Bridging the generational advice gap: Are robo-advisors the answer?

As the industry continues to focus on the Great Wealth Transfer, advisors looking to drive more growth should be sharpening the lens on who is receiving the transfer: Gen X and millennials, who are poised to collectively inherit more than $57 trillion by 2045.* That matters because inheritance, of course, translates to investable assets.

Gen X consumer households alone will generate an incremental $30.6 trillion in investable assets by 2030, which balloons to $70 trillion in investable assets by 2045.* How can advisors create more opportunity to guide the advice for—and manage the assets of—the next generation?

Begin by recognizing that the younger generation of investors expect financial advice to deliver the same level of personalization and digitization as any other service they use. And for those who’ve leapt to the conclusion that robo-advice and the younger generation are a match made in heaven, not so fast.

Seeing the gap.

Single-digit millionaires—defined as individuals who have investable assets ranging from $1 million to under $10 million—comprise the largest segment of investable wealth in America, yet they represent an often overlooked and commonly underserved market. What’s more, these individuals and families are earning, saving, and investing more than ever before and possess financial complexities that demand more sophisticated investment strategies and holistic planning.

Bridging to opportunity.

While robo-advisors offer convenience and low-cost investment solutions, they fall short in addressing younger investors’ distinct needs and preferences. Specifically, young investors have trust issues that a robo-advisor cannot address.

Why? Because younger investors value peace of mind, fulfillment, experiences, and personal relationships. They want advice, and they want that advice from a human. Financial advisors can capitalize on the opportunity to differentiate themselves by offering advice that resonates with the values and priorities of younger investors.

To capitalize on the financial power of Gen X, advisors must adopt a holistic approach that addresses the diverse needs of their clients. This includes more than typical financial planning and investment management and expanding into estate and legacy planning, tax and income optimization services, and more. By providing tailored solutions that align with the unique goals and values of each client, advisors can build long-lasting relationships and drive organic growth—for their clients and their businesses.

Technology is critical to enhancing service offerings and improving client engagement. While robo-advisors may not fully address the needs of younger investors, technology must play a role in delivering seamless and efficient client experience. From digital tools to streamlined administrative tasks to real-time portfolio updates to virtual meetings, integrating technology can offer a hybrid model that combines the best of both worlds: personalized human advice and the convenience of digital solutions.

The ultimate differentiator is sophisticated, proactive tax and income optimization. One of the most impactful ways advisors can demonstrate indispensable value to single-digit millionaires is optimizing after-tax returns and income at every level. As these generations inherit significant assets, prudently navigating the tax implications is a service beyond a robo’s capabilities. The true benefits of a unified managed household come from integrating tax planning, strategic asset location, and technology holistically.

Mapping the journey.

Connecting with this client base requires effective education that considers three core elements:

Fundamental financial principles. Educate clients about financial markets, the critical distinction between "time in the market" versus "timing the market," the power of interest rates and compound interest, and the strategic use of both assets and liabilities on their balance sheets.

Varied communications. Recognize that each generation absorbs information differently, adapting communication channels and styles to ensure the message resonates.

Technology adoption. Leverage technology to deliver educational content in engaging ways, such as interactive tools or personalized dashboards, to enhance understanding and engagement.

The Great Wealth Transfer presents organic growth opportunities for financial advisors. By focusing on the needs and preferences of these generations, advisors can make a meaningful impact on their financial well-being and position themselves for long-term success. The key lies in building trust through personalized, human-centric advice and delivering exceptional client experiences.

*Cerulli Associates, "U.S. High-Net-Worth and Ultra-High-Net Worth Markets, 2021," and Tiburon Strategic Advisors, LLC™.

Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.