The shifting landscape of financial advice for a new generation

According to the Productivity Commission’s research paper, Wealth transfers and their economic effects, Australians aged 60 and over are poised to transfer $3.5 trillion in wealth in the next two decades. This amounts to an average of $175 billion in wealth moving to younger generations every year. In 2050, this figure is projected to hit $224 billion.

With such a large amount of wealth moving from older to younger Australians, many advisers are likely to be faced with the prospect of altering their value proposition to appeal to rapidly changing demographics of potential advice clients.

This is highlighted by the lower numbers of younger generations who engage with a financial adviser. In the Findex Managing Wealth Report 2022, the firm found that 20 per cent of Baby Boomers accessed the services of a financial adviser, while it was even higher for the over-80s at 24 per cent. Interestingly, it was Gen X with the lowest engagement at 11 per cent, while 15 per cent of Millennials and 13 per cent of Gen Z (only looking at those aged 18 and over) received financial advice.

According to Adele Martin, founder of My Money Buddy and The Savings Squad podcast, if you are looking to pivot your offering and appeal to a younger client base, you will need to be open to different ways of communicating.

“I’ve worked half my career with retirees and half has been with Millennials,” Ms Martin says.

“The retirees used to love to come into my office. They would come into the office and just sit in the waiting area because their wife was doing the shopping and they just wanted to sit in that waiting area. It would be an excursion for them to come into the day dressed up and they would want the first appointment.

“Millennials will do everything they can to avoid having to talk to you on the phone, they want to talk to you through text or chat. So, my Millennials, most of the conversations happen on text or happen on Instagram, it doesn’t happen on the phone. The way that I communicate is definitely different.”

This is also borne out in the numbers, with the Managing Wealth Report finding that 79 per cent of Baby Boomers want to have face-to-face engagement with their financial adviser, while this is true for only 46 per cent of Millennials. On the flip side, 22 per cent of Millennials want to utilise online video conferencing such as Zoom, compared with just 13 per cent of Baby Boomers.

Younger clients will also spend a lot more time researching advisers online, or “stalking” them, as Ms Martin puts it.

If your website has “graphics and fonts from the ‘80s” and the images portray nothing but older people, she says Millennials are probably not going to take the next step of making an appointment.

“They will stalk you and your socials,” Ms Martin says, adding that maintaining a consistent presence on social media can help attract younger clients.

“We’re very also very sceptical, Millennials. It takes a while to build up that trust with us,” she says.

“What tends to happen is advisers’ websites and everything is just set up for ‘book a time with me’, and that’s way too big a first step. We need to nurture them and that’s why we can use our socials to sort of date them first and build up that trust factor.

“Rather than just, ‘Hey, book a call with me’, people will come to your socials, and they’ll consume all your stuff. I had this with my podcast, where people would listen to 20 episodes, and then they book a call with me. Or they consume all my socials and then they book the call because now they’ve built up enough of that trust to take that next step.”

Advice for life, not retirement

One of the biggest differences between working with retirees and younger clients, Ms Martin explains, is the ability to make a larger impact on their lives over the long term.

“I would hear over and over again, ‘I wish we saw you years ago’, and now they had bad knees or a bad back and they couldn’t do all the stuff that they’ve been putting off into retirement,” she says.

“That’s exactly one of the reasons why I started working with Millennials; so, we still had time to make a difference.

“I think the other difference is that for Millennials, it’s not all about that waiting for retirement. They want to be able to have more flexibility now. They want to maybe work part time now or have big career changes or career breaks. So, there’s not going to be that straight linear line of work in the one place for 20 years working their way up the ladder.”

For advisers uninterested in adapting their practices to better suit younger generations, Ms Martin suggests that they may experience frustration and potentially lose clients.

“I also think you have to understand their issues and what they want, so if you’re coming from super sort of background, that’s a harder transition into helping Millennials. It’s a very steep learning curve going from retirees to Millennials,” she says.

“I think the most important thing is the actual service offering that you’ve got for them and if that aligns with what they want – what value you bring to them.”

Ethical investing and younger clients

It’s something of a pat aphorism that younger generations are more concerned about the environment and ethical practices in general, similar to the widely held belief that while the youth may be more liberal, they will age into conservatism. However, while stereotypes aren’t always accurate, there is some data to back up the idea that younger clients are more concerned with ethical investing – whatever that means to them.

According to the Responsible Investment Association Australasia’s (RIAA) From Values to Riches report, Gen X and Millennials top the list in terms of responsible investing, sitting at 20 per cent and 19 per cent, respectively. The number is a bit lower for Baby Boomers at 15 per cent.

Where things really start to diverge is when looking at those intending to invest responsibly in the next 12 months. Within the 26 per cent of the population that makes up this cohort, 45 per cent are Gen Z and 36 per cent are Millennials.

