning riskier products. Have risk-related products in their portfolio: Gen X/Y vs Baby Boomers+ Alternative investments (e.g., private equity, structured products, hedge funds) 20% vs 11% Venture capital investments 19% vs 6% Foreign currency 16% vs 5% Derivatives (e.g., futures, options) 14% vs. 6% 28

29 They also are more likely to use managed accounts and less likely to have fixed income and individual stocks in their portfolios. Top 10 Investments Owned: Gen X/Y Millionaires Individual domestic stocks 58% Domestic equity mutual funds (including lifecycle funds) 48% Certificates of Deposit (CDs) / Money market accounts / Cash equivalents Domestic blended bond and equity mutual funds (including lifecycle funds) 43% 40% Equity Exchange Traded Funds (ETFs) 34% Domestic bond mutual funds (including lifecycle funds) 33% International mutual funds 30% Real estate investments (including real estate investment trusts, but not including your primary residence) 30% Individual domestic bonds 29% Managed accounts (e.g. separately managed accounts, wrap accounts) 27% Baby Boomers+ Millionaires Individual domestic stocks 67% Domestic equity mutual funds (including lifecycle funds) 56% Certificates of Deposit (CDs) / Money market accounts / Cash equivalents 48% Domestic bond mutual funds (including lifecycle funds) 42% Domestic blended bond and equity mutual funds (including lifecycle funds) 38% International mutual funds 35% Equity Exchange Traded Funds (ETFs) 34% Annuities 34% Real estate investments (including real estate investment trusts, but not including your primary residence) 32% Individual domestic bonds 32% 29 Source: The numbers reflect the percentage of millionaires in each group that own each investment.

30 Gen X/Y millionaires are more likely to increase or add investments in the coming year than Baby Boomers+. Top 5 Products they Plan to Add Next Year: Gen XY Millionaires Individual domestic stocks 36% Domestic equity mutual funds (including lifecycle funds) 34% Baby Boomers+ Millionaires Individual domestic stocks 22% Domestic equity mutual funds (including lifecycle funds) 15% Domestic blended bond and equity mutual funds (including lifecycle funds) 30% Certificates of Deposit (CDs) / Money market accounts / Cash equivalents 13% Equity Exchange Traded Funds (ETFs) 28% International mutual funds 26% Do not plan to add/increase in the coming year 41% Equity Exchange Traded Funds (ETFs) 12% International mutual funds 10% Do not plan to add/increase in the coming year 55% Source: The numbers reflect the percentage of millionaires in each group that plan to increase their investments in each asset class next year. 30

31 3 The Value of Advice 31

32 Clients' perceptions of value are changing, and Gen X/Y millionaires are a perfect example of the types of clients that are driving this change. They are looking for advisors to provide multiple types of value, and they are more willing to pay for them. For many young investors, managing the money is the baseline service they expect, whereas comprehensive planning, education, organization, and help with life goals are examples of additional services they value and seek out in an advisor. Fulfillment Peace of Mind Achieving Goals Managing the Money 32

33 Fidelity recently created the New Advice Value Stack to capture the ways in which investor perceptions of value are changing in the advice industry. It is based on work by Bain & Company about how companies create value with consumers today. Fulfillment Accomplishing life s purpose Leaving a legacy At the functional level, value is delivered by managing money. Value rises from there to helping clients achieve goals, have peace of mind, and - ultimately - achieve their life s purpose. Peace of Mind Taking care of loved ones Organized and in control More discretionary time Freedom from worry The advice industry has tremendous potential to deliver higher levels of value to clients, and is well-positioned to help clients achieve fulfillment. Achieving Goals College Healthcare Retirement Estate Charity Key to delivering on the New Advice Value Stack is doing so in a scalable way that results in reliable outcomes, but still connects with clients emotionally. Managing the Money Money manager selection Asset allocation Security selection Insurance Income generation Taxes Debt Cash flow 33

