Baby Boomer Investor Personas

Baby Boomer Investor Personas 1

Introduction Baby Boomers represented 26 percent of the US population at the end of 2014, or about 75 million individuals, according to the Census Bureau. As such, they control a significant portion of the investable assets in the U.S. economy and their habits, behaviors and personalities impact the financial markets. They also represent the largest percentage of investors to currently rely upon financial advisors, as well as the greatest opportunity for financial advisors to quickly build their business. Whether one believes Baby Boomers will frugally invest their assets to pass the remainder onto their heirs or that they will spend their last penny before ending up in the graveyard, these investors are a critical market for financial advisors. Spectrem Group performs quantitative research with investors with between $100,000 and $25 million of net worth on a monthly basis. Throughout the course of a year, Spectrem will have interviewed more than 12,000 investors in multiple wealth groups. There are three primary wealth segments (described below) in which Spectrem categorizes investors. This report has conglomerated its annual findings among wealth groups and has created personas that describe different types of investors and how financial advisors and providers can effectively target and service these various personality types. Percent Who Are Baby Boomers (Current age 51-69)* Mass Affluent ($500K to <$1MM NIPR) 66% Millionaire ($1MM - $4.9MM NIPR) 66% UHNW ($5MM -$25MM NIPR) 61% This report focuses on Baby Boomers with at least $1MM Net Worth A Two-Step Cluster Analysis was performed (in SPSS) on all Baby Boomers in the Spectrem research. A cluster analysis identifies key factors that separate groups of the Baby Boomers from others. A Two-Step Cluster Analysis was used because it allows the user to differentiate between categorical and continuous variables, both of which occur in the data used here. Copyright Notice: This material is for use only by the individual receiving this report. No part of the report may be photocopied, duplicated, displayed or distributed in print or electronic form to other parties without the prior written consent of Spectrem Group. 2

Baby Boomers Investor Personas Spectrem s analysis uncovered five distinct kinds of Baby Boomer investors. These individuals vary on multiple dimensions, including demographics, wealth status, and investment philosophy. The young Baby Boomer still working and making money The conservative investor who has struck it rich The follower who doesn t make a move without their advisor Advice Please, 21% Rock On, 11% The Big Middle, 33% Moneybags, 15% The Cowboy, 21% The Lone Ranger playing the market for fun and profit The prototypical affluent Baby Boomer average wealth, average age, average risk, etc. Average Net Worth Investment Approach Moneybags The Cowboy The Big Middle Advice Please Rock On $5.4MM $5.1MM $4.6MM $4.5MM $3.7MM Most conservative Most aggressive Moderate to aggressive Moderate Moderate 3

Moneybags 15% Moneybags is the most conservative and wealthiest of the Baby Boomer segments. Most Moneybags have Advisors, but do not necessarily trust them. Slightly more females than males Second smallest segment Listen Up! I ve Got More Money Than You! People tell me I am too conservative. But you know what? I m the richest Baby Boomer group you re going to see in this paper. I want guaranteed returns on investments based in the US. Moderate to conservative investor 89% Invest in US only 76% Prefer guaranteed rate 51% I have an advisor, but I don t trust him to do what is best for me. Has an advisor 97% Advisor not looking out for best interests 83% It s a good thing that I have a lot of money because I don t think things are going to get any better. Concerned about maintaining financial position 56% 4

Moneybags Moneybags does not feel especially insulated by wealth. This group still worries about holding on to what they have, about aging, and about their children. Consistent with their use of advisors, they would consult an advisor but make their own decision about disposing of $100K. And they want advisors to be responsive when they initiate contact. Gender 53% 47% Female Male Only group with more females. Investment Risk Tolerance Advisor Relationships: 29% 60% 9% Conservative Aggressive Moderate Most Aggressive 2% Top Reasons For Changing Advisors: Most conservative of all groups If I had $100K : 66% would consult advisor but make own decision Average Number of Advisors: 1.6 1. Didn t return phone calls fast enough 62% 2. Didn t give good advice 52% 3. Wasn t proactive in contacting me 50% LOWER CONCERN PERSONAL CONCERNS AVERAGE ACROSS ALL PERSONAS Using wealth to help others 20% 26% HIGHER CONCERN 53% Maintain financial position 63% 53% Live in a care facility 57% 42% Financial situation of children 49% 5

