Younger and wealthy hard to land: study

U.S. investment firms are having difficulty meeting the demand of their young and affluent clients, a study conducted by Forrester Research concludes.

As part of a study entitled Consumers Don’t Enjoy Financial Services, Forrester surveyed more than 5,000 American consumers during the final quarter of 2006, asking them about the consumer experience for a range of financial services.

Part of the study focused on the clients of investment firms, which were broken down by generation, gender, income and level of satisfaction with their investment firm. Overall, a majority of investment firm clients appear to be satisfied, but the largest proportion of respondents (44%) was identified as “at-risk” consumers — those who have a higher probability of leaving their current service provider.

Even more disconcerting for advisors is that this group is composed of those with the youngest mean age (44 years old) and the highest mean salary.

“They’re young and affluent — just the type of customers that financial services firms want to attract and retain for a long period of time,” the study’s author, Bruce D. Temkin, notes.

Temkin doesn’t make any recommendations on how to attract these clients, but he highlights that the at-risk demographic does distinguish itself. This segment is typically online, with 88% using the web at least monthly. More than half (57%) are not comfortable doing a lot of face-to-face business. This is in stark contrast to the older “stable” customer demographic, where nearly 60% prefer to conduct business in person.

The younger client base also tends to have a greater understanding of financial products and does more homework before making financial decisions. The survey finds they are the most likely to do background research on financial products through reading customer ratings and reviews. Among all the specific demographics, Generation-X males — those between the ages of 30 and 44 — were the least likely to find financial products complex, with just 19% of respondents admitting they found them difficult to understand.

While the study is American, some Canadian advisors who frequently work with affluent 30- to 44-year-olds are noticing that this group has quite different needs than wealthy boomer and senior clients.

Rick Wood, a CFP with TD Waterhouse Private Client Advice, runs a practice with a large proportion of high-net-worth clients, of whom he says about 50% are under 45. Wood stresses that each individual client has different service needs, but generally he notices that the younger clients take a more active role in managing their wealth than older clients.

“It’s much more a partnership than the typical client/advisor relationship, where the advisor is saying you should look at doing this, this and this. They’ve got input,” Wood says.

Wood says another key difference is how they prefer to communicate.

“I recently sat down with clients who were in their 70s, and they like to sit down face to face. I went and met them at their local TD branch,” Wood says. “They hire you based on that trust that you build from having a face-to-face relationship.”

He notices his younger clients tend to multi-task and work at a frenetic pace foreign to previous generations. Other than the essential in-person business, such as signing forms, his contact with them is almost exclusively through e-mail, usually accessed via Blackberry.

“We’re voting on a proxy right now on a stock, and half the clients, who are mainly my younger clients, I’ve contacted by e-mail and given them the breakdown online, and with others I call them and explain exactly what’s going on,” he says.

The value that younger clients place on electronic communication is one of the main reasons Mark Halpern, CFP, anchors his practice around the website he founded, IllnessProtection.com. The young and affluent are a ripe market for critical illness policies since they are at a time in their life when the policies are still relatively cheap.

“In my business we have no print material because my clients are too busy. The only written advertising we have is a business card and my website,” he says.

Halpern notes that he relies on a traditional media outlet like the radio to feed visitors to his site.

“We do advertise on the radio on stations such as 680 News and 590 in Toronto,” he says. “Those customers who listen to the radio ads will tend to either contact us via phone or Internet. Primarily, Generation Xers are getting in touch with us by Internet because they want to check other sites first. Then when they look at our site, they usually decide whether they want to get in touch with us in less than two minutes.”

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(09/14/07)

Mark Noble