June 14, 2024
Young advised clients prioritise goal-based investing


Young investors aged 40 and under are more than twice as likely to measure the value of their financial adviser based on progress towards their goals.

Recent findings from Dimensional Fund Advisors’ global adviser and investor studies have highlighted younger clients’ desire for goal-based investing.

It discovered that younger investors – those aged younger than 40 years old – tend to care most about seeing progress towards their goals. Meanwhile, older investors – classified as those older than 60 – value absolute returns more.

Recent insights from Morningstar emphasised that meeting financial goals is one of the top three priorities for clients and necessary when writing a value proposition.

“If there is one word to take away from this, then it is ‘goals’. This is a recurring theme we see over and over again in our research. Recast the process of financial planning as a ‘goal-seeking opportunity’ and it can help people make better financial decisions,” said Ryan Murphy, head of behavioural insights at Morningstar, at its recent annual investment conference.

When Dimensional asked the question: “When I look at the performance of my investments, what is it most helpful to see?” – 33 per cent of young investors selected “progress towards my goals”.

Some 26 per cent of middle aged investors – aged between 40 and 60 – chose this option and just 18 per cent of older investors.

As a result, young clients are nearly twice as likely to prioritise progressing towards their goals as older clients. For older investors, “percentage return over a given period” was the most popular selection.

When asked how they primarily measure the value they have received from their adviser, 31 per cent of young investors said their progress towards their goals, compared to 13 per cent for their older counterparts.

In other terms, young investors are more than twice as likely to measure the value of their adviser based on progress towards their goals.

For older clients, they understand their adviser’s value based on a sense of security and peace of mind, underlining the differing needs of these two cohorts.

Dimensional Fund Advisors also found that servicing younger clientele, who are future beneficiaries of their older clients, can lead to higher growth for advice firms. Naturally, many advisers are looking to service the next generation of investors and retain younger clients as a result.

“When advisers understand the distinct preferences of younger clients, they can refine their service models and engage planning technology that helps drive discussion around goals and financial wellbeing.

“Specifically, recognising and adjusting to younger investors’ focus on progress towards goals may make it easier for advisers to win over the next generation of clients.”

Moreover, the research stated that younger investors tend to demonstrate a higher tolerance for drawdowns.

Just 14 per cent of young investors would call their adviser to make a significant change if market returns were to drop by 15 per cent, compared to 21 per cent of older investors.

“The emphasis on goals-based investing and a willingness to accept drawdowns creates an opportunity for advisers to better serve their younger clientele through targeting equity premiums while maintaining a broadly diversified portfolio.”



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