A survey by Deloitte found that Millennials and Gen Zs consider themselves financially prudent and literate so it comes as no surprise that they will be looking to make plans to secure their future by seeking out financial advice.
Plus, 58% of Gen Zs and 74% of Millennials surveyed by Prudential said that the Covid crisis has prompted them to seek financial advice from a financial adviser.
We all know however, that financial advisers prefer the higher net worth clients. In a Schroders survey conducted in 2019, it was found that 59% of advisers had an average client asset size of £200k. For those under the age of 40, such wealth accumulation is difficult and as a result, so many with small savings pots risk being overlooked by financial advisers.
But maybe it's best not to ignore this demographic. The lifetime gains for a financial advice business of winning the loyalty of a client under 40 will pay off to no end as the client becomes older and more affluent.
However, even if advisers made a concerted effort to attract the Gen Z and Millennials, there is still the problem that there aren't enough advisers in the UK to service such an influx of clients.
In order for firms to accommodate the under 40s, 'blended advice' seems to hold the answer, which is the perfect mix of digital and human advice depending on the needs of the client.
Technology is now able to automate as well as take on much of the 'heavy-lifting' from the advice process. Light-touch and easy to automate advice can be conducted directly by clients online, for example when it comes to ISA investment advice, pension contributions or investments.
When the advice needs become more complicated, for example a pension transfer or the investment of an inheritance, the client can be passed on to a human adviser. The adviser themselves can also be supported by technology, for example, with digital fact finds and automatically-generated advice recommendations for a pension consolidation case.
Millennials and Gen Y people are well prepared for blended advice with over 75% very or fairly comfortable about accessing financial advice remotely.
Using digital, remote advice as the entry service holds the opportunity for the adviser to establish themselves in the client's life as the 'go-to' for financial advice. Having a reliable source of financial guidance and advice will make the client more likely to call upon their financial adviser for future financial advice needs such as getting a mortgage or seeking out protection.
Open banking will soon provide the ability for advisers to be more proactive with personalised advice and guidance, detecting particular bank account activity that might warrant financial advice in a certain area.
By harnessing digital advice, the adviser is able to service more clients at a significantly lower cost to serve.
The Gen Z and Millennial generation are encountering new-found difficulties which are affecting their approach to money and life in general, bringing with it an impending challenge for advisers looking to service this market.
The Covid crisis has been particularly hard on under 40s. A recent Vice survey found that 68% of those surveyed have become financially worse off over the past year. In the same survey, it was found that 43% have turned to cryptocurrency as a way to boost their finances. Over time, cryptocurrency is likely to be an increasing part of advice clients’ portfolios and advisers must be prepared to give advice in new areas of investment.
And with an increasing amount of under 40s having a side-hustle, or second job to make ends meet, this brings a whole host of other considerations when it comes to managing their money.
But Covid aside, the landscape for this generation is changing significantly with new priorities and pressures compared to their Generation X and Baby Boomer counterparts. Home ownership, marriage and starting a family don't happen in a certain order anymore, and with more freedom of choice coupled with economic pressures, alternative life pathways are becoming more and more attractive.
By taking on these groups, advisers will also have to enrichen their ESG proposition. Millennials and Gen Z individuals are more sustainability-orientated when it comes to money, elevating the need for a more complex ESG offering, for example featuring updates and details about the types of ethical investments as well as impact being made, beyond an 'ESG Yes' option.
Along with the move towards new propositions, the traditional adviser revenue model must not rule out a rethink. With the rising popularity of the subscription model for streaming music and TV, a similar format for financial advice is a model to consider.
One of key components of a subscription model is recurring users; attracting them back on a regular basis to get value from the service. The provision of financial advice in this sense owes itself well to an automated, digital service with on-demand services as and when required.
The next few years will be critical for advice firms in seeking out ways to serve the advice needs of the under 40s in a cost-effective and scalable way.
We are likely to see new, agile start-ups come into this space, but incumbents also have a chance to adapt, provided that they are supported by the right technology.
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