34 Across the board, Gen X/Y millionaires place greater (or equal) value on advisory services than their Baby Boomer+ counterparts. They are willing to pay more for most services - especially as you move up the value stack. Fulfillment Peace of Mind Achieving Goals Managing the Money 34

35 Managing the Money % of millionaires willing to pay more for an advisor who: Implements tax strategies to ensure I minimize the taxes I have to pay (55% Gen X/Y vs. 52% Baby Boomers+) Delivers investment returns above benchmark indices (55% Gen X/Y vs. 56% Baby Boomers+) [Trust in my advisor] started with performance. That was kind of the foundation - building that trust in that business relationship. But, he was just someone very similar to me - similar life philosophy, similar upbringing, and with similar goals. It was easier to compare life notes. Brian, 44, Information Technology Selects portfolio managers that create positive investment returns for me (50% Gen X/Y vs. 43% Baby Boomers+) 35

36 Achieving Goals % of millionaires willing to pay more for an advisor who: Helps me on an ongoing basis as I try to stick to my financial plan to reach my goals (52% Gen X/Y vs. 36% Baby Boomers+) Helps me think about the long-term and not make shortterm decisions that may poorly impact my finances (46% Gen X/Y vs. 42% Baby Boomers+) Creates a holistic financial plan for me based on my long and short-term goals (39% Gen X/Y vs. 35% Baby Boomers+) Provides concierge services and referrals to other service providers, e.g. tax accountants, lawyers (32% Gen X/Y vs. 20% Baby Boomers+) Helps me make better healthcare decisions in order to manage cost more effectively (32% Gen X/Y vs. 16% Baby Boomers+) Offers more socially responsible investing strategies (e.g., companies that are green, support social causes, etc.) (30% Gen X/Y vs. 11% Baby Boomers+) Being able to meld goals with reality and provide the long term roadmap. That s really the biggest thing. We understand what s on the horizon, but being able to put that together into a workable solution is what I d be looking for. Reva, 36, Accountant [An ideal advisor] is somebody who can give you not just advice on how to get started, but a long term roadmap of how you need to approach things [I m] not necessarily looking for day-to-day advice buy this today, sell this tomorrow, but here s what we want to be doing now, here s what our goals are five years from now, 10 years from now. And, monitor those goals along the way. Justin, 35, Lawyer 36

37 Peace of Mind % of millionaires willing to pay more for an advisor who: Takes the time to educate me on all of my financial options (55% Gen X/Y vs. 43% Baby Boomers+) Helps me organize and simplify my financial life (43% Gen X/Y vs. 32% Baby Boomers+) Makes financial decisions easy for me (42% Gen X/Y vs. 42% Baby Boomers+) Can help me make decisions related to the care of a parent or dependent (34% Gen X/Y vs. 11% Baby Boomers+) Peace of mind. For me, it just comes down to a professional signing off, looking at my whole financial picture, and making sure I'm not missing anything. Jessica, 32, Real Estate Would be the CFO/CEO of my life (33% Gen X/Y vs. 19% Baby Boomers+) 37

38 Fulfillment % of millionaires willing to pay more for an advisor who: Helps motivate me to reach my life goals, not just my financial goals (32% Gen X/Y vs. 19% Baby Boomers+) Sometimes the decisions you make that impact your financial future the most have nothing to do with picking stocks. It's frequently more like: should I buy this house or not? Or should I buy that business or not? Should I quit my job or not? Those have much bigger implications to our long-term wealth than any stock we could buy. Firms that go beyond investment management to provide other types of value will be better positioned to serve Gen X/Y millionaires, and capitalize on the growth of this segment. Colt, 32, CEO 38

