5 tips to better understand and serve affluent clients of all ages

December 8, 2023 4:23 PM

For financial advisors, understanding how matters of money and matters of the mind intersect is a critical part of delivering advice clients can depend on.

In an effort to better understand what makes affluent investors tick across generations, Envestnet partnered with custom research firm The Center for Generational Kinetics for a national study released this week that attempts to simplify the complex wants and needs of some of the nation's highest earners.

The 30-page analysis breaks down the generational nuances of affluent American investors in an effort to give financial advisors actionable insights to create greater trust among clients and beef up their practices' offerings.

"Knowledge is power, and insight into how the needs and goals of affluent investors change as they age is key for helping advisors best serve clients and prospects over the long term," Rich Aneser, chief strategy officer at Envestnet, said in a statement. "Based on this national study's findings, advisors can utilize our platform and solutions to tailor the wealth management experience for clients of all ages, throughout each point in their financial journey."

The study included the responses of 1,500 U.S. participants between the ages of 25 and 65. Two-thirds of the participants had an annual household income or household net worth of $100,000 or more.

Envestnet said two segments were oversampled. First, 250 participants were added in the higher-earner category and included individuals with an annual household income of $200,000 or more individually or $300,000 or more with a spouse/partner in each of the past two years.

Another 250 participants were added in the high net worth category. These individuals had a net worth of $1 million or more individually or with a spouse/partner. The national study was conducted online from March 29, 2023 to April 25, 2023.

Scroll down to see some of the key takeaways from the analysis, and pro tips on how to address each issue.

Affluent Americans are more worried about the future

According to the study, there is a sharp decline in the sense of financial security among affluent Americans. In 2022, 72% of respondents said they felt secure or very secure in their current situation. That number dropped to just 59% in 2023, representing a year over year decline of 18%.

Turning to their future sense of financial security, 62% of affluent Americans expressed worry about their financial future in 2023, up from 46% in 2022. Researchers said the shift reflects intensified uncertainties, market volatilities, and shifting global dynamics that have occurred over the past year.

"Interestingly, the study revealed that anxiety declines as affluence increases. Among higher-earners, 52% are worried about their financial future and for high net worth individuals, the number drops to 46%," according to the study. "So while the overall affluent population is clearly concerned about their financial future, the national study revealed that those with more assets or income seem generally calmer.

"As financial professionals prepare for client conversations, these details about a client's mindset are important to ensure a successful relationship."

Pro tip: Envestnet said one strategy to consider is talking with clients about how they internalize their response to valuation changes in their portfolio, such as when their portfolio has a down day or quarter.

"Consider looking back at the inbound messages you received from clients during the last down market period. Are there clients you usually hear from who didn't reach out? Or some that reached out and now is a good time to follow up?" the study says. "Increasing the cadence of communication when people are nervous can be helpful in shoring up the confidence and connection that helps retain clients."

How different generations approach investing

With 54% of affluent Americans growing skeptical about investing due to recent market fluctuations, the study shows a clear generational divergence in response to challenging market conditions.

The study finds that older affluent generations are staying the course with their investments while becoming more cautious about spending, but their younger counterparts are diversifying investments and seeking additional financial knowledge.

"Another interesting finding concerns sensitivity to the impact of taxes," the study explains. "High net worth and higher earning individuals view taxes as a significant factor when considering investment options, with 30% and 28% respectively identifying them as a major obstacle, compared to only 18% within the broader group of surveyed investors."

For advisors, these differences underscore the importance of individualizing a financial plan. Affluent older generations were significantly more likely to become more cautious about their spending, while affluent younger generations were significantly more likely to realize they need to save more, learn more about the stock market and start looking for a higher paying job.

Pro tip: Envestnet encourages advisors to consider sharing historical market data with clients to show how diversified or personalized portfolios have performed in times of uncertainty with macro factors like today's. Help them to see that healthy skepticism is good and personalization offers solutions.

The role of the financial advisor

From an advice perspective, the study finds that affluent older generations predominantly seek advice for life stages, wills or trusts. Younger affluent generations meanwhile are more likely to consult professionals ahead of significant life changes, tax payments, large purchases and loans.

As might be expected, 79% of affluent Gen Xers list retirement planning as their principal financial goal, while 33% of younger affluent investors prioritize building a business as their foremost financial aspiration.

Envestnet says this highlights the distinct generational and life stage differences that influence demand for financial consultation. Younger generations are less financially experienced and therefore are motivated to seek financial help when confronted with things like marriage, children, taking out a loan or buying a house. Older generations are facing different life hurdles and milestones that require financial assistance, like retirement and illness.

Pro tip: Get familiar with the current life milestones of each client you serve.

"What about their primary family members? Have you spoken with clients about these milestones and how your investment advice aligns to these and supports their long-term goals?" the study says. "Analyze your client milestones to identify those who might have a significant life event in the next two years. Proactively reach out to these clients to help them craft a financial plan to help make the milestone a smooth transition."

Connecting in a digital age

Survey results suggest that there is an overwhelming preference for digital engagement, especially among affluent younger millennials and high earners. Envestnet says this is a testament to the changing landscape of client interaction and management in the financial advice industry.

"In 2023, 79% of affluent younger millennials review their total net worth monthly or more often, compared to only 57% of boomers. Clearly, younger affluent generations are leading the way when it comes to financial engagement," the study says. "We are also seeing an increase in activity for the uber affluent set. It's no surprise that the more assets you have, the more likely you are to keep an eye on them regularly."

But digital isn't the end all, be all. When asked how they would most prefer to work on or manage their personal finances on a 10-point scale, affluent Americans slightly prefer human interactions over online-only management. The uber affluent lean even more toward human interactions.

Pro tip: Advisors should consider how customized their financial management strategies are and if clients feel supported by both the convenience of a digital financial system along with the trust and security of a human advisor.

Start by offering clients a personalized balance of digital and human interaction across their financial management based on their age, income, preferred level of engagement, risk tolerance, digital literacy and overall trust in each.

Financial advisors are highly trusted

The study revealed that affluent Americans trust financial professionals above all other sources for all financial activity related to planning, investing or saving. In fact, the trust and credibility of financial professionals from affluent Americans only increases with higher levels of household income.

This relationship between the client and their financial professional is clearly the most important one to inform and influence financial decisions. Officials say this is why understanding how clients think and what life stage they are in is key to building and maintaining a successful practice.

"The national study reveals that across affluent generations there is a strong desire for advice and help from financial advisors," Jason Dorsey, president of The Center for Generational Kinetics, said in the study. "In addition, financial advisors would be wise to continue to build their understanding, services, and approach to engage each generation of affluent in a way that best meets their current situation and financial goals. These findings are very exciting and reinforce that now is a great time to be a financial advisor who can serve multiple generations of clients."

Pro tip: Take the time to reinforce that clients can trust you more than other sources of financial information. Things like sharing your latest certifications and integrating the best technology to serve their needs can help establish your expertise.

Also consider how a new potential client would determine if they can trust you as their financial professional. List the seven reasons that make you trustworthy and integrate them into your marketing materials and informational resources to share why you're the right advisor for a new client's needs.