December 3, 2013 • Eric Rasmussen

If you want to forge a relationship with clients under the age of 48, the highly coveted Generation X and Gen Y clients, that means knowing how to talk to them. It’s more than knowing their Twitter habits. It means understanding patterns of affluent societies throughout history and how the children of those societies see themselves.

That was the message delivered by Cam Marston, president of Generational Insights and a demographics researcher, speaking at Fidelity’s Inside Track NYC conference for advisors on October 30 in Midtown Manhattan.

According to Marston, throughout history the patterns of affluent societies are the same: In the early growth stages of such cultures, people are more focused on collaboration and teamwork and struggling together. As these societies become wealthier, however, they increasingly celebrate individuality. We’re at the mature stage of such a society, Marston posits, which means these younger, would-be financial services clients see themselves as unique and want to be approached that way.

“Every time a society goes from struggling to affluent, we see these changes,” he said. “The generations who create the affluence for a society have an ethos of ‘team,’ of ‘us.’ In our lifetime they are called the baby boomers and the ‘matures’—post-Great Depression. They have created the affluence in this nation we know today. And if you’re a baby boomer or a mature, you will probably admit that in order to become successful at what you did, you had to submit to becoming a part of the team. As a society reaches affluence, the generations raised during times of affluence over and over again take on an attitude of individuality. They don’t choose it.”

Marston said that even though the tools of such new generations might be different, the shift is seen repeatedly. In such a transformation, for example, Renaissance Florence paintings turn to portraits and away from tableaus of groups. In modern times, it means kids get ribbons for sporting events just for showing up.

And this shift in value away from the group has made its stamp on the figures of Gens X and Y, said Marston, in that their members tend to think of themselves as unique and tend to see products and services as accoutrements of the lives they’re already living. Just look at commercials. It’s all about what’s going on in your life. The vaunted history of a company or product (or financial advisory firm) doesn’t matter to the people you might be trying to woo.
Financial advisors wanting to talk to these groups must know that and tailor messages accordingly. In that vein, think of the advertisements that reflect what a Gen Xer’s life is like today.

Chances are, though, advisors are losing these potential key clients when the wealth is transferred to them, likely because they keep talking with them as they did to the kids’ parents by positioning a firm and its history, whether or not that matters to the younger targets.

There are divergences among generations, too, that advisors must get a grasp on. Gen Xers, Marston said, are much more cynical. They have seen one financial catastrophe after another and tend to live more for the moment.

Gen Xers want to research things and come back and confer with you, he says. That makes them tougher customers, always on the lookout for frauds. They like to “stalk” information. You need to let them do that research and then set a date to get back to them after they’ve done their homework. Forcing it doesn’t work.

Gen Xers also have shorter-term goals and value time more than money for these reasons. They are slow to save and they are on the defensive with sales types.

Younger Millennial clients, meanwhile, are staying attached to their parents longer, Marston said. They are optimistic about the future, says both Marston and Pew Research. According to Pew, 84% of them think they have better educational opportunities than the young adults 20 years behind them. Still, they were frightened by the recession and were hit hard by it. More than a third of those aged 18 to 31 were living at home in 2012, says Pew (that’s 21.6 million kids eating out of mom and dad’s fridge, earning themselves the nasty sobriquet “the Boomerang Generation.”) They tend to shy away from stocks.

They also communicate differently. They want more communication, but they want it fast and tend to put technology between themselves and the outside world if they can.

“They will let your call go to voicemail,” he said. In fact, he said, they will actually just sit and watch your face appear on the call screen and not answer.
According to a 2010 Pew report, Millennials: Confident. Connected. Open To Change, this group embraces “multiple modes of self-expression. Three-quarters have created a profile on a social networking site. One in five have posted a video of themselves online. Nearly four in 10 have a tattoo (and for most who do, one is not enough).”

Still, it’s important to get to these people, because, aside from tattoos, there is serious business involved in Gen Y: dollars. A lot of them. Generation Y is “due to inherit a big pile of money from their baby boomer parents,” Marston said, echoing findings of the Spectrem Group, which says Millennials will be inheriting more of their wealth than boomers or Gen Xers. He adds in his booklet, The Gen-Savvy Advisor, that by the end of the decade this group will have $10 trillion in net worth and $3 trillion in annual spending power. (More than half the U.S. labor force will be Gen Yers by 2020, predicted Pershing CEO Ron DeCicco in June.)