39 When presented with a range of available services (below), affluent Gen X/Y investors in Fidelity s focus groups demonstrated their willingness to pay more for a holistic approach. They shared these sentiments: Investment Management Investment management only (selecting investments, asset allocation, etc.) Financial Planning Investment management plus a financial plan focused on long-term goals Life Management Investment management, a formal financial plan, and expert advice to help with life decisions (e.g., legacy, career, large purchases) I feel like they're all connected, because any events in your life are going to affect your assets. They're going to affect your money, so you're going to have to re-shift your plan I would pay one flat fee for everything. Caroline, 32, Programmer A flat fee for the investment management. I wouldn't pay anything extra for the financial planning. But then, I'd go to twice the flat fee if it was all-inclusive. Dan, 39, Business Manager I would envision it as a flat fee to join the club. And then for any service that you chose within that, there might be an additional fee. But, not based off the investable assets. Kelli, 48, Fitness Professional If I paid X for investment management, I'd pay 25% more for financial planning, and I would move up to 50% more for life needs if they can truly satisfy them. Daniel, 27, Healthcare Consultant 39

40 Peace of mind drives loyalty more than investment management. Contrary to conventional wisdom, the top drivers of client loyalty (NPS scores 1 ) for millionaires of all generations are found higher in the value stack. Not only are Gen X/Y millionaires generally more willing to pay for these services, they (and their Baby Boomer+ peers) are more loyal to advisors that deliver them well. Top Drivers of Client Loyalty: Demonstrating consideration of the client s unique needs / goals / preferences Really going out of their way to get to know the client as a whole person, not just as a client Trusting the advisor to make decisions in the client s best interest Depending on the advisor to keep the client on the right track Fulfillment Peace of Mind Achieving Goals Managing the Money Including spouses / partners in financial conversations Providing online access to statements, reports, financial records via website / online portal 1. Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. 40

41 4 Actions to Consider 41

42 As we ve seen, young millionaires are at a tipping point for engaging with advisors or with your firm. Growth and profitability will likely be stunted if firms fail to take steps to demonstrate the value they can provide to Gen X/Y - both millionaires and nonmillionaires - who are steadily increasing their income and assets. Advisors who succeed in engaging with younger generations will likely benefit from life-long relationships with clients, who are currently accumulating assets, and willing to pay for the value an advisor can provide. 42

43 As you look to engage Gen X/Y investors both millionaires and non-millionaires, consider these steps: Gather client feedback on your approach to optimize it Examine your book of business to identify opportunities and vulnerabilities Assess your technology strategy to keep pace and find new ways to engage clients digitally Take stock of your team to ensure the right skills and staff Few advisors survey clients regularly to assess how they are doing, what they value, and how the firm can improve. Specifically look at how the feedback may differ among Gen X/Y clients, so that you can tailor your services to this market. Additionally, even fewer advisors have client advisory boards to help guide them. You may want to create a client advisory board specifically for Gen X/Y clients to focus on their needs in particular. Fidelity Resources that Can Help: Constructive Feedback: How Client Advisory Boards Can Help You Improve Client Loyalty Take the Mystery Out of Improving Your Sales Process Deepening Client Loyalty and Potential Profitability 43

44 As you look to engage Gen X/Y investors both millionaires and non-millionaires, consider these steps: Gather client feedback on your approach to optimize it Examine your book of business to identify opportunities and vulnerabilities Assess your technology strategy to keep pace and find new ways to engage clients digitally Take stock of your team to ensure the right skills and staff Have you established relationships with your current clients children those in the Gen X/Y population? This may be a fruitful source of prospective clients given your relationship with their parents. Furthermore, are you segmenting your book to better meet clients needs, making sure to address the specific needs and challenges of Gen X/Y? Fidelity Resources that Can Help: Segment for Success: Secrets from Firms Doing Client Segmentation Keeping It in the Family: Four Ways to Help Build Client Relationships Across Generations 44

