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    Young investors are going digital. Financial advisors need to adapt with them

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    Young investors are more likely than older generations to seek out financial help from a computer than a human. In addition, the Covid-19 recession has led to more interest among younger people in getting financial advice.

    Financial advisors should take note.

    Millennials, a group spanning their mid-20s to late 30s, and the younger Generation Z, will occupy a bigger share of the financial advice market as their corporate and business careers develop.

    Some big names in the finance industry have already started responding.

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    Vanguard, for example, which manages more than $6 trillion, debuted a digital-only financial advice service this year geared toward a younger clientele.

    Why digital?

    Two-thirds of investors who sign up for the service, Vanguard Digital Advisor, are either millennials or Gen Z. The average client is 37 years old.

    By comparison, an average user of the money manager's hybrid offering, Personal Advisor Services, which offers both human and digital advice, is 57.

    "We're seeing the millennial population gravitate to that digital offering," said Brian Concannon, head of Vanguard Digital Advisor.

    Digital investment advice began coming into the mainstream around the time of the Great Recession over a decade ago with the emergence of companies like Betterment, Personal Capital and Wealthfront.

    These so-called "robo-advisors" used algorithms to tailor investment portfolios to individual investors, generally at a lower price point than brick-and-mortar financial advisory firms.

    Around the same time, the rise of smartphones led to the emergence of other digital personal-finance services like Acorns and Qapital, which helped users automate savings, as well as mobile banking and digital payment apps like Venmo.

    Their exposure to the internet, social networks, mobile systems, AI, and automation, all at an early age, make them the first generation to grow up in a hyper-digital world.

    Ashley Longabaugh

    senior wealth-management analyst at Celent

    Many of the biggest brokerage firms, like Merrill Lynch, Morgan Stanley, UBS and Wells Fargo, which each employ thousands of human financial advisors, also have launched robo-advisors in recent years.

    Millennials are twice as likely as young baby boomers (aged 56-64) to consider using a robo-advisor for investments (51% vs. 24%), according to a recent Vanguard survey.

    Meanwhile, most millennials have never received professional financial advice, but nearly half say their interest has increased due to Covid-19, the survey found.

    The coronavirus-fueled recession has hit young workers harder than any other age group. Unemployment among 16- to 24-year-olds ballooned to more than 24% in spring 2020 (from 8.4% the same time last year) compared to 11% for those over age 25, according to an analysis from the Economic Policy Institute.

    Young investors tend to gravitate to online services because they grew up in the internet age and are more comfortable than older generations with digital interactions, experts said.

    "Their exposure to the internet, social networks, mobile systems, AI and automation, all at an early age, make them the first generation to grow up in a hyper-digital world (most Gen Zers don't recall the age of the flip phone)," Ashley Longabaugh, a senior wealth management analyst at the consulting firm Celent, wrote of Generation Z in a 2019 report.

    Humans, too

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    Gen Z represents about 26% of the U.S. population, and should increasingly be the focus for forward-looking financial advisors as members of that generation reach adulthood and become potential customers, Longabaugh said.

    But not all younger investors want a digital-only advice experience. Some want a human advisor whose offerings are enhanced by technology.

    Often, that technology helps make the experience more convenient for the end-consumer, allowing them, for example, to conduct meetings from home or elsewhere around the country, according to certified financial planner Ashley Dixon, lead planner at Gen Y Planning, which caters to millennial clients.

    "We are completely digital," Dixon said. "We don't have any paper documents.

    "We don't mail anything to our clients," she added. "We work strictly on Zoom."

    Beyond investments

    And many young people are looking for advice beyond just their investments.

    Millennials' finances aren't necessarily less complex because they're younger than clients approaching or in retirement, experts said.

    But their needs are different, said Eric Roberge, CFP, founder of Beyond Your Hammock. The Boston-based financial planning firm focuses on younger clients in their mid-20s to late 40s.

    These clients are going through several "firsts" in life, such as having children or buying a home, and want advice on topics like the affordability of daycare versus a nanny versus the feasibility of a parent cutting back their work hours for childcare, Roberge said.

    "The default items you would have conversations about with an older client — transitioning into retirement, Social Security, Medicare, long-term-care planning, legacy planning — if you apply any of those things in a conversation with someone who's 30 years old, they're going to walk out the door," he said.

    Many of the initial robo-advice players, like Betterment, have since shifted to a tiered service model that offers the choice of digital-only interactions or digital advice augmented by human advisors for extra hand-holding.

    Mike Reust, president of Betterment's retail division, calls the latter option a "release valve," acknowledging that software can't yet fully meet the needs of young clients who need more layered advice. The firm's hybrid service give users unlimited access to CFPs on staff.

    A third of hybrid users are in their 30s and almost 40% are under 40, Reust said.

    "When you throw in complexity — getting a second or third job, getting married and having kids — you start to see the jump," Reust said of younger investors. "That's when people are picking up the phone."


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