Why financial planners can no longer ignore Generations X and Y
If retirees are your primary target market, you might be missing out on a fast-growing client base – Generations X and Y – writes Geoff Kellett.
The role of a financial planner is to help clients plan for their financial future - yet many aren’t taking their own advice with regards to the future of their own business.
If your business model or primary target market is focused on servicing the financial needs of the baby-boomer generation you are potentially missing out on an often overlooked yet emerging advice sector - Generation X and Generation Y.
These generations have been off the radar until now simply because many felt they didn’t have the established wealth of their baby boomer relatives, yet their greatest asset is their ability to earn (and inherit) money for many years to come.
For advisers, it is important to change their opinion on the attitudes and finances of Gen X and Gen Y investors now in order to maintain their business’ health.
They shouldn’t wait until Gen X and Y receive an inheritance before taking them on as a client. In fact, smart financial planners will have moved to lock in most of those relationships well before this happens.
Understanding Gen X and Y
A keener understanding of both generations will assist advisers in their efforts to attract new clients to the benefits of financial advice.
While dates for when each generation starts and finishes isn’t an exact science, the table below shows a generally accepted range for each age group.
According to a 2009 Deloitte report, Gen Xers are incredibly quick learners, they are adaptable and flexible but strongly focused on achieving a work-life balance. They are results-driven and pragmatic. Gen X are often described as the most highly educated generation.
On the other hand, Deloitte believes that Gen Y are a confident, empowered generation with a sense of self-worth and responsibility. They are used to an age of instant gratification and are highly computer literate and tech savvy.
It is hard to ignore the fact that both generations have many competing priorities for their money at present.
These include paying off their mortgage, paying off loans, paying down credit card debt and creating an emergency savings fund all ahead of saving for retirement.
However, careful planning and targeted activity by advisers can reap rewards in the longer term.
Future-proof your business
The introduction of scaled advice - advice about a specific area of an investor’s needs, or about a limited range of issues - is ideal for these age groups.
An adviser’s input on a range of financial matters, as and when it is required over the client’s lifetime, can develop the trusted relationship these generations crave.
While younger clients have different financial needs and goals, and require a different approach to client service, making some changes to your business practices now can ensure you future-proof your business early.
A simple advice model provides exactly what younger clients really need, and it can be financially viable for the adviser.
However it is important that the adviser focuses on those aspects of the client’s financial affairs that motivate them. Some examples include:
- Implementing cash flow and debt reduction strategies for new home owners seeking to get ahead with their mortgage;
- Structuring appropriate insurance coverage for new parents, and more importantly demonstrating ways that this can be funded on a tight budget;
- Making it easy to consolidate the multiple superannuation accounts that many young people accumulate in their early working lives; and
- Putting in place a will and estate plan for new parents or those entering a second marriage.
Importantly, you will recognise the key motivations in the above examples, such as wanting to reduce debt, provide for and financially protect children, or cut down on costs and paperwork.
Providing advice on a couple of key areas of concern for these clients over time can establish a lifelong relationship that can be rewarding for all parties - particularly when that advice can be proven to be relevant, timely and meaningful.
Marketing to Gen X and Y
Every industry has to address the best way to market their goods and services to the younger generation.
While an entire article could be devoted to the most appropriate marketing techniques required to attract new generation clients, it is clear that these future clients value personalised service, communication and attention.
It is important to realise that the tactics that have been so successful in the past may not necessarily work in the future.
Financial planners need to determine whether the use of social media and other online marketing tools are appropriate for their business.
In the age of instant gratification, advisers may also need to adapt to the concept of providing responses outside of traditional work hours.
Establishing trust with this age group is vital; however for those advisers with baby boomer clients who refer younger clients, demonstrating an existing close relationship with a parent or relative may be the key.
Attracting these clients may seem daunting at first, but once the trusted relationship is established, the potential is there for younger clients to continue with their adviser throughout their lives.
And this can only be positive for everyone involved.
Geoff Kellett is head of sales at IOOF.
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