With a demographic shift underway, advisors need to adapt and earn younger investors’ trust

Millennial and Gen Z Canadians are opting for DIY investing, consuming finfluencer content and exploring different asset categories, including alternatives, says Rob Grein of PMG Intelligence, CEO of market research consultancy PMG Intelligence. Winning their business will require advisors to adapt.

The key to onboarding these younger generations is to earn their trust, Grein said during a keynote address at Advisor Learning Series: Alternative Investments in Toronto on Tuesday. The event was presented by Advisor.ca, Investment Executive and CE Corner.

“Trust reaches a peak at the age of 30 and then it hits a decline when we hit … approximately 40,” Grein said, noting that based on his company’s research, “the magic number” for an advisor to draw in a DIY investor is 38.

“When somebody crosses 38 years of age, … winning them back becomes that much more difficult.”

Grein noted that one in two investors today are self-directed, whether it be a small or a more significant portion of their portfolio. His company’s research has also found that “one in two investors under age 30 have been recommended that their business transition to a self-directed model” like Wealthsimple Inc.

At the same time, he said younger generations are “thirsty” for a relationship with someone who can guide them on their financial journey.

“They want the sounding board,” Grein said. “And importantly, … as investable assets increase, the desire to have that partnership, that collaborator increases equally.”

So how can advisors appeal to young investors?

Hyper-personalized contact is one way.

“Trust and contact are related,” Grein said. Research has found, he noted, that if clients have at least 2.8 points of contact with an advisor each year that are meaningful, where a specific problem of theirs is addressed, “then we’re going to make inroads.”

Having shared values helps, too.

A decade ago, Grein said research showed that investors felt that having aligned values with their advisor or institution was a perk, but it wasn’t deemed a necessity. Investors feel more strongly about this today.

“It’s not a nice to have. It’s becoming a table stake in how younger investors … choose to work with the people or partners that they do,” he said. “And it doesn’t require … an alignment in demographics, but more an alignment in values, orientation, learning styles.”

It’s also important for advisors to understand how young investors consume and process information: “at pace and in bite-sized pieces,” Grein said.

“They’re receiving [messages] in waves, and they’re processing information incredibly fast,” he added.

Grein said young investors want an advisor they can bounce ideas off of and help them make sense of information they come across — even if it’s shared by a finfluencer on YouTube, for example.

Less conservative, more open

Younger investors’ risk orientation tends to differ from older generations.

“They lean less conservative than what we’ve seen historically. It’s not so much how conservative they are and their risk tolerance per se, but it’s how they approach and evaluate risk,” Grein said. “The willingness to internalize certain types of risk for reward is very different to the emerging market, and it creates an opportunity [for advisors] to have a different type of conversation. The narrative is different. Relationship management, so different.”

On relationship management, Grein highlighted how investor behavioural research done before the turn of the century found that how people managed their finances “was more intimate to the household” and to “the relationship they had with their financial advisor.”

Today, he said investors in the self-directed market are more open to discussing finances with their peers, including sharing their credit scores and recommendations on advisory relationships or the institutions they deal with. They also onboard these relationships faster than before.

“So, today in relationship management, it’s more likely that a self-directing or emerging investor will onboard many relationships at once and then weed them out over time, as opposed to rely on … a new relationship or partner to be recommended, for example, by a peer or family member,” he added.

When it comes to alternative investments, Grein said young investors’ desire to engage with these strategies is greater than ever and “there’s just an openness for exploration.” For advisors, there’s an opportunity to support them in that journey.

“We really need to help insert ourselves to make sure that … we are helping our clients [and] ensuring that they have a clear lens on what these products actually are and how they can help,” he said.

Ultimately, while many young investors are in the self-directed market today, Grein said “there is a natural desire and want to work with an advisor, with a peer.”

“The dynamics of the relationship are desired to be, perhaps different than what we would have seen 10, 15, 20 years ago. But there’s a natural desire to have a collaborator, to have a coach join them on their journey,” he added. “So, it’s finding a way to meet them in the middle, to service their needs.”