Investment advisors are eager to work with multiple generations in a family, but a recent survey conducted by industry researcher Cerulli Associates reveals that this is not always the case.
According to the survey, only 19% of affluent investors indicate that they use the same advisor firm as their parents. Cerulli Associates defines “affluent” as households with $250,000 or more in investible assets.
Interestingly, younger investors are more inclined to work with their parents’ advisors compared to older investors. This suggests that advisory firms may need to enhance their efforts to retain affluent children as clients.
Cerulli research analyst John McKenna emphasizes the potential for long-lasting relationships between advisors and their clients’ children. While initially a “marriage of convenience,” McKenna believes that advisors can cultivate these connections by assisting younger clients with their own financial plans or by pairing them with team members in the firm whose life experiences align with their needs.
The survey data shows that 41% of respondents under the age of 30 report using their parents’ advisor firm. However, this figure drops to 31% among respondents aged 30 to 39, and declines further among older age groups.
These findings highlight the challenge faced by investment advisors in bridging the generational divide and retaining affluent clients across multiple generations. To address this, firms must proactively engage with younger clients and demonstrate their value in order to secure long-term relationships.
The Importance of Understanding Younger Investors
According to Cerulli, the younger demographic is highly mobile and prone to switching advisors if they don’t feel understood or their financial needs aren’t met. As a result, it is crucial for advisory firms to truly get to know these young investors and cater to their unique requirements.
Historically, financial advisors have primarily focused on older, wealthier clients and neglected the younger investors who are still in the wealth-accumulation phase. However, Cerulli argues that by expanding the relationship to include clients’ children, advisors can provide them with valuable guidance on fundamental financial matters. This includes advice on topics like saving for a home and building up retirement savings. Additionally, this approach establishes a “path of least resistance” for both the advisor and the client, making it easier for them to work together.
Cerulli emphasizes that once the child of a client begins working with an advisor, they are significantly more likely to remain with the firm. This suggests that maintaining relationships across generational divides yields benefits for both investors and the advisory firm itself.
In its report, Cerulli highlights that young investors gain access to an advisor who already understands their family’s financial situation. Simultaneously, the advisor has the opportunity to preserve the account for future generations.