Journal of Financial Planning: March 2015
The financial advisory industry is undergoing a number of important transformations, many of which have to do with the generational shift toward Gen Y.
U.S. Census data shows that the Gen Y population—the so-called “millennials” (18 to 34 years old)—in the U.S. is 73 million. They’re expected to outnumber baby boomers by 2030. And, according to Kelton Research, their spending power is already almost $200 billion a year.
It’s no secret that Gen Y is the tech generation, and that their familiarity with technology has given them a distinctly different set of expectations, considering the generation’s oft-cited mantra: “my way, right away, why pay?” Yet, while commentators agree that Gen Y’s tech savviness makes them a different breed of client, many industries are at a loss regarding how to channel and leverage these differences to win business.
Millennials are a legitimate consumer class that’s reaching the age where they acknowledge that acquiring financial advice is becoming a necessity.
1. Use Facts, Not Charm
Gen Y has alternatives to financial advisers, and they like to use them. So make your case with facts, not charm.
More than half of Gen Y investors in the last two years have looked for financial advice from sources other than advisers, according to research from management consulting company Accenture. In fact, due to a high level of skepticism toward advisers, millennials proactively seek information across multiple channels to help reach financial decisions.
While many baby boomers still trust the advice they receive from financial advisers, only 7 percent of Gen X and Gen Y clients would rely solely on their adviser. The next generation of investors is increasingly looking for alternative sources of information to help them reach their financial goals, while taking on a more self-directed investment strategy.
In other words, advisers are no longer the end-all-be-all when it comes to investment research and advice. The scope of resources for DIY investors is expanding every day, and are becoming ever-easier to access and digest. Does this mean that Gen Y consumers do not need financial advisers? Not necessarily.
The glut of today’s online resources and tools can still be overwhelming for clients. It’s not always easy to distinguish among different risk meters, shifting pie charts, or retirement calculators—and it seems a new version of each is released every day. But even in a world full of these widgets, advisers still play an important role in synthesizing, validating, and coordinating different elements of a financial plan. The catch is that today they have to work harder to justify their recommendations in terms of information and data, rather than relying on interpersonal “just trust me”-style explanations.
This is true for a few reasons: first, Gen Y investors have so much unfettered access to different information and tools that they’re more likely to respond to assessments or proposals with competing explanations or counterexamples (“Well, I did some research and I actually think …”).
Second, the tech generation has a relatively deep hunger for data and analytics due to its ingrained “engineer’s approach” to life.1 Years of constantly having information, interfaces, and technology at their fingertips make Gen Y curious about how things work and how patterns and trends play out.
Third, 2014 research from Market Strategies International found that Gen Y investors are more likely to rely on multiple advisers compared to some older generations, meaning they’re more likely to undertake head-to-head comparisons of advisers.
Given all this, a data-driven advice model is key. Gen Y wants to see hard evidence and comparative evaluations; they want transparency into information and facts. They are eager to make sense of complex information, and the more an adviser can serve this role as a facilitator or interpreter and back up their decisions with data, the more valuable he or she becomes to the client.
By embracing a data-driven approach, advisers can signal to millennials that they speak the same language and that they can be trusted as an unbiased source of fact-based guidance. Transparency begets trust.
2. Aggregate and Curate
Gen Y is accustomed to the aggregation and curation of everything, so why should it be any different for their financial data?
In a world where investors are more likely to have multiple advisers, the importance of account aggregation is pretty self-evident. Although there’s lots of talk about account aggregation as a strategy for advisers to stay competitive, few commentators emphasize just how much aggregation and curation is fundamental to the Gen Y customer mindset.
Consider the way everyone (not just millennials) consumes online content nowadays. Think about your social media newsfeed, blog, and content aggregators, the never-ending flow of multiple stories on the same topics. Or look at e-commerce sites with their vast listings of different products, vendors, and categories. Today’s consumer expects aggregation. Everything should be in one place to access at will.
With aggregation comes curation. When we read the news or shop for an item on Amazon, we’re presented with recommendations derived from our behavior and informed by data science. This sifting and validation of relevant content is curation, and it’s a key way to derive relevance from aggregated data.
If we get this kind of data-driven, “smart” personalization when we’re shopping for shoes, wouldn’t we want at least the same level of service for something as important as financial advice? Millennials are looking for intelligent, customized services that “mimic their experience with software they use outside of the office.”2
With that in mind, advisers need to tailor their services to the next generation of clients. Gen Y expects advisers to have a particularly strong mastery of their personal data (both financial and non-financial). For millennials, the new normal is to have access to all your data, on demand, and to easily get a handle on what’s important and what’s not.
3. Get Visual
Gen Y is a highly visual generation. Don’t underestimate the importance of design and user-friendliness in your engagements with them.
