DIY investing: threat or opportunity for ambitious advisers?

At our last ‘young adviser’ networking session we discussed the growth of DIY investing among young people and if this posed a threat to the traditional advice model. We examined the characteristics of these newer investors and the drivers of their behaviour. For the detail on this, I’ve produced a short video which you can view here. I also wrote an article for Money Marketing on the subject, which you can read here.

For the advisers in attendance, c70% of their income came from clients aged over 60 so the consensus was that engaging with younger clients now is essential…but it comes with challenges.

While the trend for young people to invest in higher-risk strategies such as cryptocurrencies, peer-to-peer lending and options trading was acknowledged, it wasn’t seen as a lost cause. The view of the group was that the reality will kick in when these investors start to experience losses for the first time. It’s at that point that they may seek professional advice.

However, making advice affordable, accessible and relevant to this next generation is regarded as a major challenge that shouldn’t be underestimated.

The key to engaging younger clients, enabling the 24/7 access to information and services that they expect, is technology. However, the feeling of the group was that currently, the challenge is getting the balance right between having an online offering that will attract younger clients versus a more traditional approach that will keep existing or older clients happy.

Other challenges

Another issue troubling this group of advisers is that expectations for the upcoming inter-generational wealth transfer may be too high. The belief is that many inheritors have other uses planned for inheritance (pay off debt, buy a property, school fees) which don’t involve investing with an adviser.

There was concern that funding for long term financial security, such as in a pension, would be prioritised last, with purchases like a new kitchen feeling more tangible.

The ‘sandwich generation’ also has another issue to contend with; these 25-50-year-olds will likely have to take responsibility for their parents, grandparents and children. With care costs typically around £1,000 a week, the amount of hoped-for inheritance could quickly be significantly reduced.

Building relationships sooner rather than later

Research by CoreData shows advisers think more than half (58%) of their clients’ heirs will choose not to retain their services once their client passes away and a Centre for Economics and Business Research survey shows that two thirds (65%) of people who are going to inherit wealth from an advised client will fire their adviser once that client dies.

Engagement with younger generations was acknowledged as vital for the future success of advisers in our group. Some are actively doing this now, offering free advice to the offspring of their higher net worth clients or providing free financial health checks to start to build relationships and rapport.

Understanding that the profile of the typical investor is changing and that advice models will have to adapt to be relevant to younger investors is half the battle.  Winning the battle will require strategies, content and business structures that align with the expectations of these demanding potential new clients.