Moneybags Moneybags average net worth is $5.4MM, making it the wealthiest group in their analysis. This group is somewhat more likely to invest in cash vehicles, real estate, and annuities. But they specifically want to invest only in the US. Wealth Rank #1 Net Worth, NIPR $5.4MM Investment Knowledge Level 2% 27% 62% 9% Not at all knowledgeable Not very knowledgeable Fairly knowledgeable Very knowledgeable Most of this segment perceives themselves as fairly knowledgeable Asset Allocation 28% 15% 9% 9% 39% Retirement Accts Cash All Other Prof. Managed Accounts Mutual Funds MORE LIKELY TO INVEST IN: Money-bags Average Across Personas Products Cash 31% 13% Real estate 20% 6% Annuities 15% 3% Regions US only 76% 56% 6

Hi! I m The Cowboy 21% This male-dominated segment (91%) is a carefree, aggressive investor who doesn t mind taking risks. This daring strategy has been successful, making The Cowboy the 2 nd wealthiest group. Worked in business arena in some capacity Prefers to talk to attorney or family regarding wealth transfer Might consult financial advisor if he got tired of doing it himself When it comes to investing, I ve taken risks all my life, and I ve been really lucky. I know more than you do, so back off. I ve made a lot of money, and things are still looking up. Aggressive risk taker 49% Risks helped create wealth 47% Luck helped create wealth 74% Financial situation will be better next year 66% I m not a worrier, but I do think about my health and getting old. I don t use financial advisors. I know more than they do, and they can t be trusted. Concerned about health 57% Concerned about living in care facility 49% I have an advisor Advisors are biased toward certain products I can do better than an advisor 28% 72% 68% 7

Hi! I m The Cowboy The Cowboy is a risk taker, who is not really worried about many things in life overall, they are the most carefree of all the groups. They do not have positive views of financial advisors, feeling that they are expensive, and not trustworthy. Gender 9% 91% Largest percentage of males of any group Female Male Risk Tolerance 5% 47% 43% 6% Conservative Moderate Aggressive Most Aggressive Most aggressive risk tolerance of all groups Top Barriers to Advisor Usage 1. Advisors are too expensive 76% 2. Advisors are biased toward certain products 72% 3. Advisors are more concerned with selling products than with helping clients 72% 4. I can do better investing than an advisor 68% PERSONAL CONCERNS Cowboys are generally less concerned about everything LOWER CONCERN AVERAGE ACROSS ALL PERSONAS Maintain financial position 46% 53% Care in old age 42% 48% Get advice to reach goals 8% 22% HIGHER CONCERN 8

Hi! I m The Cowboy The Cowboy is the second wealthiest of the Baby Boomer groups, with an average Net Worth of $5.1MM. Consistent with their self-perceived knowledge level and openness to risk, they are more likely to invest in individual stocks, and are receptive to non-us investments. They also have a broader interest in a variety of sectors, especially financial services. Wealth Rank #2 Net Worth, NIPR $5.1MM Investment Knowledge Level Asset Allocation 37% 63% Not at all knowledgeable Not very knowledgeable Fairly knowledgeable Very knowledgeable 35% 22% 13% 30% Retirement Accts Stocks and Bonds Mutual Funds All other Most knowledgeable of all segments More stocks and bonds than other groups MORE LIKELY THAN OTHER SEGMENTS TO INVEST IN: Average Across The Cowboy Personas Products Individual stocks 58% 39% Sectors Financial services 38% 27% Real estate 28% 21% Manufacturing 26% 18% Transportation 20% 15% Regions outside the US Europe 28% 21% China 23% 17% Canada 23% 15% Australia 18% 11% Brazil 16% 9% 9

The Big Middle 33% The Big Middle is the largest segment, and sets the norm for all the other groups. They are moderate investors who consult with advisors, but make their own decisions. Mostly male, 72% I m big and I m average, so cater to me! You know what average means? It means that I m the biggest group around. I m pretty moderate in my approach to risk, but sometimes I ll take a flyer if it looks like it will be worth it. Will take big risk for big gain 44% I use financial advisors, but I worry that they are not looking out for my interests. Have an advisor 100% Advisor not looking out for my interests 83% I have a good education and have worked hard. But a lot of my wealth is due to smart investing and taking risks. Wealth is due to: Smart investing 89% Taking risks 69% 10

