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Millennials Have Started Calling the Shots

By Thomas Coyle April 7, 2017

With the youngest baby boomers well past 50, it’s not exactly news that the future of wealth management lies with Millennials.

What bears saying is how to capture this emerging and somewhat mercurial demographic. Luckily, J.D. Power comes through with some relevant insight in its “2017 U.S. Full Service Investor Satisfaction Study.”

The report — based on a January 2017 survey of more than 6,500 investors who, as J.D. Power puts it, “make some or all of their investment decisions with a financial advisor” — says 48% of investing Millennials will this year “probably” or “definitely” leave the full-service brokerage firms they’re with now. This compares to just 8% of all other investors with the same thing in mind.

Put another way, Millennials account for just a sliver — 8% — of captive brokerage assets overall, but they control 55% of the assets now at risk of leaving their present abodes.

Mike Foy, head of J.D. Power’s wealth management practice, sums up the problem. “Wealth managers have been slow to focus on Millennials because they don’t yet have the assets boomers do, but when looking at potential money in motion — even in the short term — the picture looks quite different,” he says. “With the emergence of robo-advisors and self-directed platforms, investors have more options than ever, both within and outside the traditional full-service channel.”

As this is both a threat and an opportunity, it’s worth considering J.D. Power’s findings about what Millennials want from their financial advisors and how their preferences differ from those of other generations.

The number one reason Millennials take up with firms in the first place is a recommendation from a trusted source. In this they don’t differ significantly from boomers and all investors taken together.

But Millennials are more interested than others in digital and mobile offerings — twice as much as general investors, and a whopping 10 times more than boomers. They also lead the pack in viewing fees as a determinant.

On the other hand, Millennials are less impressed than other investors with a firm’s reputation for performance or service. To be sure, they’re not flatly uninterested in those things, but their greater tolerance on those scores feeds into their willingness to play the field and consider newer business models, like robo platforms and traditional firms augmented by mobile services and lower fees, Foy tells FA-IQ.

This restlessness is probably aided by the fact that, as low-asset clients, Millennials aren’t getting the deluxe treatment bigger (and mostly older) fish come in for or forging strong personal ties to their advisors, Foy adds.

J.D. Power’s annual report on full-service brokerages includes a ranking of firms based on investor satisfaction with their financial advisor, investment performance, account information, product offerings, commissions and fees, website and problem resolution.

Charles Schwab topped the list, followed by Fidelity Investments and Edward Jones. On the other end of the scale sit insurance-owned brokerages AXA Advisors, Northwestern Mutual, Lincoln Financial Network and Voya Financial. Two of the four wirehouses — UBS Financial and Wells Fargo Advisors — were a bit above the industry average. Of the other two wirehouses, Merrill Lynch was just below that mark. Morgan Stanley was well below, in seventeenth place out of 21 firms.

Foy thinks it’s significant to J. D. Power’s findings about Millennial preferences that the two top firms in this year’s rankings, Schwab and Fidelity, have significant robo platforms. “That’s in keeping with the fact that broadly speaking they’ve kind of been ahead of trends in providing a digital experience, lower fees and diverse product and service offerings,” he says.

It also helps that, as discount brokers, Schwab and Fidelity “have roots in the self-directed space,” says Foy. “This has made them good at providing information to investors and good at marketing.”

Further, the fact that discounters managed to top this year’s list even though they get relatively low marks for the traditional make-or-break criterion for full-service outfits -- satisfaction with an individual FA -- strikes Foy as a sign that the shift in consumer expectations of investment service providers may be more fundamental than many observers realize.