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Serving Three Emerging Investor Personas

March 23, 2017

In the last decade the investing landscape has changed dramatically. Following the recession in 2008, markets became more volatile and more complex. New investment strategies and vehicles gained in popularity. But most importantly for advisors, the last ten years have fundamentally changed the way investors view advisors and investment advice. Trust – not necessarily in any particular advisor but in the entire system – was severely damaged after 2008, and continues to struggle to return to previous levels. Investors’ casual pursuit of higher returns that marked the early 2000’s has been supplanted by a new era in which value, a combination of consistent performance and increased transparency, has been prioritized.

This current environment has given rise to several distinct investor “personas” that advisors need to recognize in order to attract and retain clients, identify appropriate investment strategies and solve specific client needs.

Once burned, twice shy

In the immediate aftermath of the recession, a TD Ameritrade survey found that 62% of investors had changed their investing behaviors to be more conservative. Many who had pursued an aggressive approach before 2008 had experienced devastating losses and were nervous about reengaging in risky strategies. While more recent market behavior has encouraged some to revert to their old ways, a significant portion of investors remains anxious. A 2016 survey from Wells Fargo and Gallup found that 37% of investors said their own financial situation has not recovered from the recession.

These investors have no desire to repeat the mistakes of the past. However, their experience with the markets also means they expect more than a simple indexing approach. Striking the right balance between performance and risk is a critical aspect of keeping these once-burned investors on track in pursuit of investment goals.

The skeptical newbie

While few Millennials were invested in the market in 2008, they saw the impacts all around them. In some cases their parents’ retirement savings were wiped out. For others, the market downturn negatively impacted their ability to find jobs. The overall effect is a highly skeptical generation of investors. According to a bankrate.com survey last year, only one in three Millennials owns stocks, while a Bank of America/USA Today poll from 2015 found 49% of Millennials say the economic downturn changed the way they think about saving, investing and spending.

Despite the negative view that most Millennials have, the fact remains that they represent the largest growth opportunity for advisors. The key to capitalizing on this opportunity will be providing them with investment strategies and vehicles that align with their more skeptical views. They must be convinced that the long-term rewards will be worth the necessary risks.

The open-source investor

Gone are the days when investors acted as bystanders when it came to managing their money. They are now demanding even higher levels of transparency relating to fees, investment strategies and allocations. They’re also demanding up-to-the-minute access to their accounts and frequent communication with their advisors, on their schedule and in their preferred medium. A 2016 Ernst and Young survey found that 53% of North American investors identified transparency in portfolio performance, fees and commissions as an important driver of client trust. That same percentage of respondents also said digital channel and self-service capabilities were top factors in evaluating client service.

These open-source investors have come to expect easy and open access to information in the digital age. They expect nothing less from their advisors. Demonstrating value for competitive (and probably lower) fees will be key as the demand for transparency increases. Advisors will need to carefully consider how they spend their time. Many should probably look for partners that give them greater resources and capabilities, as well as more flexibility to interact with clients.

While they all have slightly different needs, each of these unique investor personas is looking for solutions that balance risk and return while also considering costs and fees. Clients will no longer accept the status quo. Advisors who are unable to adapt to this new environment will struggle to find success, particularly if markets become more volatile or we face another recession. Identifying strategies and partners that can help deliver this new value era approach are key to keeping these new “personas” happy and ensuring future growth.