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New Study: How Did COVID Affect the Emerging Wealth Market?

According to a new study, the most-watched generation just changed their investment preferences.1 

Under-40 investors have been the subject of much debate in recent years, as projections show trillions of dollars transferring from their baby boomer parents over the next decade. 

But every advisor knows millennials are poised to inherit significant wealth. The question is, Are you poised to manage it for them?

Finding the answer requires an understanding of the trends defining under-40 investors, how they’ve shifted over the course of the pandemic, and the potential for advisors to serve those needs better. Here are three stand-out developments identified by the study.

#1: Investment Flexibility

Through the period of market disruption caused by the COVID pandemic, only about 28% of investors over the age of 40 decided to adjust their portfolios. For under-40 investors, it was 58%.

Through this tumultuous period in the markets, it’s become clearer that emerging wealth clients appreciate having the flexibility to adapt to changing conditions. More so than other client types, millennials want their investments to reflect their current needs, not just their long-term goals.

#2: Frequency of Communication

The study also found that among millennials working with full-service advisory firms, the vast majority interacted with their advisors more often than they did prior to the pandemic—specifically, 71% compared with just 38% for older investors. 

Emerging wealth investors are routinely targeted by tech-based investment management firms and, especially as the so-called “great wealth transfer” takes place, a growing number of high-end advisories will become available to them. This means that a full-service advisor expecting to retain and build wealth in the coming years should be prepared to maintain a strong communication process. 

This could include everything from basic client contact protocols to newsletters and thought leadership, but ultimately it should convey to clients that their advisor is accessible, well-informed and willing to share their expertise.  

#3: ESG Investing

Even before the pandemic, ESG (environmental, social and governance) investing was associated with emerging wealth clients more so than with older generations, but it seems this trend has accelerated during the COVID era.

Of the under-40 clients who felt their advisory firms were committed to ESG investing, more than half said they planned to increase their focus on these types of investments. Only 24% of investors over the age of 40 had the same plans. And yet, advisors who were surveyed indicated they considered just 15% of their fund providers to be committed to ESG investing. 

So it seems that the demand for ESG is growing within the generation with the most promise for future wealth, but the capacity for advisors to meet this demand is notably limited. 

The task for advisors is to start positioning themselves to capture more opportunity in this market before their competitors do. 

It’s about offering more of what the emerging wealth generation expects from full-service advisors, but it’s also about making sure those competitive advantages are visible when it matters most. That means documenting and presenting a flexible, relevant investment process and communication plan for both existing and potential clients. 

Advisors who accomplish this will stand a better chance of retaining millennial relationships through the great wealth transfer, as well as forming new ones as younger investors consider their options. 

1 https://www.jdpower.com/business/press-releases/2021-us-full-service-investor-satisfaction-study

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