Younger clients demand a more goal-oriented approach from advisers: Research

Faced with a fast-ageing client base, advisers must zero in on younger clientele now, and appeal to their distinct investment priorities, to help deliver significant and sustainable growth for their firms, according to a new meta-analysis research report from Dimensional.

The opportunity to engage with younger clients is presenting itself now for advisers, as the future beneficiaries of their older clients begin to emerge, the research from the global advice firm reveals.

“Understanding how younger investors view investing and the value they place on planning can support this effort,” the report read.

A review of Dimensional’s annual Global Advisor Study from 2015 to 2019 – on which this most recent research is based as well as additional survey years to 2023 – identified an ageing client base as one of the most significant challenges and strongest detractors from growth for a financial advisory firm.

Appealing to younger investors, however, requires a distinct focus, which notably differs from their predecessors.

When assessing the performance of their investments, younger cohorts – classified as those under the age of 40 –  overwhelmingly expressed a more goal-oriented approach, with one in three (33%) stating “progress toward my goals” as a foremost priority.

Just 18% of older investors – those 60 and over – and 26% in the middle-age bracket prioritised this same approach.

Older investors appeared far more return-oriented, with their biggest focus being a bigger “percentage return over a given period.”

“To put it another way, young investors were almost twice as likely to prioritise progress toward their goals as older investors,” the report wrote.

Of the 87,173 responses collected from 2016 through 2023 from investors, when measuring the value from their advisers, 31% prioritised someone who could progress them towards their goals; only 13% of older investors stated the same.

Data from the Global Investor Study also showed that younger investors tend to have a high tolerance for drawdowns.

In a hypothetical situation where the market drops by up to 15% responses indicate that only 14% of young investors would call their adviser to make a significant change to their investment.

By contrast, 21% of older investors would be on the phone with their adviser to request a change.

The difference remains similar if the market were to drop 30%.

“The emphasis on goals-based investing and a willingness to accept drawdowns creates an opportunity for advisors to better serve their younger clientele through targeting equity premiums while maintaining a broadly diversified portfolio,” Dimensional wrote in its report.

The results also highlight the value of holistic wealth management, according to Dimensional.

“Goals-based models, for example, are another tool available to help investors build solutions focused on financial goals rather than just short-term investment returns.”

“It turns out music, movies, and fashion aren’t the only things dividing generations. When advisers understand the distinct preferences of younger clients, they can refine their service models and engage [with] planning technology that helps drive discussion around goals and financial well-being.

“Specifically, recognising and adjusting to younger investors’ focus on progress toward goals may make it easier for advisors to win over the next generation of clients.

The Global Investor Study is sent out each year to the end clients of participating third-party adviser firms that use products of Dimensional Fund Advisors.