The Big Middle The Big Middle is average in most respects, but they do stand out in being primarily male. They are also more likely to be interested in wanting to use their wealth to help others. They have financial advisors but are not dependent on them. And they would change advisors if their advisor did not respond to requests for contact. Gender 28% 72% Female Male Second highest concentration of males Investment Risk Tolerance 4% 72% 22% 1% Conservative Moderate Aggressive Most Aggressive Advisor Relationships: If I had $100K : 92% would consult advisor but make own decision Average Number of Advisors: 1 Top Reasons For Changing Advisors: 1. Didn t return phone calls fast enough 65% 2. Wasn t proactive in contacting me 54% 3. Didn t give good advice 50% 4. Didn t return emails fast enough 50% LOWER CONCERN PERSONAL CONCERNS AVERAGE ACROSS ALL PERSONAS HIGHER CONCERN 26% Using wealth to help others 29% 11

The Big Middle While professing to be moderate in risk tolerance, The Big Middle appears to be somewhat adventurous or diversified in their investment interests. This may be because they feel that they are pretty knowledgeable about investing. They are much more interested in technology and pharmaceuticals than are other groups, and are more willing to invest in Europe. Wealth Rank #3 Net Worth, NIPR $4.6MM Investment Knowledge Level 2% 68% 30% Not at all knowledgeable Not very knowledgeable Fairly knowledgeable Very knowledgeable This segment sees themselves as fairly or very knowledgeable Asset Allocation 32% 17% 14% 12% 25% Retirement Accts Stocks and Bonds All Other Prof. Managed Accounts Mutual Funds MORE LIKELY TO INVEST IN: The Big Middle Average Across Personas Products Stock funds 39% 32% Bond funds 14% 11% Sectors Technology 69% 61% Health care 66% 60% Pharmaceuticals 62% 51% Financial services 35% 27% Regions Europe 29% 21% 12

Advice Please! 21% Nearly all of the investors included in the Advice Please! Persona have a financial advisor. They are highly dependent on their advisors, and have strong, positive relationships with them. Equally likely to be male or female 78% say their wealth is due to advisor decisions Good advice pays off BIG TIME! When it comes to investing, I always seek advice. I have strong relationships with my advisors, and I trust them Has an advisor 100% Advisors are knowledgeable Rely on advisors to make decision 69% 59% I worry about wealth transfer, and I have talked to more than one professional about it. I want advisors that offer products from a variety of companies, and provide non-traditional opportunities. Talked about wealth transfer with: A financial advisor 72% An attorney 60% Importance in choosing an Advisor: Products from variety of companies 81% Offer non-traditional products 56% Family 40% 13

Advice Please! Advice Please! investors are not really risk-takers, preferring a moderate approach to investing. They are content to let their advisors make decisions for them. Given their heavy reliance on advisors, they are more likely to change advisors in the face of a lack of responsiveness to their requests for contact. They are above average in their concern about aging about living in a care facility and having someone to care for them. And despite their reliance on advisors, many are still concerned about getting the advice they need to reach their goals. Gender 48% 52% Equally likely to be male or female Female Male Risk Tolerance 20% 70% 9% 1% Most likely to take a moderate approach to investing Conservative Moderate Aggressive Most Aggressive Advisor Relationships: If I had $100K : 81% would let advisor make the investment decision Average Number of Advisors: 1.5 Top Reasons For Changing Advisors: 1. Didn t return phone calls fast enough 61% 2. Wasn t proactive in contacting me 53% 3. Didn t give good advice 45% 4. Didn t return emails fast enough 45% LOWER CONCERN PERSONAL CONCERNS AVERAGE ACROSS ALL PERSONAS HIGHER CONCERN 53% Live in care facility 58% 22% Get advice to reach goals 37% 48% Care for me in old age 54% 14

Advice Please! Advice Please! ranks #4 in wealth among the Baby Boomer groups. Consistent with their reliance on advisors, they feel they have only low to moderate levels of investment knowledge. They also have a larger share of their assets in professionally managed accounts, and lean toward investing only in the US. Wealth Rank #4 Net Worth, NIPR $4.5MM Investment Knowledge Level 2% 32% 57% 9% Not at all knowledgeable Not very knowledgeable Fairly knowledgeable Very knowledgeable This segment sees themselves as not very or fairly knowledgeable Asset Allocation 26% 32% 42% Professionally managed accounts are higher than any other group Retirement Accts Prof. Managed Accounts All other MORE LIKELY TO INVEST IN: Advice Please Average Across Personas Products Stock mutual funds 38% 32% Bond mutual funds 16% 12% Individual bonds 9% 6% Regions US only 61% 56% 15

