Many financial advisors are building strategies for the upcoming generational wealth transfer from older adults to younger people who were born between the mid ‘90s and early 2010s. From an advisor’s perspective, it can be a challenge to get on the same page as beneficiaries of their parents’ assets. To some extent, Gen Z and Gen X see the world in dramatically different ways.
It’s understandable that advisors may be concerned about turnover in their client base, as a result. One research study from Ernst & Young has found, when assets change generations, firms typically lose 70%-80% of those assets.
At the same time, research from the CFA Institute and FINRA has also found that younger investors lack the confidence, education, and expertise to make their best financial decisions. What this trend reveals is a window of opportunity for advisors to carve out a niche for their businesses and expertise.
Success comes down to relationship-building and being able to connect with younger investors on their terms. This process may feel challenging for advisors who are, on average, 55 years old and grew up in a very different world than younger cohorts.
The throughline to getting on the same page is empathy. Here’s what advisors can learn about Gen Z’s worldview.
1. Understand the lived experience of being a digital native
Many Gen Z adults, as children, played with their parents’ smartphones as toddlers. No other generation had access to a smartphone at that young of an age. It’s tough to imagine the world through that lens, for many people in older generations.
Gen Z has a reputation for being immersed in their devices. After all, unlike other generations, they’ve been accustomed to the digital world at a very young age. Many grew up with their parents using social media, having smartphones, and subscribing to technology services.
It’s unsurprising that they are likely to turn to technology to navigate financial management decisions. Gen Z knows that there are thousands of fintech apps available with a few clicks, taps, and swipes to solve their unique problems.
“There’s an app for that,” is a mindset that Gen Z has grown accustomed to. Not to mention, “there are so many apps out there.”
Gen Z has grown up internalizing the message that many of life’s challenges are solvable with an app.
As one podcast interview in the Wall Street Journal points out, Gen Z has “never known a world without digital banking.”
“I think Gen Z expects to be able to make transactions happen on their phone really quickly with as few taps as possible, as little information being entered as possible, they don’t want to have to type their name a second time,” explains WSJ contributor Svati Kirsten Narula.
“They just want everything to happen really, really quickly and really, really easily. They’re also looking for highly personalized experiences. I think that’s the big difference between Gen Z and older generations. They don’t want to use products that were designed for like hundreds of millions of people. And so far that seems to be really working for fintechs.”
The fact is, skilled advisors are known for focusing on the long-term. There’s a need to take space for pause and reflection, rather than to take instantaneous action. There’s no substitute for critical thinking, and sometimes, the answers that investors need won’t come in the form of an app. This style of thinking is something that may feel foreign or uncomfortable to younger investors who are accustomed to relying on artificial intelligence (AI) for instantaneous decision-making.
That’s why it’s so important to establish and reinforce expectations upfront. Understand that younger investors may not be accustomed to thinking long-term, decades in advance. This is an area where advisors can proactively build trust by establishing expectations — and being patient. Proactive education, across digital touchpoints, is crucial. Be consistent and firm.
2. Remember that Gen Z needs compassion, support, and encouragement
Age is a relative concept. Every person is different. But as a general rule Gen Z investors are younger than most advisors. Many have not yet attained the life experience and wisdom of older generations.
Moreover, Gen Z is also known to struggle with mental wellness challenges, with one and four reporting feeling emotionally distressed. Many psychologists link these mindsets to societal trauma from experiences such as September 11, the Great Recession, the climate crisis, COVID-19, and geopolitical instability.
It’s normal for people to feel stressed out about their finances. In particular, Gen Z may be experiencing worry due to the instability that they’ve observed in media headlines, throughout their life. These frustrations can sometimes trickle into how investors work with their financial advisors.
As the saying goes, if a client is experiencing a bad case of the Mondays, don’t take it personally. Think of how your favorite childhood teacher would handle the situation — with a healthy mix of empathy, compassion, realism, and dignity.
Financial advisors are in powerful positions as coaches and teachers. The key is to keep reinforcing communications from a position of empathetic leadership. Your firm may consider developing a publishing cadence of insights, podcasts, and other resources to help investors maintain a healthy, realistic perspective that they need to make their best decisions. Information needs to be clear, concise- and digestible to absorb.
Proactively managing communications is key. Get ahead of what needs to be said and done to ensure an overall sense of calm.
3. Gen Z wants to put their money to work
Understandably, Gen Z is concerned about their future. According to research from eMarketer and Insider Intelligence, this cohort’s financial behaviors tend to be in alignment with their values.
“Gen Zers patronize financial institutions and invest in companies that mirror their goals for sustainability, social justice, and other causes they deem important,” explains eMarketer and Insider Intelligence.
“They celebrate individuality and are more apt to champion brands that understand them and embrace their values.”
In addition, Gen Z demonstrates a high interest in cryptocurrency due to a sense of distrust in traditional financial institutions and concerns about government interference. Many investors consider Bitcoin to be a viable investment despise ups and downs.
According to data from Bank of America, 16% of younger investors’ portfolios go towards alternative investments.
“The investments younger people believe present the best growth opportunities (if you eliminate crypto, which is No. 1) are real estate, followed by a tie between private equity and capital directly invested into companies, then ESG funds,” writes FastCompany.
Advisors will benefit from keeping pace with these trends, for the purpose of having intelligent conversations with investors. Advisors may also need to become comfortable with investors being involved with managing their own portfolios.
Gen Z represents the second-largest demographic in living history, following the baby boomers. This demographic cohort is becoming a dominant economic force during an unusually turbulent time. Advisors can prepare for this transition — and adapt to the needs of a younger client base by embracing an attitude of listening while also providing prescriptive guidance.
It’s not just about fintech. Relationships and expertise matter. Remember that as Gen Z assumes economic power, meaningful guidance will be important. After all, it’s a core part of human nature to need mentorship and coaching.
Learn more about CircleBlack
CircleBlack is an all in one management platform for the wealth management industry. You can think of it as an operational dashboard to better connect financial advisors and their clients around a shared perspective. The outcome is better collaboration.
To learn how our software can help you build, manage, and grow your wealth management practice, get in touch to request a demo.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal, or tax advice.