Every few months we invite around 40 young advisers (mostly aged under 40) to get together to discuss the most pressing topics for the advice profession. The most recent one focused on the growth of DIY investing among young people and other potential threats to adviser business success.
The rise of the young DIY investor
Without a doubt, the growth in DIY investing was enhanced by the pandemic. It gave young people more disposable income, due to reduction in spending on going out, commuting to work and holidays, plus it led to boredom. This meant they looked for thrills elsewhere and online investing (particularly when all sports betting ceased during the first main lockdown) satisfied that need.
Social media has also played an important role, as it makes it easy for influencers to connect with a demographic that is looking for excitement.
Influencers using pictures of luxury cars and glamorous lifestyles alongside promises of access to ‘get rich quick’ schemes are potent draws for young people who would love to escape a life of mortgage repayments and the traditional working week.
The general consensus from our group was that as long as risky alternative investments increase in value, these new investors are likely to grow in confidence about experimenting with different strategies.
The harsh reality will kick in when they start to experience losses. It’s at that point that they may seek professional advice, but making it affordable, accessible and relevant to this next generation was recognised by advisers in our group as a major challenge that shouldn’t be underestimated.
No money to invest
Aside from young people putting money into alternative investments, the group was concerned that expectations for the upcoming inter-generational wealth transfer may be too high. The belief is that many inheritors have other uses planned for inheritance (pay off debt, buy a property, school fees) that don’t involve investing.
A major concern was that funding for long-term financial security, such as in a pension, would be prioritised last, with purchases like a new kitchen feeling more tangible.
The ‘sandwich generation’ is also a cause for concern; the 25-50-year-olds who will have to take responsibility for their parents, grandparents and children. With care costs typically around £1,000 a week, the amount of hoped-for inheritance could easily be significantly reduced.
Research by CoreData shows advisers think more than half (58%) of their clients’ heirs will choose not to retain their services once their client passes away and a Centre for Economics and Business Research survey shows that two thirds (65%) of people who are going to inherit wealth from an advised client will fire their adviser once that client dies.
With around 70% of income currently coming from clients over 60, the strong consensus was that it is crucial to engage with younger clients now to prevent themselves being cut out of the picture. Some are actively doing this, offering free advice for children of their higher networth clients or offering free financial health checks to start to build relationships and rapport.
Everyone agreed that technology holds the key to engaging younger clients, enabling 24/7 access to information and services. However, the feeling was that currently, the challenge is getting the balance right between having an online offering that will attract younger clients versus a more traditional approach that appeals to existing or older clients.
Recent research from F&C offers some hope
This found that Gen Z (under the age of 24) have a greater appreciation for, and desire to receive advice due to the GameStop phenomenon and the fallout from it. A quarter of these investors said they have learnt they should be more cautious when investing.
Another 20% realised that a short-term trading approach is less effective than investing for the longer term. Importantly, 16% of Gen Z investors said they want a professional to manage their investments.
Certainly, the young advisers who took part in our event were under no illusion that the next decade will present challenges to the way they conduct their business and the types of clients they can expect to deal with.
Happily, there was no lack of enthusiasm and optimism – something that bodes well for the profession going forward.