One thing everyone can agree on in the age of Apple and Google: for Gen Y, “everything has to be visual and contextual. [This generation] processes information on an intuitive level.”3
Millennials are a generation of experience, of look and feel; for example, their mindset leads them to form an opinion of a website or a brand with just a few clicks. In fact, when it comes to first impressions, research lead by Gitte Lindgaard of Carleton University in Ottawa, Canada found that it takes just a 20th of a second for the brain to make decisions when viewing a webpage. Millennials are particularly affected by the visuals of a website. According to the 2013 Millennial Impact Report, out-of-date websites were a turnoff for almost three-quarters of respondents.
This may sound like a reason for advisers to update their websites—and it is. But it’s also a reason to rethink the importance of the broader client experience online. The same instinct that drives younger web users to reject clunky websites also makes them balk at reports and online portals that are complicated, ugly, and difficult to understand.
Gen Y’s instincts have been shaped by “user-centered design,” or UCD. UCD is commonly defined as a design philosophy where the end-user’s needs, wants, and limitations are a focus at every stage of the development process. Clients no longer accept that they’ll need training in order to get the most from a service; rather, they demand that they can quickly and easily use a product with no minimal explanation (think Apple products).
There’s a fine balance here: even while Gen Y demands slick design and accessibility, younger clients are hungry for richer data and more complex analyses. They want both simplicity and complexity at the same time. Striking that balance is difficult, but crucial, and is something many would say the so-called robo-advisers have done nicely. With that in mind, advisers should seriously consider adapting their online and communication tools to digital best practices around data visualization and information architecture. The better that advisers can provide clients with details and analysis without lapsing into overwhelming gobbledygook, the better they can hew to the Gen Y ideal of more information, more interactively and more elegantly.
4. Personalize and Unbundle
Gen Y expects access and responsiveness, particularly when it comes to technology. Take advantage of that to meet—and surpass—their expectations of personalized, unbundled services.
Everyone knows the basic stats about Gen Y and its obsession with technology, but they’re worth repeating. According to Nielsen and the Pew Research Center:
- 90 percent of Gen Y over the age of 18 use the Internet
- 75 percent use social networking
- 85 percent own a smartphone
- 83 percent keep their cell phones nearby, day and night, awake or sleeping
In short, millennial clients are used to cutting-edge technology. They’re used to instantaneous feedback and results. On the one hand, this may seem like a scary quality to have in clients; no adviser wants to be held to the standard of having to always provide instant gratification. But there’s an opportunity here.
The premium placed on rapid response and on-demand information means that advisers can take the initiative, deploying technology to not only meet, but even surpass, client expectations. Informative, interactive web portals can allow clients to explore their own accounts and surface questions for advisers as needed. Advisers who have the technology to auto-send regular email snapshots to clients score points for staying on top of the latest and greatest developments, before a client even asks.
On the adviser-facing side, data-rich interactive dashboards can allow advisers to quickly pull up information relevant to client inquiries, instead of laboriously poring over spreadsheets and cobbling together custom analyses. In a Gen Y world, clients are trained on fast-paced technologies in the consumer sector; the best way for advisers to even the playing field is to adopt and deploy their own tailored configuration of technologies to align with client expectations of service.
In terms of Gen Y habits, the logic behind a multi-faceted tech approach isn’t just that clients are demanding, but also that they’re increasingly accustomed to unbundled services. Unbundling is considered a major trend of the millennial era, and it’s basically pulling apart once integrated services into related but distinct offerings. Think about how iTunes unbundled songs once packaged together on CDs, or how different topics have been unbundled from general interest publications into distinct niche news sites.
The Gen Y consumer expects to have a suite of related yet distinct offerings from which he or she can personalize and customize. They want to feel in control. Client A may love email alerts; client B may prefer to log into a portal to view full reports; client C likes getting a walk-through of his account via screen share. The more flexible technology options an adviser has at his or her disposal, the broader the menu of tools can be provided to clients, and the more a service offering can align with the Gen Y expectation of configuring your own, optimized experience.
Niko Karvounis is co-founder and chief strategy officer of Quovo, a data science platform that integrates account aggregation, portfolio analytics, and business intelligence tools for financial advisers, portfolio managers, and the technology firms that support them.
- See “How Young Tech Millionaires Invest,” by Hibah Yousuf, posted February 7, 2014 on CNN Money, www.money.cnn.com.
- See “Gen Y Want Tech for People, Not Data,” by Ladan Nikravan, in Chief Learning Officer magazine, posted January 24, 2014 on www.clomedia.com.
- See “Gen Y: The Next Generation of Spenders,” by Judith Aquino in the February 2012 issue of CRM magazine, www.destinationcrm.com.