Earning tomorrow’s clients

By Jayson Forrest

To attract the next generation of clients, advisers will need to rethink their approach to servicing a very diverse demographic base, says James Kingston (BlackRock).

IMAP Advice in Action Conference 2023 Searching for Tomorrow's Adviser Clients - they will have different goals and needs

Advisers are increasingly recognising that the rules around investing don’t apply to the next generation of clients (like Millennials and Gen Z), as they do with their existing Baby Boomer clients. That’s because client needs and attitudes to investing are changing.

So, what do tomorrow’s clients look like?

Drawing on global research and insights from BlackRock, James Kingston — Head of Practice, Product, and Portfolio Solutions for Wealth, Australasia at BlackRock — believes tomorrow’s advice clients will not only be made up of the next generation, but will also be demographically diverse. These clients include:

  • More women investors — women are expected to own $93 trillion of total global private wealth this year.

    This figure is set to increase, with 35 per cent of global wealth expected to be held by women by 2025.

  • More LGBTQ+ clients — 7 per cent of Baby Boomers are attracted to the same sex, 12 per cent of Millennials, and 18 per cent of Gen Z.

  • More racially diverse clients — 24 per cent of the Australian population speak a language other than English, and 48 per cent having a parent born overseas.

Speaking at the IMAP Advice in Action 2023 Conference, James says demographics are rapidly changing across Australian society, including the demographics of an advice business’s client base. “These changing demographics mean we have to address the individual needs of different cohorts of investors, if we want to attract those clients going forward.”

BlackRock’s research into the needs of emerging clients indicates that when seeking advice, tomorrow’s clients are looking for:

1. A trusted relationship; 

2. Outcome-based planning;

3. Digital integration;

4. A new retirement approach; and

5. More education around investing.

“There is a misconception that the next generation, like Millennials, want to do everything on their phones. They don’t,” says James. “Ninety per cent of investors actually want to have face-to-face relationships with people, as well as digital integration. We’re also seeing a move to outcome-based planning, away from risk profiling. In Australia, we’re already seeing a move to a risk-bucketing or outcome-bucketing type approach.”

James adds that with more younger people now working in the gig economy, many won’t have superannuation being paid by an employer, which means the next generation will have a very different approach to retirement planning.

“Emerging investors, like Millennials and Gen Z, will be the cohort of clients that will be inheriting huge amounts of wealth from the Baby Boomers,” says James. “Over the next 10-20 years, about $3.5 trillion is moving from Baby Boomers to the younger generation in Australia, and globally, that figure is US$72 trillion.

“It’s a huge amount of money, but statistics show that when an adviser’s client passes away and the money transitions to the next generation, up to 80 per cent of those assets can be lost — either by moving to another adviser, paying off debts, or becoming self-directed. That’s why it’s so important that advisers understand the changing needs of the next generation of investors, like their appetite for sustainable and ESG investing.” says James.

James Kingston — Head of Practice, Product, and Portfolio Solutions for Wealth, Australasia at BlackRock
James Kingston - BlackRock

Emerging investors, like Millennials and Gen Z, will be the cohort of clients that will be inheriting huge amounts of wealth from the Baby Boomers. Over the next 10-20 years, about $3.5 trillion is moving from Baby Boomers to the younger generation in Australia, and globally, that figure is US$72 trillion.”

James Kingston

You need to earn emerging investors

According to James, the key to earning emerging investors is by understanding their needs and objectives, which are different from existing clients, while blending digital solutions as part of the overall advice offering.

“They want advisers to understand them,” he says. “This is the cohort who are 200 per cent more likely, compared to Baby Boomers, to have a side project or passion they may want to turn into a business. There are many opportunities here where advisers can help them, like leveraging their relationships with business managers or consultants who can help this cohort with their start-ups.

“And this is the generation who want sustainable investments, so advisers should ensure they can talk about sustainability and offer sustainable solutions as part of their investment menu.”

Analysis by BlackRock has shown that robo-advice hasn’t taken over from traditional advice delivered by a financial adviser. Instead, James says robo-advice has enabled advisers to engage in more scaleable conversations with their clients. This digital enablement has also allowed clients to access information more easily and readily.