Nathan Fradley, senior adviser at Tribeca Financial, says that it’s important to understand what is driving these younger generations to consider ESG in their financial decisions.

“It’s a generation of people, and this is talking from our advice interaction perspective, who value why as much as they value what. So, they’re purpose driven,” Mr Fradley says.

“Fundamentally, what that comes back to is that they are principled and that they will be and with all life decisions, we’re always uncovering the why and I think that’s a really important part of dealing with Millennial clients.

“It’s not just that you put money here, get here, it’s, ‘What does that mean in the interim? What does that mean for me personally?’ We see that in their purchasing decisions, we see that in the way they drive their cars, the way they transport, the way they vote, all the rest of it.

“So, when that plays into the ESG or ethical investment side, it’s just the same narrative. It’s just that the things they care about – fulfilment, identity – are also generally their broader impact on the world. What I’m finding is that positioning ethical investments with them is a smaller hurdle, because it’s expected already.”

Mr Fradley adds that advisers need to understand what their clients care about, even if it is a topic outside their wheelhouse.

“The challenge that we perceive is, I think advisers first and foremost don’t understand the things that their clients care about,” he says.

“They don’t want to go there because they don’t want to be seen as the person who doesn’t know everything in the room because the people have come to them as an expert.

“I think there’s this identity challenge around if they start talking about gender equality, or they start talking about climate change, and don’t really understand it. They did an economics degree and know about investments and shares and companies.

“So, I think there’s a fundamental identity issue there, which is easily broken, and it’s broken through practice.”

The mindset for a lot of advisers also needs to shift, Mr Fradley says, explaining that for many, the conversation has been driven by the adviser more than the client.

“I think given that when advisers speak to their clients, historically, it’s always been a case of, ‘We can do this for you, we can put you in this investment. Let me tell you what we do.’ Now it’s about what you need,” he says.

“The best advisers right now want to understand intrinsically what a client needs both in terms of when they are going to retire or have a house or start a family. But also, what do they need outside of that, what fulfils them?”

Determining values for better advice

Another vital point around ethical investing is that concepts like “ethics” and “morals” aren’t some universally understood constant, rather a mixture of each person’s lived experience that culminates in uniquely and often deeply held beliefs. The standard areas many look at, such as tobacco, gambling, weapons, and mining, are ones that large swathes of the population agree on, but there are also many people that see nothing wrong with investing in coal.

There are other areas advisers may never even consider as being a sticking point.

Does your client have a moral objection to the practices involved in debt collection? Perhaps they have a strict adherence to Qur’anic law and refuse to invest in a business that charges interest, or they are vegan and want no part in any investments that exploit animals.

What is the solution to any ethical stance that sits outside your practice’s standard investing framework?

According to Mr Fradley, the answer is to ensure you can provide a service that aligns with their values.

“It fundamentally comes back to their values and that they’re values-driven people. And this builds on to that. So aside from climate change, gender equality, which are … the big-ticket items, it’s fundamentally understanding your client,” he explains.

“What are they trying to achieve in their life? What’s important to them? What do they value? It doesn’t matter about their political alignment; it actually comes back to what their values are.

“We’ve got advisers who work with Sharia clients. It’s not traditional ethical investing, although they do a pretty good job of it. We’ve got clients who are Catholic and basically all their clients are from the church and other Catholics.

“It’s not about deciding what’s right or wrong at a moral level. It’s about the values of the individual. So, I think understanding that at a baseline, good advisers do that already. They understand their clients intrinsically. This is just another layer.”

The other side of the coin is that the focus on investments that meet values-based criteria as well as performance criteria, opens the adviser up to concerns around their own ethics.

Once the door has been opened to ethical investing, can the adviser separate themselves from these decisions?

“We’re in a unique position,” says Mr Fradley.

“Doctors can’t say no, lawyers can’t say no. They have to deal with the clients that they’ve got in front of them. We can.

“Their decision is, do you only want to work with these people? They call that niching. Do I only want to work with these people? Or do I want to help my client achieve what’s important to them? In order to do that, you have to acknowledge and disclose your biases. They have to understand your bias but help them meet their needs or refer out. That’s all in the code.”

He adds that advisers should decide if they are pro, neutral, or anti-ESG and act accordingly.

“If you’re anti-ESG, refer out. Don’t convince them otherwise, it’s not your job to tell people their values. No one says send your kids to private school or don’t send your kids to private school. It’s ‘Why do you think it’s important? OK, we can help you meet that.’

“They have to decide what kind of adviser they’re going to be. But in the essence of it, they should be aiming to understand and either facilitating to meet their needs or referring out.

“But if they are going to do it, they need to understand those values and at least have a good crack at it and not put their own view on it like we do with everything else. My risk profile is not my client’s risk profile. My tolerance for debt is not my client’s tolerance for debt. These are things that we don’t apply our own values to every single time we give advice. And yet, why can’t we do it with the ethical investment piece?”