Alan Moore, a fee-only planner in Bozeman, Mont., has his own perspective on this demographic after cobbling out a practice dealing mostly with Gens X and Y. One strategy for winning these younger groups is to be them, he says. If you’re not, hire someone who is.

“Clients want to work with an advisor that understands what they are going through in life and can connect with them,” says Moore. “They also want to know that their advisor will be around for the long haul. If a 30-year-old client hires a 60-year-old advisor, they know they will be shopping for a new advisor in a few years.”

He also agrees with Marston that younger clients, particularly Gen Xers, like to stalk you online first rather than find you through a referral. “You should have a massive presence online to be sure they can learn as much about you as they want,” he says.

“The Gen Xer will spend 16 hours researching cars before they buy,” said Marston, adding that he or she will also go to YouTube and the Blue Book then walk onto a Mercedes lot and quiz the salesman.

And they want to collaborate with advisors rather than delegate chores to them. They want to be involved. “Clients from Generation X will want an uncanny amount of involvement in the planning process,” Marston writes in The Gen-Savvy Advisor. And according to the Spectrem Group, 58% of high-net-worth Millennials want a hand in directly managing their own money every day.

Their love of technology is such that many younger would-be clients appreciate it simply if you’re using it—simply doing something like scheduling meetings with online software puts you ahead of the pack, Moore believes. But aside from marketing strategies, it’s also important to know that these clients will have different financial priorities than baby boomers do.

“Issues such as paying down debt, managing education expenses (both their student loans as well as putting away money for kids), managing human capital, and life planning are much more important to these clients than the traditional financial planning areas of insurance and investments,” says Brian Frederick, a lawyer and CFP with Stillwater Financial Partners in Scottsdale, Ariz., who focuses on Gen X professionals.

Frederick adds that because younger clients have different circumstances, they aren’t well served by an AUM model. “Most of them don’t have substantial assets, and what assets they do have are primarily in employer-sponsored retirement plans and their primary residence, which are not conducive to being billed.”

That means it’s better to use ongoing retainers, hourly fees—and commissions, since these clients will need life and disability insurance products, too. “I use flat fees, as it’s simple and transparent,” he says.

Fidelity released its own white paper in early November, Winning Younger Investors: Six Ways To Help Attract High-Potential Gen-X and Gen-Y Clients that reinforces some of these ideas—such as the fact that Gen Xers aren’t going to want a lot of chitchat about your firm upon first meeting. They’ve already researched all that online (if you’re visible enough). Also, if you’re reaching out to this type of client, you’re going to be on his or her clock. They may not get back in touch with you for months, but then, if you send them the right podcast or Tweet about an important subject to them at the right time, all of a sudden they will want to powwow.

“Don’t interpret a lack of immediate response from a Gen X or Gen Y client as a message that they are not interested in working with you,” said a Fidelity comment on the paper.

Fidelity’s paper concluded after talking to advisors successful with Gen X that it’s important to find good savers and anticipate the wealth that will come if they are young entrepreneurs (not staring glumly at their currently woeful bank accounts).

“Adult-olescent”
Perhaps it’s a sign of this gilded age, but children growing up with wealth are naturally blessed with the privilege of remaining children longer. That’s why, says Marston, Millennials are not only technophiles but “adult-olescent.” They are taking longer to get married and have kids, staying tethered to their parents longer. That’s why a baby boomer might not recognize the 29-year-old he or she was in the 29-year-olds of today.

“Yesterday’s baby boomers at 21 are today’s millennials at 29,” Marston said.

The advice for this group must be unique, he offered. “They want what their friends have with a unique twist. The metaphor is the tattoo in the Millennial generation. I too have a tattoo. I am a part of a herd, but mine looks like this because it’s on my arm instead of my leg.”

Moore simplifies that even more: “Realize than Gen X and Gen Y aren’t a niche: Saying an entire generation is a niche is like saying working with women is a niche specialty. It isn’t. Realize that these terms only tell how old a client is, nothing more.” 

This article was sourced from www.fa-mag.com at the following URL/link location: Understanding Generation Me

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