Rock On! 11% Rock On! is the smallest, youngest and least wealthy segment. They seem strongly biased toward cash vehicles. Most do not have an Advisor. 55% are under age 65. Only 17% have a primary financial advisor I m pretty young, as Baby Boomers go. But I still believe in having a lot of money in my retirement accounts. Age 64 55% Percent of assets in retirement accounts 41%% Still Workin, Still Havin Fun Sometimes I don t feel very optimistic about the future Over the next year: Asset value will be same or worse Income will be same or worse Economy will be same or worse 48% 74% 68% I don t rely on a financial advisor, but smart investing has helped me get rich. Have an advisor 17% If I had a windfall of money, I would put it into cash If had $100K, would invest in safe account Expect to invest in cash vehicles in next month 47% 33% % of assets in cash 14% 16

Rock On! Rock On! is the youngest of the Baby Boomer groups, with many of them still working. However, they are worried about health issues. They do not work with financial advisors for two reasons: 1) they feel that there is a lot of good information available to them, and 2) most of them do not place a lot of trust in advisors. Work Status Age 53% 15% 32% Retired Semi-Ret. Working 5% 50% 36% 9% Age 49-54 Age 55-64 Age 65-74 Age 75+ Nearly half are working full or part-time 55% younger than age 65 - youngest of all the Baby Boomer groups Investment Risk Tolerance 17% 69% 14% Conservative Moderate Aggressive Most Aggressive Top Barriers to Advisor Usage 1. More information about investing is available than in the past 82% 2. Advisors are too expensive 77% 3. Advisors are more concerned with selling products than with helping clients 77% 4. Advisors are biased toward certain products 75% LOWER CONCERN PERSONAL CONCERNS AVERAGE ACROSS ALL PERSONAS Financial situation of children 34% 42% Get advice to reach goals 11% 22% HIGHER CONCERN 58% Own health 62% 56% Spouse s health 61% 17

Rock On! This youngest group is also the least wealthy. They have a higher percentage of their assets in retirement accounts than any other group. This is consistent with their age and the fact that more of them are still working. Wealth Rank #5 Net Worth, NIPR $3.7MM Least wealthy of all the Baby Boomer groups Investment Knowledge Level Asset Allocation 1% 8% 62% 29% Not at all knowledgeable Not very knowledgeable Fairly knowledgeable Very knowledgeable 36% 13% 11% 10% 19% Retirement Accts Cash Stocks and Bonds Mutual Funds All Other Most of this segment perceives themselves as fairly knowledgeable This youngest group has more of their assets in retirement accounts than any other group MORE LIKELY TO INVEST IN: Rock On! Average Across Personas Products Cash vehicles 31% 13% Alternative 3% 1% Regions US only 65% 56% 18

Baby Boomers Investor Personas SUMMARY As this analysis indicates, there are multiple types of Baby Boomer investors, with varying financial advice needs and styles. Three groups are strongly engaged in working with financial advisors: Advice Please!, Moneybags, and The Big Middle. Together, they comprise 69% of the population studied in this report. Two of these groups Moneybags and The Big Middle do not necessarily trust their financial advisors, feeling that their advisor is not always looking out for their best interests. Moneybags investors are concerned about issues such as long-term care and outliving their assets. They worry about a catastrophic illness destroying their financial health as well. Advisors can increase the level of trust in these relationships by openly discussing and planning for these issues. The Big Middle has similar concerns but is also open to discussing estate planning. They may be willing to include charities in their planning. Advisors should ensure this large group is well prepared for the future. For all three groups, lack of responsiveness will generate a change in advisors. Advice Please! investors take up a significant amount of advisor time. They are, however, the best source of future referrals. For those advisors willing to use a fee-based and fiduciary model, they may be able to increase the level of trust with Moneybags and the Big Middle investors. PERSONALITY TYPES CURRENTLY WORKING WITH ADVISORS Advice Please! Moneybags The Big Middle Size 21% 15% 33% Have an advisor 100% 97% 100% Advisor is NOT looking out for their interests 0% 83% 80% Change advisor because: Does not return phone calls fast enough 61% 62% 65% Not proactive in contacting me 53% 50% 54% Does not return emails fast enough 45% 43% 50% Not giving good advice 49% 52% 50% 19