45 As you look to engage Gen X/Y investors both millionaires and non-millionaires, consider these steps: Gather client feedback on your approach to optimize it Examine your book of business to identify opportunities and vulnerabilities Assess your technology strategy to keep pace and find new ways to engage clients digitally Take stock of your team to ensure the right skills and staff Given the coming wave of wealth s desire to collaborate and interact online, how does your firm s approach measure up? Map out the steps in your prospect and client experience, and identify how you're using technology to enhance the experience at each step. Through this process, you may unearth opportunities to better leverage technology that may streamline your operations, too. Fidelity Resources that Can Help: Setting the Pace: How eadvisors Elevate the Client Journey and Outperform Peers Charge Up Collaboration With Clients And Prospects How You Can Add Value Through Holistic Financial Planning: First Hand Takes From the Field An Introduction to Navigating Digital Advice 45

46 As you look to engage Gen X/Y investors both millionaires and non-millionaires, consider these steps: Gather client feedback on your approach to optimize it Examine your book of business to identify opportunities and vulnerabilities Assess your technology strategy to keep pace and find new ways to engage clients digitally Take stock of your team to ensure the right skills and staff Given that the Gen X/Y millionaire population generally is looking for more than just investment advice, are you taking steps to go beyond money management? Do you have the right skills to deliver a more holistic approach and potentially help clients achieve their life goals? Many firms find that hiring Gen X/Y advisors is the best way to engage and serve Gen X/Y clients. What is your current mix of talent, and are any changes needed to accommodate further growth? Fidelity Resources that Can Help: The Truth About Talent: Delivering Holistic Planning May Hinge on Whom You Hire Journey to the Top: Insights on Developing and Retaining Future Leaders Recruiting Redefined: Perspectives on the Looming Advisor Talent Shortage 46

47 Learning from the best practices of other advisors is another way to hone your strategy. The following case studies profile the approach and perspectives of three wealth management firms that are focused on serving Gen X/Y clients (both millionaires and non-millionaires), and may provide ideas for your business. 47

48 Firm Case Study: Abound Wealth Management Headquarters: Franklin, TN AUM: $161 million (as of 06/30/2017) % of clients that are Gen X/Y: 48% (Gen X: 47%, Gen Y: 1%) % of AUM with Gen X/Y: 45% (Gen X: 44%, Gen Y: 1%) Average account size overall: $1.08M, Gen X: $1.01M, Gen Y: $396K Ideal Gen X/Y Client Attributes: For those 40 or younger, have at least $300k in assets (including retirement assets). For those over 40, have $750k in assets (including retirement assets) Saving at least 15-20% of their gross income each year. Financially independent / retire early (FIRE). How Gen X/Y clients most differ from older clients: They view market drops as opportunities to invest vs. a concern. They like tools that allow for scenario planning and motivate them to save more. Accustomed to a connected experience and quick responses. Like frequent communications to keep them engaged and informed. Appreciate younger staff and advisors to work with, and a more relaxed office environment. Changes to firm s business model to serve Gen X/Y clients: Relaxed $1 million minimum to work with high potential younger clients. Segmented clients by AUM assigning the largest accounts to the most experienced advisor, and the smallest accounts to the most junior. Respond within a few hours to most client questions, within 24 hours at the latest. Strategies for Gen X/Y acquisition and engagement: The Money Guy Show podcast and video series that garners between 18,000 to 30,000 views per episode. Started in Weekly blog on relevant personal finance topics. Active social media presence on multiple channels. The Smart Money Club online content library. Referrals from existing Gen X/Y clients, particularly their parents. Effective website messaging and lead generation tools. One piece of advice for other firms: Be selective. Focus on attracting only those Gen X/Y clients that exhibit the right behaviors around saving and investing. The case study provided herein is provided for illustrative purposes only. Their business needs and experiences may not reflect the experience of others. Abound Wealth Management is an independent company and not affiliated with Fidelity 48 Investments. Listing them does not suggest a recommendation or endorsement by Fidelity Investments.

