Embrace innovation to attract NextGen investors

Embrace innovation to attract NextGen investors

Dani Fava | November 19, 2018

From shopping to banking, technology has fundamentally changed our relationship with money. That means if registered investment advisors (RIAs) want to stay relevant, especially to younger investors, they need to change their relationship with technology.

Millennials, generally defined as Americans born between 1980 and 2000, not only make up the largest demographic group among U.S. adults, they are quickly becoming the wealthiest. Research from Deloitte estimates that the total net worth of this generation will double between 2015 and 2020 to as much as $24 trillion.

So what has the wealth management industry done to connect with and engage this critical group? Not enough. Let's start with the basics, such as how we communicate.

Forget email and office visits. Millennials communicate using text, video chats and social media. They don't need — or want — in-person meetings to promote personal relationships. Even therapy is moving online. Asking a Millennial to walk into an advisor's office is missing the mark.

Then, think about what you're communicating. Most of the information flowing from the wealth management industry is focused on retirement but retirement is becoming an obsolete concept.

Instead of the more traditional career path of going to work for a big company right out of college and following a predictable trajectory of working and saving until age 65, Millennials liken themselves to the startup boom and the gig economy. They see so many paths to success that they have a different vision of what their careers should be.

The point is we live in a new world, reflecting the impact of technology and the changing preferences of Millennials.

Consider that AirBnB has amassed more room listings in 10 years than the top five hotel brands, which have been at it for a combined total of over 350 years. The growth of non-traditional companies like this has had a profound impact on Millennials – and presumably generations to follow.

Even if they do go a more traditional career route, research from Manpower found that 84 percent of younger workers expect to take “significant" breaks from work along the way. As a result, this generation is creating “career waves" that are replacing the “career ladders" that earlier generations climbed, according to Manpower.

Millennials also have very different financial and investment expectations than previous generations. This generation is also more socially conscious than previous generations. Recent research from TD Ameritrade found 60 percent of Millennials consider socially responsible investing important, compared to 36 percent of Baby Boomers.

So how can advisors reach and attract this important demographic?

First, meet them where they are—on Instagram and Twitter. And don't talk about retirement. Show them how they can save for what matters to them—life experiences and the ability to make a difference. Become more relatable and talk about financial plans in terms they care about. Instead of hosting yet another retirement seminar, for example, recruit a building crew for a Habitat for Humanity house. ..

Lastly, RIAs need to be upping their tech game. For advisors to be viable in the future, they have to adopt the technology that's available today.

Upgrade your toolkit with AI

A lot of advisors are terrified of AI. However, new research from TD Ameritrade found that most investors today prefer a computer's ability to use all of their data to make better investment recommendations than that of a human advisor. Advisors can adapt to this viewpoint by outsourcing functions like investment management to third party money managers who are powered using AI while they focus on deepening the client relationships?

In fact, the vast majority of investors, 79 percent, are comfortable with computers using artificial intelligence (AI) to make recommendations. They also believe computers do a better job at providing quick, simple, tailored analyses, optimizing returns and minimizing taxes, and customizing portfolios with regular updates.

Let computers do what they're good at, while advisors focus on what they're best at -- and what clients actually want from you. Advisors should adopt technology that will augment the human relationship, and at scale.

Beyond the mechanics of building and managing portfolio, AI can transform how you work with clients and grow your business. For example, Facebook can help you isolate key similarities among your current clients and use that data to identify and target the best new prospects. Then AI can help you craft the right message for each person.

AI can also help you curate content for every client. You can send clients articles they are interested in, a simple but powerful practice that can help advisors deepen client relationships but one that is largely unused by the RIA community."

Advisor 2.0: The next generation

AI is just at its beginning stages of implementation. Innovative new tools are being developed that will incorporate voice and facial recognition software and augmented reality (AR) into day-to-day operations.

You can walk into your office in the morning, and while you're still taking off your coat and turning on the coffee you can ask your digital assistant if any clients made any deposits into their accounts overnight, or if you have any alerts. You'll know the first thing you have to do that day before you even sit down at your desk.

In the future, facial recognition software, combined with augmented reality, can help advisors have deeper, more meaningful conversations with their clients simply by donning a pair of glasses that can receive computer-generated alerts on the lens.

Facial recognition could help you guide the conversation by reading a client's emotional response to a suggestion. You could receive reminders on the key points discussed in your last meeting with each client, such as, “Ask Joe how he likes his new boat."

There is some good news for RIAs: No one has yet cracked the code on this challenge of getting more Millennials interested in money and investing.

So while embracing technology isn't by itself the answer, it's a critical step to helping human advisors evolve and build businesses that can keep pace with the ever-higher technology demands of the next generation.

Dani Fava is Director of Institutional Product Strategy & Development at TD Ameritrade