Younger clients more valuable, help firms maintain growth: Report

Twin studies, the Global Advisor Study and the Global Investor Study (GIS), conducted by Dimensional Fund Advisors from 2015 to 2023, examined advisers and their clients, uncovering their thoughts and feelings and trends within the industry.

Findings from the Global Investor Study showed that younger clients, under 40 years old, tend to care most about seeing progress towards their goals in their investments, while older clients, over 60 years old, tend to focus more on the absolute return on their investments.

Among respondents, the GIS revealed that one in three (33 per cent) younger clients indicated “progress towards my goals” as their most helpful indicator when looking at the performance of their investments.

Conversely, 26 per cent of middle-aged clients, aged 40 to 60 years old, gave the same response, and only 18 per cent of older clients did so.

The way clients measure the value they receive from their adviser was broadly in line with these findings, with 31 per cent of younger clients indicating “progress towards my goals” as their first choice here as well, while 27 per cent of middle-aged clients and just 13 per cent of older clients indicated the same.

Looking at their portfolio perceptions, the study noted that younger clients showed greater tolerance for drawdowns, with only 14 per cent indicating they would contact their adviser to make significant changes to their portfolio if it reached 15 per cent drawdown, while 21 per cent of older clients said they would.

Dimensional said the differences between the groups remained similar even at 30 per cent drawdowns, further suggesting a higher tolerance for younger clients.

Equipped with this knowledge, Dimensional said advisers have an opportunity to better understand and service their younger clients, “targeting equity premiums while maintaining a broadly diverse portfolio”.

Looking at data from the Global Advisor Study from 2015 to 2019, it revealed that the Australian client base is ageing, which was identified as one of the strongest detractors from growth for advice firms.

Due to this, Dimensional reasoned that it is likely that advisers will be looking to attract and retain more younger clients, allowing them to maintain growth.

Together, these findings indicate that younger clients are willing to accept short-term losses as they prioritise their longer-term financial goals and a need for advisers to adapt and understand the needs of younger clients in hopes of capturing the next generation.

“It turns out music, movies, and fashion aren’t the only things dividing generations. When advisers understand the distinct preferences of younger clients, they can refine their service models and engage planning technology that helps drive discussion around goals and financial well-being,” Dimensional said.

“Specifically, recognising and adjusting to younger investors’ focus on progress toward goals may make it easier for advisers to win over the next generation of clients.”