It’s projected that there will be a $30 trillion wealth transfer in North America alone peaking between 2031 and 2045, when 10% of total wealth will transfer hands every five years, according to an 2015 Accenture study. With that in mind, OppenheimerFunds commissioned a two-year study, The Generations Project, to get a closer look at the differences between generations, in knowledge, investment product choices and what they expect from investment advisors. The results were released in mid-June.
What OppenheimerFunds found was a disconnect, not only between various generations of investors, but between investors and their advisors. Researchers surveyed 2,000 investors and advisors; the investors had assets of at least $500,000 for millennials and $1 million for other generations, while the advisors had at least $100 million AUM.
Six key findings of the study, done by CoreData Research, revealed some issues advisors may have going forward maintaining family wealth transfer.
1. Advisors’ beliefs of what investors want are “misaligned,” and with millennials, totally wrong.
The study found that the top qualities that high-net-worth millennial investors (ages 22-37) want in their advisors are good investment performance, clear understanding of financial goals and plans, and advisor experience.
Advisors surveyed believe this generation group most wants transparency (about performance, fees and commissions), competitive fees and commissions and personalized solutions with good communication.
All generations had good investment performance on their top three expectation list, but none state fees as important in their top three qualities for an advisor.
“The most surprising was the gap in perception of what the investor thinks is important and what advisors thinks investors want,” says Matt Straut, head of RIA distribution for OppenheimerFunds. He noted that the survey went more granular with the millennial groups, breaking it into older (31-37) and younger (22-30), but all groups want good investment performance, and yet that wasn’t even on the advisor top list. “It’s great food for thought,” Straut added. “At a higher level it has to do with communication, the ability to articulate a value proposition and not just pay attention to fees.”
2. Investors mainly talk investment strategy and tax planning with their advisors, and inheritance and estate planning with family, lawyers or accountants.
Generations have different communication styles on wealth, the study found. Millennials are less likely to discuss investment strategies with advisors, and have more conflicts with family members. Boomers are the most likely to discuss long-term goals with their advisors.
3. Advisors see more family conflict than families admit.
A whopping 94% of advisors reported financial conflict among families verses 64% of families reporting having financial conflicts. This is especially true with inheritance and estate planning, where 58% of advisors see disagreement, and only 12% of families report issues. Another flash point advisors see is on discretionary spending, where 48% of advisors said was an issue but only 20% of families did. Interestingly, younger millennials said borrowing money was the top area of conflict, while the other generations listed lending money as a key hot point. Straut pointed out that he wasn’t necessarily surprised that advisors saw more conflict than the family, as they are motivated to do so, and may be more objective.
4. Wealthy U.S. families aren’t prioritizing financial education.
Despite the finding that 84% of respondents said they benefited from being directed by parents, grandparents and third-party experts, like IAs or accountants, on saving for the future, it doesn’t seem to be a priority to pass on this knowledge to younger generations. Oddly, it’s the millennials who are most likely to teach their offspring about investing. Further, 76% of advisors provide the financial education to clients’ families.
5. Most Americans have a “home bias” and invest in U.S. stocks and bonds.
A healthy 90% of those surveyed said they were in U.S. stocks, while 62% said they owned U.S. bonds. Just 41% are invested in the international markets. Millennials (50%) are more apt to own international stocks while 33% own international bonds. In comparison, only 38% of boomers own international stocks and 23% own international bonds. Not surprisingly, millennials and Gen Xers are more likely to invest in cryptocurrencies.
6. Millennials expect sustainable investments without sacrificing long-term returns.
With close to $98 billion in envronmental, social and governance focused investments now, the area is important across all generations, with millennials being the most likely to have it as part of their portfolio.
That said, investors still ranked longer-term investment performance as first priority, and don’t see a divide between that and having sustainable investments. The survey found that “they expect companies they invest in to behave responsibly and make money.”
Interestingly, the top sustainable holdings differ by generation. Younger millennials invest in banking and finance (banks helping communities), housing and water preservation, whereas boomers hold clean technology, health care and pharmaceutical sustainable investments.
The study also said that two-thirds of investors had a relationship with their financial advisors, Straut pointed out, with older generations weighted heavier than millennials. One in three millennials used robo-advisors, the study found.
Published 15 June 2018