Tips for Working With Young Millionaires

Gen X and Gen Y millionaires represent a critical demographic for advisors looking to build sustainable, long-term businesses.

The results of Fidelity Investments' recently released sixth Millionaire Outlook survey[1] highlight the unique attributes of Gen X/Y millionaires and provide a roadmap for advisors to serve them.

• Read more: Younger Millionaires Will Require More Work – Fidelity Study

WHO ARE THEY?

The survey reached 151 Gen X/Y millionaires.[2] The average age of respondents was 37 and they had total average assets, excluding homes but including employer-sponsored retirement accounts, of $5.7 million. They tended to be slightly wealthier than boomer and older millionaires,[3] whose average assets were $5.2 million.[4]

Gen X/Y millionaires both inherited their wealth and earned it. They are working to grow their fortunes, and this is reflected in their high level of optimism about their financial futures: 91% of Gen X/Y respondents said they feel wealthy compared to 74% of the boomer and older category.

It may be that due to this confidence, they are much more likely to lead wealthy lifestyles, such as flying first class and owning vacation homes. In fact, according to the study, Gen X/Y are three times more likely to own a vacation home and more than six times more likely to fly first class. The study also found they donate larger sums to charity (on average $54,000 per year vs. $12,000) and are more likely to serve on nonprofit boards (82% vs. 49%).

ATTITUDE TOWARD INVESTING

Given the wealth that they expect to manage for many decades, it’s not surprising that Gen X/Y millionaires have taken an interest in investing. Seventy-one percent consider themselves knowledgeable about investing, vs. 44% of their older counterparts.

The study found a correlation between investment knowledge and a willingness to invest for the long term—and invest aggressively. More than 80% of Gen X/Y said they are willing to invest “aggressively,” compared to 27% of the boomer and older group. The study revealed that Gen X/Y millionaires are much more confident about the long-term outlook of the stock market than are boomers, perhaps because their long-term truly is longer.

Yet, they are not necessarily over-confident. In fact, 92% of Gen X/Y millionaires said they rely on financial advisors for guidance (that’s great news for advisors). But unlike boomers, they are not going to leave it all in advisors’ hands. About 77% said they split investment decisions between themselves and advisors, and 73% said they have increased their involvement in household investment decisions in the last five years.

WHAT GEN X/Y WANTS

The message is clear: financial advisors who are working with, or seeking to work with, younger millionaires cannot treat them the same as they do their boomer and older clients. Based on the study, we believe that Gen X/Y clients want your help (92%), but they have different expectations than older generations.

Here are some takeaway themes from the Fidelity survey:

• Collaboration. Be prepared for more interaction with Gen X/Y millionaires; they view themselves as experienced and knowledgeable investors who ask detailed questions about strategies that are recommended. You may not want to offer a “black box” solution, but be prepared to share information, including trusted third-party reference material.

• Sophisticated Investment Strategies. Advisors may also need to propose—or at least investigate—more sophisticated investment strategies. In the survey, 39% of Gen X/Y millionaires said they own venture capital (vs. 12% of boomers), 38% own derivatives (vs. 10% of boomers), and 51% own foreign currencies (as opposed to only 6% of older millionaires). However, because more aggressive investments are riskier, advisors must be able to explain the possible consequences to their clients.

• Strategic Advisors. Gen X/Y millionaires may look at financial advisors for the big picture as strategic advisors about a wide range of issues. Providing investment advice may not be enough when these clients may want long-range planning covering retirement, insurance, inheritance, charitable giving and more.

• Budgets. Because the study showed that Gen X/Y millionaires appear to value a more comfortable lifestyle than their older counterparts, Gen X/Y millionaires may have the potential to be over-spenders. Work on budgeting and scenario planning with these clients to keep them on a path to a secure future.

• Charitable Giving. With significant wealth and income at young ages, Gen X/Y millionaires are charitably inclined. Advisors can teach them how to become effective donors through charitable planning vehicles, such as donor advised funds, smart tax strategies and by finding a cause that matters to them where their support over many years can make a big difference.

• Technology. It goes almost without saying that younger-generation millionaires like to communicate electronically. Learn how to send them regular updates that are timely, short and to-the-point. 

Advisors who are seeking to connect with the younger generations of wealthy households may want to consider doing things a little differently than they have for their Boomer parents.