How the Investor Demographic Is Changing

Lacy Garcia

We speak with Lacy Garcia, Founder and CEO of Willow about how investor demographics is changing in the U.S., as well as what the next new investor majority will look like. Garcia also shares what these new investors are looking for in wealth managers and investments.  

How are investor demographics changing in the U.S.? 

It’s widely understood that investor demographics are changing rapidly. The United States is more racially and ethnically diverse than ever and in the coming decades, the country will become even more diverse. Diverse groups are controlling an increasing share of U.S. wealth, and financial advisors must recognize and be ready to serve their needs.

Just as changes in the market require a new approach to investing, changes in demographics require a new approach to attracting and retaining clients.

According to McKinsey & Co., an estimated $59 trillion will be passed down from the current investor majority (Baby Boomers) to their spouses and heirs over the next 40 years. 

There’s also a compelling business imperative for being prepared to serve investors who represent a historically underserved investor population: women, NextGen and underrepresented groups. Diversity, equity, inclusion and belonging are not simply cultural watchwords of the moment: They are the key economic drivers behind a significant business opportunity. 

Who are the current investor majority and who will be the next new investor majority?  

There are three key demographics driving the fastest growing segments of affluent investors: 

  1. Women: Controlling ever-increasing shares of wealth, power and influence, women are now the chief breadwinners or co-breadwinners in the majority of U.S. homes. Women will control $30 trillion in wealth by 2030. 94% of women believe they’ll be personally responsible for their finances at some point in their lives. 
  2. NextGen: By 2030, Millennials will control five times as much wealth as they do today and GenZ is projected to be $33 trillion, comprising some 27% of total global income. 
  3. Underrepresented: The U.S. Census Bureau predicts that by 2044 the United States will become a “majority minority” nation. Racial and ethnic minorities (as compared to the current racial and ethnic makeup of the country’s population), will comprise the majority of the U.S. population. 

What are these new rising groups of investors looking for in their relationship with their advisor and their investments?

It is essential to recognize that women are not a monolithic group, while also understanding that the majority share life journey experiences that impact their relationship with money. On average, women have a longer life expectancy, act as primary caregivers, earn less due to the gender pay gap (and time away from the workforce for caregiving), take on more household responsibilities and have higher healthcare costs when compared with men. 

As a result, their priorities, concerns and planning needs typically differ. Earning and maintaining a woman’s trust is key to developing a successful advisor client relationship. Advisors must begin by building an authentic connection through a collaborative and relationship-based approach that shows respect and understanding for her values and goals. Then reap the benefits: as women tend to stay for long periods with advisors they trust and are more likely to refer new clients.

45% of women say trustworthiness and the quality of the relationship determine their satisfaction with an advisor (Cerulli Associates, 2020). 

It is important to note that these investors may be digital first, but they are not digital only. The majority are looking to work with an advisor. When making important decisions, younger generations seek input from friends and online sources, including third party reviews and social media. Even when working with advisors, younger generations will seek out this corroboration. Advisors should be prepared for this and accept it as part of the younger generations’ decision-making process. 

NextGen investor’s financial focuses are often centered around budgeting, paying down student debt, building their investment knowledge, and finally, saving for retirement. Overall, this bucket of investors tends to be more cautious about investing than older generations. This perception has undoubtedly been shaped by multiple “once-in-a-lifetime” market crashes, major technological advancements, as well as socioeconomic and social justice issues. 

They’ve also come of age when technology is omnipresent, with financial services increasingly delivered online. Younger generations are also more willing to diversify their holdings with digital assets, like cryptocurrencies and nonfungible tokens (NFTs). For Gen X and Baby Boomer advisors to connect with younger investors, it’s important to understand the younger group’s financial circumstances, their views on investing and their values.

Client conversations will need to move away from performance and more towards values and goals. Advice will become equal parts financial guidance and human understanding – creating a collaborative client relationship centered on: empathy, education and empowerment.

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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