49 Firm Case Study: Massey Quick Simon & Co. Headquarters: Morristown, NJ AUA: ~$2.7 billion (as of 06/30/2017)* % of clients that are Gen X/Y: 25% (Gen X:12%, Gen Y: 13%) % of AUA with Gen X/Y: 12% Average account size overall: $12.9M, Gen X: $8.1M, Gen Y: $5.7M Ideal Gen X/Y Client Attributes: Entrepreneurs, executives, asset management professionals, inheritors. HENRYs (high earning, not rich yet) with busy careers, who need an advisor s help. Look for good incomes and earning potential. How Gen X/Y clients most differ from older clients: Highly informed. Seeking an all-in-one solution. Value working with people they can relate to (e.g., similar age and lifestage). Lead with planning, because investments are less of a focus. Want a strong technology platform Like to have more on-demand conversations. Changes to firm s business model to serve Gen X/Y clients: Incorporated investments for nonqualified purchasers and shifted to more passive investments in portfolios. Assigned younger advisors to the accounts. Enforced minimum fee of $10k for all accounts. Created in-house task force to develop and enhance the offering for emerging and next gen wealth. Strategies for Gen X/Y acquisition and engagement: Ask for introductions to the children of current clients, and then customize the type of engagement based on needs (e.g. career or college advice, financial education). Leverage the professional and personal networks of younger advisors. Active social media presence. Frequent events for clients and prospects that are social and fun. Participate on next gen board for local chapter of FPA. Involvement in a professional leadership organization. One piece of advice for other firms: If you are building an enduring firm versus a lifestyle practice, you need to build these connections and find the right Gen X/Y clients. *Assets Under Advisement (AUA) includes assets for which Massey Quick Simon may not retain trading authority. The case study provided herein is provided for illustrative purposes only. Their business needs and experiences may not reflect the experience of others. Massey Quick Simon & Co. is an independent company and not affiliated with Fidelity Investments. 49 Listing them does not suggest a recommendation or endorsement by Fidelity Investments.

50 Firm Case Study: Securities America Headquarters: La Vista, NE AUA: $70.1 billion (as of 06/30/2017) % of clients that are Gen X/Y: 30% Average account size for Gen X/Y: $51K % of advisors that are Gen X/Y: 42% (out of approximately 2,500 total advisors) How do Gen X/Y clients most differ from older clients?: How do you support advisors in acquiring Gen X/Y investors? How do you support advisors in serving Gen X/Y investors? How do you support Gen X/Y advisors who serve younger investors? Many of the stereotypes generally aren t true. For example, that Gen X/Y lack assets, are unwilling to pay for advice, or want a digital advisor. There is a lot of business opportunity, particularly among the children of current clients. They appreciate working with advisors that are closer to them in age. They want advisors who have a paperless approach, and use technology effectively. They check out an advisor s online presence and like to receive relevant content from them. Encourage advisors to establish a strong social media presence with an up-to-date profile. Recommend advisors create a content strategy for social media to stay top of mind for Gen X/Y. Develop content for advisors to use in various online channels, and suggest outside content providers to help them maintain an active online presence. Provide advisors with tools to have better conversations with Gen X/Y clients e.g. marketing tools and client seminars. Formed a next-gen advisory council to gather intelligence on how best to serve Gen X/Y investors (comprised of eight under-40 advisors). Provide a diagnostic tool for advisors to assess revenue by household, assets by age of client, etc. to identify risks and opportunities. Provide advisors with tools to go paperless and a robust tech. platform especially: online collaboration tools, mobile applications, and real-time access to accounts. Enable and train younger advisors (see next column). Launched a program to train and mentor advisors under 40. Created next-gen workshops and ondemand training on relevant topics (e.g., creating a fee-based business, discussing pricing/fees with clients). Initiated a coaching and mentoring program pairing young advisors with a coach and a tenured advisor. They meet every other week for a 12- week period. One piece of advice for other firms: One of the best ways to engage this group is to have people working in a practice who look like these investors. Securities America is a wholly owned subsidiary of Ladenburg Thalmann Financial Services Inc. The case study provided herein is provided for illustrative purposes only. Their business needs and experiences may not reflect the experience of others. Securities America is an independent company and not affiliated with Fidelity Investments. 50 Listing them does not suggest a recommendation or endorsement by Fidelity Investments.