Baby Boomers Investor Personas SUMMARY Moneybags is a desirable target due to their wealth. Approaching them will require recognizing and respecting the success of their conservative approach, and providing investment opportunities consistent with that approach. Moneybags will be assessing investment opportunities with an eye to maintaining their assets. They want to hold on to what they have in order to insure a comfortable and secure old age, and to ensure that their children will be taken care of. The Big Middle has less money but is the largest segment of all, making them more accessible just due to their numbers. They have a more moderate strategy than Moneybags, and a wider range of investment interests. This provides a broader base of opportunity for meeting their needs. Their higher interest in helping others may make them receptive to socially responsible investment opportunities. PERSONALITY TYPES CURRENTLY WORKING WITH FINANCIAL ADVISORS Advice Please! Moneybags The Big Middle Size 21% 15% 33% Risk Tolerance Moderate Most conservative Moderate Investment Knowledge Asset Allocation More Likely to Invest In Less knowledgeable Less knowledgeable Fairly or very knowledgeable Stock and bond funds US only investments Concerns Living in care facility Getting advice to reach goals Most cash Cash US only investments Maintaining financial position Living in care facility Children s financial situation Stock and bond funds Technology Pharmaceuticals Europe Using wealth to help others 20

Baby Boomers Investor Personas SUMMARY There are significant hurdles for financial advisors to acquiring either The Cowboy or Rock On! segments as clients. Both groups are concerned about advisor fees, product biases, and feel that helping clients is a second priority for advisors. Each group, however, may be desirable as clients for the following reasons: The Cowboy, a moderate-sized segment, has a significant amount of money to invest. They may eventually seek specific expertise or grow tired of continually watching their assets. Rock On!, by virtue of being younger, has more years of working and earning ahead of them. They will continue to grow their portfolios. Both groups may be receptive to advisors who can demonstrate an objective and independent position regarding investment opportunities, and can represent a variety of products and companies.. The Cowboy Rock On! Size of Segment 21% 11% Use an advisor 28% 17% Barriers to Advisor Use Fees Product bias Believe advisors are focused on selling and not on helping clients Additional Has a significant amount of money to invest Fees Product bias Believe advisors are focused on selling and not on helping clients Do their own research about investments Youngest and still working 21

Baby Boomers Investor Personas SUMMARY Advisors must recognize that The Cowboy wants to be continually engaged with their investments. They want to make money, but they also want to feel in control. They enjoy investing and are motivated by making successful investment choices. Recognize their aggressive approach and bring them a variety of higher-risk opportunities. Alternative investments, as well as other investments not easily available via online discount platforms, will be appealing to them. Rock On! has a more moderate approach, and remains strongly interested in cash vehicles. They have concerns about foreign investments, with the majority wanting to invest in only in the US. This younger group needs to be educated about higher risk investments in order to diversify their portfolios. This combination suggests a need for maximum flexibility and free access to their assets, primarily because of their age. They are paying for mortgages and school tuition. The Cowboy Rock On! Size 21% 11% Risk Tolerance Most aggressive Moderate Investment Knowledgeable Level Very or fairly knowledgeable Fairly or very knowledgeable Asset Allocation More Likely to Invest In Concerns Individual stocks and bonds Stock and bond funds Individual stocks Financial services Real estate China Canada Australia Brazil Retirement accounts Cash vehicles US only Spouse s health 22

Baby Boomers Investor Personas SUMMARY Overall, these Baby Boomer segments have different profiles as potential clients for financial advisors. FROM THE ADVISOR S POINT OF VIEW: Moneybags The Cowboy The Big Middle Advice Please! What Makes This Segment Desirable? Richest segment Works with advisors 2 nd richest Openness to varied investments Largest segment Works with advisors Dependent on advisors What Does This Segment Want? Maintain their financial position Secure old age Help with healthcare planning To be in charge Expertise Professional advice at a fair price Advice and reassurance about investing Rock On! Longevity Financial security in the face of low expectations and health concerns Liquidity What Are The Barriers to Acquiring This Segment? Suspicions about advisor objectivity Investor knowledge Fees Product bias Suspicions about advisor objectivity Strength of existing advisor relationships Perceived investor knowledge Suspicions about advisor objectivity What Are The Opportunities With This Segment? Cash vehicles in the US Fixed income and annuities Long-term care Foreign investments Alternatives Financial services Real estate Mutual funds Technology Pharmaceuticals Asset Allocation Mutual funds in the US Ongoing advice on multiple asset classes Cash vehicles in the US Need to diversify 23

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