Financial advisors continue to focus primarily on older clients and need to do more to understand and connect with younger investors if they want their financial planning practices to continue to thrive, according to a new InspereX Pulse survey.
It’s not surprising that financial advisors focus more on older investors since these individuals own the bulk of the nation’s wealth. Yet focusing on older clients come with a big downside: losing clients when they die.
The survey of 487 financial advisors revealed that just 18% of their clients are younger than 50, and 59% are in their 60s or older. Death is the primary reason advisors have lost clients, according to 61% of respondents. Only 14% of advisors cited the second most common reason, lack of time to nurture the relationship.
“Given the combination of many advisors citing death as the top reason for losing clients, coupled with the small percentage of advisors working with clients under the age of 50, it’s likely advisors are missing opportunities to retain business and engage the next generation of investors and heirs,” Chris Mee, Managing Director at InspereX, said in a press release.
Most 50-and-under clients’ assets come from their jobs, according to 73% of respondents. Only 12% said younger clients’ assets came mostly from an inheritance.
“We know their need for advice will multiply as they accumulate assets and their financial picture becomes more complex,” Mee added. “It’s important now for advisors to get familiar with how the younger generations are learning about investing, so they can establish relationships based on common ground.”
Although 87% of the advisors surveyed reject the idea that pursuing younger prospects is a waste of their time, 60% concurred that the younger generation is being influenced to go elsewhere. Advisors’ misunderstanding of younger investors is likely a big part of this.
Many advisors responding to the survey said younger investors surprised them in several ways, including:
Heavy reliance on social media for investment education (64%).
Refusal to admit they need help investing (34%).
Low investment IQ (32%).
Yet the advisors ranked digital marketing techniques at the bottom of strategies they use for new client acquisition:
LinkedIn (7%)
Facebook (5%)
Social media advertisements (4%)
Direct mail (3%)
Search engine optimization (SEO) (2%)
Google Ad words (2%)
Instead, almost fourth-fifths of advisors (79%) said referrals without requests drive new client acquisition in 2024. Other ways of expanding business include asking for referrals from clients (39%), networking (38%), client appreciation events (24%) and educational seminars or workshops (18%).
Additional Survey Findings
Most advisors responding to the InspereX survey (82%) said they have won business from competitors because the other advisors did not communicate with clients. They also won business from advisors who:
Failed to meet client performance expectations (25%).
Did not offer enough new or innovative ideas (24%).
Gave bad advice (20%).
Advisors said that over the past three years, they have expanded their business with “new clients outside of my local area” (50%) and “more referrals to clients outside my local area” (49%). Less than a third (31%) said their business was exclusively local.
Most advisors admitted they have problems with their clients, with only 26% saying the opposite. The five most common challenges cited are:
They listen to bad ideas from their adult kids or others (33%).
They don’t understand risk (27%).
Their expectations are unreasonable (25%).
They are uneducated about the financial world (19%).
They are too passive (16%).
Almost three-quarters (72%) of advisors use custom portfolios instead of models for clients. Advisors said they differentiate their practice with financial planning strategies (31%) and the use of customized solutions (21%). About a quarter (26%) said client relationships are their only differentiator, and 3% cited portfolio performance as a differentiator.
“Advisors are transforming their business, driving their competitive advantages with more customized portfolios and advanced planning, and expanding their reach across the country, thanks in part to technology,” Mee said in the release. “We believe this trend will continue, and we expect advisors will start paying more attention to younger investors as well.”
