Get Set for Millennial Millionaires-to-Be

Millennials of modest means, but who are on the right path to greater wealth, represent a largely untapped opportunity for registered investment advisers (RIAs) looking to add promising new clients, according to TD Ameritrade’s Millionaires in the Making survey.

The survey shines a light on the mindset of Millennials and how they intend to map out their financial futures. While members of this generation are typically painted with a broad brush, TD Ameritrade took a closer look at how different levels of current wealth and annual income affect views on financial management and retirement planning.

Because they are entering peak earning years and accumulating assets, high-potential Millennials represent an attractive group of prospective RIA clients—possibly more so than their already-affluent peers, as they are largely overlooked by most financial firms.

The potentially wealthy also are more likely to hire their own adviser than their wealthy peers, who typically already have an adviser and are not looking to switch.

Millennials, also known as Generation Y, are typically defined as the 80 million Americans born in the 1980s and 1990s. Attracting this new generation may be critical to the investment adviser business, where fewer than 10% of clients are under 40 and half are over 60. Moreover, Millennials are expected to inherit trillions of dollars from the Baby Boomers.

The survey divided participants into three groups: High-net-worth Millennials; potential high-net-worth Millennials; and mass affluent.

High-net-worth Millennials have more than $500,000 to invest and are likelier to hire an adviser. Chances are good they will retain their family’s adviser. These wealthy Millennials are more inclined to seek an adviser who is a contemporary, rather than someone older, so attracting this group may require hiring young advisers. Nearly half are women, highlighting the growing need for female-friendly practices.

Potential high-net-worth Millennials have less than $500,000 to invest but earn more than $150,000 a year. These investors aren’t rich, but they’re building wealth and have prospects, like inheritance, that put them on an upward trajectory. This group is mostly overlooked by financial firms and may be inclined to hire their own adviser, creating a possible opportunity for RIAs. More women (62%) fell into this category than men.

Mass-Affluent Millennials earn less than $150,000 and have less than $500,000 to invest. This group is worried about outliving their savings, meeting healthcare costs and having to work longer. Mass affluent Millennials are less likely to hire an adviser, seeking financial guidance instead from family and friends.

Retirement Concerns

Less-wealthy Millennials expect to work longer and need more retirement savings. The potentially wealthy expect to work longer, with an average retirement target age of 60.1 years, compared with 56.8 years among already-wealthy peers. Potentials anticipate needing to save more before they can retire: $5 million versus $4.5 million among the already-wealthy.

Top retirement concerns are consistent among the three groups. Millennials worry about outliving their savings, needing to work longer and meeting health care expenses. High-net-worth Millennials were less worried, but are mindful of the cost of caring for an elderly parent or relative.

Inheritance expectations differ slightly among the groups of Millennials. Nearly one in five of the potentially wealthy expect to inherit $100,000 or more. Nearly two out of five high-net-worth Millennials said they expect to inherit $100,000 or more.

Current wealth impacts whether an investor keeps or fires their family’s adviser. Of high-potential Millennials with an adviser, 55% hired their own adviser while just 29% plan to keep the incumbent family adviser. By comparison, 63% of wealthy Millennials with an adviser said they kept their family’s adviser and had no plans to change.

While previous research showed a higher percentage of younger investors were willing to leave their family’s adviser, these latest findings suggest advisers may be doing a better job engaging their client’s children. Intergenerational transition is an evolving trend and should be watched closely as next gen investors continue to build wealth and consider hiring an adviser.  

Wealthy Millennials are more likely to use an adviser than their high potential peers: 65% versus 33%. However, nearly 70% of high-potential Millennials want an adviser to help manage their finances.

Millennials expressed varying views on how old their adviser should be. The majority of high-potential Millennials seek out an adviser who is older, while high-net-worth Millennials showed a stronger preference for advisers their own age.

Wealthy Millennials want many communications options. High-net-worth Millennials favor a range of communications channels with their advisers, from email and phone to in-person meetings and social media. High-potential and mass affluent Millennials prefer email by a wide margin. Whatever the channel, Millennials expect advisers to be accessible and immediately responsive.

Millennial Optimists, Pessimists

The definition of financial success varies. For wealthy Millennials, success means not depending on a job for income, having enough to indulge in luxury items and setting aside money for retirement and education. High-potential and mass-affluent Millennials are more concerned with having enough stashed away for a comfortable retirement.

Less-wealthy Millennials are more optimistic about reaching their goals than wealthier peers. Nearly two-thirds of potentially wealthy Millennials were optimistic about their financial prospects, compared with half of the already-wealthy. Wealthy Millennials were more likely to be pessimistic about achieving their goals than the potentials: 26% versus 5%.

Hard work and smart investments are top factors in achieving financial success. When it comes to how they can acquire wealth, all Millennials rate making smart investments and hard work as keys. The mass affluent and high-potential said being frugal is a top factor, while high-net-worth Millennials cited family connections and owning a business.

Advisers should not wait for this next generation to become wealthy to start rolling out the red carpet. This transition is happening now, according to Tom Nally, president of TD Ameritrade Institutional. “Our latest research shows RIAs would be well-served pursuing young investors who may not have great wealth yet, but who have high earnings potential and are eager to work with a professional adviser,” he said.

TD Ameritrade Institutional provides brokerage and custody services to more than 4,500 fee-based, independent registered investment advisers and their clients.

The Millionaires in the Making Study surveyed 536 investors between the ages of 18 and 39 by telephone from January 15 to February 28, 2014, on their views on brands in the financial services industry. Another 273 investors 40 years and older were surveyed for comparative purposes. The survey was fielded by the Pert Group, a separate, unaffiliated company.

A detailed analysis of the Millionaires in the Making Survey is available here.