The Financial Advisory Market
Registered Investment Advisors (RIAs) are not in danger of extinction. Period.
As a matter of fact, they are growing bigger than ever. 2019 was the year RIAs hit a record high of 12,993 firms, serving 43 million clients and $83.7 trillion of assets under management. With the number of RIAs consistently growing each year, it now stands on a cusp of its next growth phase as global income levels rise.
During the ‘80s and ’90s, baby boomers helped fuel the nascent development of the advisory industry. Hardworking and excellent collaborators, they are a generation that uses technologies as productivity tools rather than connectivity. However as this generation nears retirement, RIAs now seek a new generation of clients.
Who are they?
Millennials. The generation that grew into the digital age. They are a generation that lives and breathes technology – it is their connectivity to the world.
But who are they really? According to Pew Research Center, millennials are anyone born between 1981 and 1996.
Current Demographic of Millennials
Millennials make up ¼ of the US population in 2020, the second-largest generational cohort in the US.
Now if we look at other parts of the world, millennials still make up a large bulk of the population
- Asia 36.6% of the population are millennials
- Africa 29.2% of the population are millennials
- Latin America 36.2% of the population are millennials
- Europe 34.1% of the population are millennials
- North America 33% of the population are millennials
- Oceania 33.6% of the population are millennials
What can we gather from these statistics?
It is evident that millennials are one of the largest generations in the world. In more developed regions, we can see that the percentage of baby boomers may be slightly higher, all due to aging populations in those areas. Whereas, in developing regions, the Gen Zs are not far behind and will soon overtake all previous generations.
This group of individuals are the drivers of the future. As they come of age, enter into the workforce and mature financially, this is the group that advisors do not want to miss out on.
Often labeled as materialistic and spoiled, but the truth is they’re more than what society perceives them to be. Millennials’ generational attitudes differ greatly from generations of yore, especially the baby boomers.
There are many things that we don’t know about this generation, but one thing we know for sure is that they are anxious.
Millennials are constantly worrying about their financial future asking questions like:
- Will I meet my financial goals?
- Will I be able to buy a house in the future?
- Will I pay off my student loans?
- Will I be able to save for retirements?
As a result, millennials became experts at saving money. According to research conducted by the Bank of America, 73% of millennials are saving in 2020- 15% increase from 2018. 24% of those have $100,000 or more in their savings.
These habits emerged in the aftermath of the great recession, where 15% of millennials were left unemployed, and many are still struggling. For those who managed to land a job, it hasn’t been easy either being thrown into a tough job market with wage stagnation.
Hence, despite saving early and saving well, millennials are behind in wealth accumulation:
- Average net worth of American millennials is less than $8,000
- Average net worth of Americans aged 18 – 35 has decreased by 34% since 1996
- Millennials earn 20% less than baby boomers
Student loans are piling up and living costs are outweighing the wages, making it near impossible to save.
For younger millennials who watched the great recession unfold and the struggles of their seniors, they developed better saving habits. They became more practical in terms of having rainy day funds for their future.
Not only did they start saving early for retirement than previous generations- at the age of 24- millennials hold their future as the utmost priority with:
- 67% are utilizing employer sponsored retirement plans
- 52% would rather work harder today and retire early, instead of working longer and having more free time now
- 48% put money into savings each month
- 28% who have savings are investing in the market
Millennials are not what they’re usually stereotyped as. They’re more forward-looking and are willing to forego short-term pleasures for long-term rewards.
What are the Implications for RIAs?
Traditionally, RIAs require a minimum AUM ranging from US$250,000 to US$1,000,000. However, this filters out a large portion of the market, specifically the millennials.
Millennials have the heart and burning desire to start their investment journey, but that’s not enough. Limited by their asset size, they’re unable to overcome the traditional barrier of entry. Ironically, this same barrier prevents RIAs from engaging with them too.
Even if they are able to, it’ll be much later in the millennial’s financial journey, which may be too late by then.
With the help of Robo-advisory solutions, RIAs no longer have to be handicapped.
The low initial investment amount and the user-friendly digital interface structure allows any millennial to kick start their investment journey early on. Coupled with being digital natives, the provision of such services will enable millennials to connect with RIAs easily.
In this new digital era, this represents a win-win situation for both clients and RIAs.