Failure to Understand Younger Investors Could Affect Advisors’ Ability to Attract Clients, J.D. Power Finds
Younger Investors Diverge Further from Boomers as Digital Engagement Soars and ESG Investing Emerges as Key Loyalty Driver
With consumers in the Millennial1 generation poised to inherit more than $68 trillion in wealth from their Boomer parents during the next decade, full-service wealth management firms have a vested interest in tailoring their services to the evolving needs of younger investors. According to the J.D. Power 2021 U.S. Full-Service Investor Satisfaction Study,SM released today, the past year has exposed a stark divergence in the investment behavior of younger investors compared with their older counterparts.
“Investors under age 40 are changing much more quickly in terms of their wealth management preferences and priorities—and they look increasingly different from Boomers,” said Mike Foy, senior director of wealth intelligence at J.D. Power. “Not only has the pandemic significantly accelerated their shift to more digital engagement, but emerging issues like ESG [environmental, social and governance] are also a major priority for them that isn’t seen as much yet among Boomers. Wealth management providers are making a mistake if they assume that the emerging affluent investors will simply evolve into Boomers over time. Firms with the ability to recognize and address these changing needs will define success through the great wealth transfer.”
Following are some key findings of the 2021 study:
- Younger investors crank up interaction during pandemic: More than half (55%) of full-service investors under age 40 prefer digital channels for communicating with their advisors vs. just 26% among older investors. More than two-thirds (71%) of full-service investors under age 40 have increased their frequency of interaction with their advisory firm during the pandemic, with phone (+33%), website (+25%), email (+24%) and mobile apps (+23%) emerging as the channels with the largest increases. By contrast, just 38% of investors age 40 and older increased their level of engagement during the past year.
- Younger investors twice as likely to make financial changes: During the past year, 58% of investors under age 40 made changes to their investment portfolios, such as increasing or decreasing investments, stopping recurring contributions or making withdrawals. During the same period, just 28% of investors age 40 and older made similar changes.
- ESG becomes key priority but many firms still fall short: Among investors under age 40 who strongly agree that their advisory firm is committed to ESG efforts, 52% say they plan to increase their investment with that firm. The number falls to just 24% among investors over age 40. Despite the positive influence ESG has among younger investors, 68% say they either have doubts about their firm’s commitment to ESG or don’t know about it.
- One-time fee-for-service and subscription payment models attractive to younger investors: Nearly three-fourths (74%) of investors under age 40 say they would prefer to pay for full-service wealth management via a one-time fee-for-service model. This is followed closely by a subscription model, which is supported by 73% of investors under age 40. By contrast, among full-service investors age 40 and older, just 42% support a fee-for-service model and 34% support a subscription model.
Edward Jones ranks highest in overall investor satisfaction with a score of 770 (on a 1,000-point scale). Stifel (760) ranks second, while Fidelity (751), RBC (751) and UBS (751) each rank third in a tie.
The U.S. Full-Service Investor Satisfaction Study, now in its 19th year, is redesigned for 2021. As a result of the study redesign, scores are not comparable to those of previous years. The study measures overall investor satisfaction with full-service investment firms in seven factors (in order of importance): trust; people; products and services; value for fees; ability to manage wealth how and when I want; problem resolution; and digital channels.
The study is based on responses from 4,392 investors who make some or all of their investment decisions with a financial advisor. The study was fielded from December 2020 through February 2021.
For more information about the U.S. Full-Service Investor Satisfaction Study, visit https://www.jdpower.com/business/resource/us-full-service-investor-satisfaction-study.
About J.D. Power
J.D. Power is a global leader in consumer insights, advisory services and data and analytics. A pioneer in the use of big data, artificial intelligence (AI) and algorithmic modeling capabilities to understand consumer behavior, J.D. Power has been delivering incisive industry intelligence on customer interactions with brands and products for more than 50 years. The world's leading businesses across major industries rely on
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1J.D. Power defines generational groups as Pre-Boomers (born before 1946); Boomers (1946-1964); Gen X (1965-1976); Gen Y (1977-1994); and Gen Z (1995-2004). Millennials (1982-1994) are a subset of Gen Y.