The past year has exposed a stark divergence in the investment behavior of younger investors compared with their older counterparts, according to J.D. Power’s U.S. Full-Service Investor Satisfaction Study.
Among the key findings of the just-released 2021 study are that younger investors cranked up interaction during pandemic. More than half (55%) of full-service investors under age 40 prefer digital channels for communicating with their advisors versus just 26% among older investors.
Nearly three-quarters (71%) of full-service investors under age 40 have increased their frequency of interaction with their advisory firm during the pandemic, with phone (+33%), website (+25%), email (+24%) and mobile apps (+23%) emerging as the channels with the largest increases. By contrast, the study found that just 38% of investors age 40 and older increased their level of engagement during the past year.
Younger investors were also twice as likely to make financial changes. During the past year, 58% of investors under age 40 made changes to their investment portfolios, such as increasing or decreasing investments, stopping recurring contributions or making withdrawals. During the same period, just 28% of investors age 40 and older made similar changes, J.D. Power found.
Payment Models
Additional findings show that one-time fee-for-service and subscription payment models are attractive to younger investors. Nearly three-quarters (74%) of investors under age 40 say they would prefer to pay for full-service wealth management via a one-time fee-for-service model.
This is followed closely by a subscription model, which is supported by 73% of investors under age 40. By contrast, among full-service investors age 40 and older, just 42% support a fee-for-service model and 34% support a subscription model.
ESG Shortfall
And while ESG has become a key priority for some, many firms still fall short, according to the findings. Among investors under age 40 who strongly agree that their advisory firm is committed to ESG efforts, 52% say they plan to increase their investment with that firm.
In contrast, the percentage falls to just 24% among investors over age 40. J.D. Power further observes that, despite the positive influence ESG has among younger investors, 68% say they either have doubts about their firm’s commitment to ESG or do not know about it.
With consumers in the Millennial generation poised to inherit more than $68 trillion in wealth from their Boomer parents during the next decade, J.D. Power emphasizes that full-service wealth management firms have a vested interest in tailoring their services to the evolving needs of younger investors.
“Investors under age 40 are changing much more quickly in terms of their wealth management preferences and priorities—and they look increasingly different from Boomers,” says Mike Foy, senior director of wealth intelligence at J.D. Power. “Not only has the pandemic significantly accelerated their shift to more digital engagement, but emerging issues like ESG are also a major priority for them that isn’t seen as much yet among Boomers.”
“Wealth management providers are making a mistake if they assume that the emerging affluent investors will simply evolve into Boomers over time,” adds Foy. “Firms with the ability to recognize and address these changing needs will define success through the great wealth transfer.”
Study Rankings
As for those rankings, the study measures overall investor satisfaction with full-service investment firms in seven factors (in order of importance): trust; people; products and services; value for fees; ability to manage wealth how and when I want; problem resolution; and digital channels.
Edward Jones ranked highest in overall investor satisfaction with a score of 770 (on a 1,000-point scale), followed by Stifel at 760, and Fidelity (751), RBC (751) and UBS (751) coming in a tie.
Fielded from December 2020 through February 2021, the study is based on responses from 4,392 investors who make some or all of their investment decisions with a financial advisor.
