In December 2016, the SEI Advisor Network surveyed over 600 millennial investors, aged 21-35, with minimum investable assets of $10,000, to find out how the financial services industry should perceive and plan for this next generation of investors. While there are many other studies out there with conflicting data and conclusions about millennials – What sets SEI’s research apart is that we’re combining our own quantitative data with my own qualitative, millennial opinion to bring you more authentic and meaningful conclusions about what it all truly means. This is part 1 of a 4-part blog series on the key findings.
If you’re serious about understanding or serving millennials, it’s critical that you have the ability to filter this group to identify the ones who are actually good prospective clients. I would (obviously) advocate that financial advisors pay closer attention to Gen Y; but candidly, there will be many millennials who aren’t worth the time or effort. (This is true for small account, mass affluent clients in any age generation, though).
You are a business-owner, and it’s your job to ensure that your firm remains profitable. So the key to success with millennials will be having fine-tuned screening and targeted lead generation processes. That’s why segmentation is so important.
In our research, we identified some key financial factors that can, when combined, enable you to assess millennials’ overall financial complexity and attractiveness as a potential target market. We wanted to hone in on a subset of millennials who would have a real desire or demand for financial advice, but who would also appear to be an attractive potential client for a financial advisor. Characteristics such as age, assets, debt, income, and number of life events they’re experiencing, can start to give us an indication of whether or not they’d want or warrant the need for professional advice.
The number of life events is a particularly important financial factor that often gets overlooked when evaluating how qualified younger prospects might be. Your traditional Boomer clients have much more complex life events going on, such as estate planning and retirement income distributions. But while the nature of millennial life events might be simpler to plan around, they’re facing many more life events than the Boomers.
They’re dealing with everything from graduating with student debt, getting married, buying their first home, changing jobs, having children, etc. The subset of millennials who have relatively high asset and income levels and who are experiencing significant life events are ones that financial advisors could have success targeting and engaging.
We also need to understand where these millennials are currently getting their financial advice, so that we better understand how receptive they’ll be of receiving professional financial services. How saturated is their market? How many currently already have a financial advisor? Of course, market penetration is not necessarily a clear indication of receptiveness. What I mean by that is, just because many of these millennials might not have a financial advisor today, it doesn’t mean they don’t need or want one.
We need to keep in mind that this is an underserved market. In general, all of the mass affluent (not just millennials) has been left completely untapped by the financial services industry, because we have historically chosen to focus all of our attention on older, HNW investors. So while low traction can sometimes be an indicator of low demand, in this scenario, we might argue that it’s an indicator of opportunity. The key, as I said before, is targeting the right segments.
Meet my millennial friends (with some not-so-millennial names)
In combining these various financial factors, we identified three distinct segments within the millennial cohort:
Marg, Chip, and Drew represent our three key millennial personas. And in reviewing the preferences and traits of these three segments, we believe we have found the most effective way to serve each of them in a way where you meet their needs, while still maintaining the your profitability:
Chip and Drew, in particular, stand out to us as a potentially attractive opportunity for advisors. These two represent a cohort many often refer to as the emerging wealth or near-affluent (with $100,000 – $250,000 in investable assets). Not only do these two segments look a lot like some of the investors whom advisors would typically serve as low- to mid-end clients, but they have the financial complexity to warrant the need and have demand for professional advice. Moreover, some of them are likely on a career track to eventually emerge looking like some of your more HNW clients 10-20 years from now. By breaking down this generation into meaningful segments, it starts to give us a broader view on how some millennials compare to their own peers, but also other age demographics you might currently serve today.
That is why this research might still be relevant to you, even if you never intend on working with millennial investors. If you sometimes find yourself serving small accommodation accounts or having to take client referrals for some lower-end investors, even if they don’t meet your ideal client profile today – they could be your own emerging wealth clients. As we discuss how to effectively engage emerging wealth clients, like Chip and Drew in later posts, this may give you some ideas on how to serve and develop these types of clients until they look like some of your more typical HNW clients you prefer to work with.
What’s up next?
As we look at everything from marketing to fees to service models through the rest of this series, you’ll notice that we often put things in the context of these 3 segments (Marg, Chip, and Drew). We’ll further define these personas, determine how best to work with them, and then help you develop marketing and service models that best fit their client needs and your business needs.
And even though we’ve identified Chip and Drew as our “emerging wealth” because of their financial complexity and potential to develop into HNW clients, that’s not to say that Marg should be forgotten. Rather, we’ll demonstrate that there are still ways you can support people like Marg, without actually directly serving this segment. That way, you can have a pipeline of leads like Marg to serve in coming years, as these young millennials age and perhaps start to develop similar characteristics as some of their older (relatively speaking, that is) peers Chip and Drew.
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