“If you want to earn the next generation of investors, you need to start now,” says James. “If you wait for your existing clients to transition their wealth to their kids, then it’s probably going to be too late. Those kids have either got their own advisers or they’ll take their money and pay off their mortgage and debts.

“If you want to start building a relationship with the next generation, do it as soon as possible. Engage with your clients’ kids through education. Talk to them about why it’s important to start investing at an early age and discuss the types of products they should be thinking about, without actually providing advice.”

If you want to earn the next generation of investors, you need to start now. If you wait for your existing clients to transition their wealth to their kids, then it’s probably going to be too late. Those kids have either got their own advisers or they’ll take their money and pay off their mortgage and debts

James Kingston

Client diversity

James believes the way that advisers should think about earning tomorrow’s diverse clients is by recognising that their experiences and needs are going to be different from yours. People from different cultures and religions may have different interpretations of what wealth means to them.

“Advisers need to lead with planning. You need to recognise that many people don’t want to be told what product to invest into. Instead, you need to think about the holistic plan around your client’s financial life. In fact, many advisers are already transitioning from being financial advisers to wealth coaches.”

James adds that education is very important as a means of engaging more closely with the younger generation — everything from budgeting, to asset classes, and all the way through to various investment options available to them.

“And don’t forget the importance of problem solving together,” says James. “Clients want to be taken on a journey, where they have the opportunity to problem solve and figure out solutions with their adviser, rather than being told what to do.”

Advisers need to lead with planning. You need to recognise that many people don’t want to be told what product to invest into. Instead, you need to think about the holistic plan around your client’s financial life. In fact, many advisers are already transitioning from being financial advisers to wealth coaches

James Kingston

And don’t forget the importance of problem solving together. Clients want to be taken on a journey, where they have the opportunity to problem solve and figure out solutions with their adviser, rather than being told what to do.”

James Kingston

Preparing for success

When preparing an advice business to succeed with tomorrow’s clients, James believes there are five key elements that will determine success:

1. Demonstrating your value as a financial coach;
2. Evolving your investment solutions;

3. Embracing technology;

4. Building and fostering a diverse team, which is able to directly relate to a diverse client base; and

5. Fortify your network of partners.

According to James, when demonstrating your value as a financial coach, the key is being able to listen to your client, which is essential for developing a trusted relationship. By digesting what clients are saying and repeating it back to them, James believes advisers can begin building trust and transition from being a financial adviser to a wealth coach.

“Building diversity in your team is also important,” he says. “That’s because tomorrow’s clients are expecting you to be focused on dealing with diversity. So, when thinking about the type of cohort of clients you want to attract, be the advice firm that thinks about who you are employing to work with those clients.”

And when it comes to technology, James says “embrace it”. He believes technology needs to be consistent and personalised for your clients, which will allow advisers to scale their time. He points to managed accounts as the ideal solution for enabling this. “BlackRock expects at least half of funds under advice will move into managed accounts in the near future. This will allow clients to have personalised portfolios but with their money professionally managed, which will free up an adviser’s time considerably.”

Finally, when looking at the next generation of clients, James says it’s important for advisers to fortify their network of professional partners, which means looking beyond accountants and lawyers. He refers to an emerging trend in the U.S., where advisers are increasingly working with other partners — like physiotherapists, health and wellbeing coaches, and business consultants. By working with these partners, advisers are able to help their clients focus on their personal and mental wellness, as well as their financial wellbeing. 

“This is just another piece of the jigsaw that advisers will need to connect when it comes to earning tomorrow’s clients,” says James.   “The needs and expectations of these clients are much different from today’s clients, so unless advisers adapt their approach to servicing these emerging clients, they will lose them.”

About

James Kingston is Head of Practice, Product, and Portfolio Solutions for Wealth, Australasia at BlackRock.

He spoke on ‘Earn tomorrow’s clients’ at the IMAP Advice in Action 2023 Conference.

 

 

 

 

 

 

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