51 Access additional resources from Fidelity to learn more about serving Gen X/Y clients and how perceptions of value are changing: Drivers of Value: The New Value Drivers that are Redefining Your Business Holistic Financial Planning: Help Redefine Your Value and Pave the Way for Growth Building the Right Team for Your Client Portfolios: How To Select and Combine Managers and Investment Vehicles Prior Millionaire Outlook Studies: Creating Advisor Advocates to Help Boost Referrals Exploring Wealth Potential Across the Spectrum of Investors 51

52 For additional insights and resources, please visit our website or contact your Fidelity Relationship Manager or home office. For investment professional or institutional investor use only. Not authorized for distribution to the public as sales material in any form. The 2017 Fidelity Investor Insights Study (a.k.a. The 2017 Fidelity Millionaire Outlook Study) was conducted in two phases. The first was an online, blind study conducted during the period January 18th through February 13th, It involved a total of 1, minute (on average) online interviews, with the sample provided by TNS, a third-party research firm not affiliated with Fidelity. The study was focused on understanding affluent investors attitudes, goals, behaviors and preferences related to investing, wealth management, and advice. Target sample included respondents across affluence levels, from $50,000 to more than $10 million in total investable assets, excluding any real estate or investments in 401(k), 403(b), pensions, or other employer-sponsored retirement plans. "Millionaires" are defined as those with $1 million or more in total investable assets with the same exclusions just mentioned, which included 601 participants. The second phase explored the topic of the value of advice via a series of qualitative focus groups conducted with 51 investors in 3 geographically diverse locations (San Francisco, Chicago, and Boston). Participants were Affluent Boomer investors (52-70 years old, $1M+ in investable and/or retirement plan assets) or High-Earning Gen X/Y investors (25-51 years old, HH incomes of $250K+ if married, or $150K+ if single and/or $1M+ in investable and /or retirement plan assets). Participants also represented a mix of both advice and non-advice users. The information contained herein is as of the date of its publication, is subject to change, and is general in nature. Such information is provided for informational purposes only and should not be considered legal, tax, or compliance advice. Fidelity does not provide legal, tax, or compliance advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Federal and state laws and regulations are complex and are subject to change. Laws of a specific state or laws that may be applicable to a particular situation may affect the applicability, accuracy, or completeness of this information. This information is not individualized, is not intended to serve as the primary or sole basis for your decisions, as there may be other factors you should consider, and may not be inclusive of everything that a firm should consider in this type of planning decision. Some of the concepts may not be applicable to all firms. Always consult an attorney, tax professional, or compliance advisor regarding your specific legal, tax, or regulatory situation. This communication is provided for informational and educational purposes only. Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with any investment or transaction described herein. Fiduciaries are solely responsible for exercising independent judgment in evaluating any transaction(s) and are assumed to be capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies. Fidelity has a financial interest in any transaction(s) that fiduciaries, and if applicable, their clients, may enter into involving Fidelity s products or services. The third-party providers listed herein are neither affiliated with nor an agent of Fidelity, and are not authorized to make representations on behalf of Fidelity. Their input herein does not suggest a recommendation or endorsement by Fidelity. This information was provided by the third-party providers and is subject to change. There is no form of legal partnership, agency, affiliation, or similar relationship among an investment professional, the third-party service providers, and Fidelity Investments, nor is such a relationship created or implied by the information herein. Fidelity Family Office Services is a division of Fidelity Brokerage Services LLC. Fidelity Clearing & Custody Solutions provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC. 200 Seaport Boulevard, Boston, MA Products and services provided through Fidelity Institutional Asset Management (FIAM ) to investment professionals, plan sponsors and institutional investors by Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved