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Affluent Gen X Investors Represent Opportunity for Financial Advisors

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According to a new report released by Cogent Research, affluent Gen X investors are unhappy with their advisors and they may have good reason. While advised affluent Gen X investors saw their portfolios grow in 2010, the growth was paltry and pales in comparison to the performance achieved by their self-directed peers – affluent Gen X investors willing to rely on their own judgment, as opposed to that of an advisor.

Less than half (42%) of advised affluent Gen X investors indicate they are satisfied with their primary financial advisor, a figure that is significantly lower than that of any other generation. In addition, roughly one-half (51%) indicate they are the on the fence or likely to switch primary financial advisors within the following 12 months – also significantly higher than for any other age cohort. In general, when asked to explain why they would be likely to switch primary financial advisors, investors cite dissatisfaction with the advisor’s communication, investment performance, and ability to navigate and react to changing market conditions – which has become increasingly important given the current market environment. Turns out they are right.

Overall, Gen X affluent investors witnessed their investable assets grow by roughly 11% on average in 2010. Self-directed affluent Gen X investors – those who do not trust any portion of their investable assets to a financial advisor – experienced 28% asset growth in 2010, while their peers who turned to a financial advisor for guidance reported that their investable assets climbed a mere 3% on average during that same time period. This discrepancy in asset growth between advised and self-directed investors Gen X investors is an anomaly; advised investors in every other age cohort measured in the study (1st Wave Baby Boomers, 2nd Wave Baby Boomers, and Silent Generation) were able to outperform their self-directed counterparts during the same time period.

It appears that self-directed Gen X investors’ ability to achieve stronger performance can be explained – at least in part – by their greater allocation to equity-based products (i.e. mutual funds) offering greater reward along with greater risk. Meanwhile, their advised peers’ assets are allocated more heavily to lower risk/lower return investments (i.e., bonds) or products that are traditionally associated with extra fees and commissions (i.e., annuities). “The discrepancy between advised and self-directed investors does beg the question as to whether advisors are re-purposing investments strategies designed for older investors with lower risk tolerance or whether they’re simply not paying enough attention to the unique needs of the this younger cohort,” said Steven Sixt, Project Director at Cogent Research and co-author of the study, “but either way, advisors are taking a big risk of alienating a generation of investors that are already inclined to go it alone,” he added.

According to the study, affluent Gen X investors now represent roughly one-fifth (18%) of the overall affluent investor community and have acquired approximately 75% of the total investable assets of 2nd Wave Baby Boomers (ages 46 to 54). Yet, according to Cogent Research data, Gen X investors tend to have advisors with the lowest tenure and smallest books. “Seasoned advisors have yet to prioritize Gen X investors, and for good reason, but those reasons no longer exist. It’s time for advisors to capitalize on this growing, wealthy subset of the affluent community,” said David Feltman, Managing Director at Cogent Research. “However, tailoring the approach will be key, with a focus on the products Gen X investors favor, the risk tolerance they are comfortable with, and the platforms they gravitate towards” he added.

[Source:  “Emerging Investors.”  Cogent Research.  27 Apr. 2011.  Web.  30 Apr. 2011.]

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