Imagine this: An entire generation of investors has accumulated a significant amount of investable cash, but was too apprehensive of the stock market, of advisers, and of the potential costs, to know how to invest the money.

That is the scenario that today’s financial advisers are likely facing with Generation X and Generation Y investors, according to MFS Investment Management, a Boston-based money management firm, that released a study on 613 retail investors with $100,000 in household investable assets.

Investors under age 46, or those considered Generation X, displayed a much more conservative approach than anticipated, the company said in a study released last Thursday.

"I’m not sure that, as an industry, we look at them and say 'there is a lot of money' to be managed,'" says Bill Finnegan, director of global retail marketing for MFS. "It has been overly focused on the baby boomer."

Yet the GenX/Y crowd seems to be sending the financial advisory community mixed signals when it comes to what they want. More than one third of respondents under age 46, 36%, said their need for advice had increased since the economic downturn began in 2008, especially when it came to portfolio management and account review and rebalancing.

At the same time, however, 35% that Generation X/Y crowd said that after seeing the volatility in the stock markets in the last two years, they would not feel comfortable investing in the stock market. Only about one quarter of respondents aged 46 to 64 said they felt the same way.

In cases where Gen X/Y investors did feel that equity investing was a good idea, they didn’t know how to go about it. Indeed, 49% of Gen X/Y respondents said they believed now is a good time to invest in the stock market. Yet 27% of respondents said they believed government bonds are the best place to invest money right now, while 28% disagreed.

Also, 28% of respondents in the Gen X/Y group also said that protecting principal was more important today, which compares with 18% who said they felt the same way when the study was conducted before the recession. Although the data is consistent with results for the overall sample, it was still surprising, given the younger group’s time horizon.

About 36% of Gen X/Y respondents said their need for financial advice had increased since the economic downturn, yet cost and mistrust of advisers helped keep them away from advisers. About 53% of younger respondents said they felt the cost of a financial adviser was not worth it, and they did not want to pay for it.

Others, 33%, said they did not need a financial adviser, but would rely on themselves or a family member for guidance, and 22% of respondents cited a lack of trust in financial advisers.

Despite the fact that younger investors are clearly gun shy about the stock market and some investing professionals, the group still offers growth opportunities for financial advisers, Finnegan says.


Donna Mitchell is a senior editor at Financial Planning, a SourceMedia publication.Follow EBN on: Twitter | Facebook | LinkedIn | Podcasts

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