The 3% gap

Gen X and Gen Y like the safety and transparency of banks – and they think they're earning 3.3%.

Here’s what we know about Gen X and Gen Y investors: They outnumber Boomers, they’re just as affluent and they’re a lot more conservative when it comes to investing their money.
In fact, more of them (37%) say they will never feel comfortable investing in the stock market than do Baby Boomers (26%), and roughly one-third of their investable assets are in cash.
At the same time, they’re worried about inflation – 74% of Gen Y investors, according to our latest MFS Investing Sentiment Survey – say that protecting their portfolio against the effects of inflation is extremely or very important, compared to 73% of Boomers and 69% of Gen X investors.

To read the free MFS E-book, “Getting the Digital Generation to ‘Like’ the Market,” click here »

So what gives? Why are younger investors stashing so much cash in bank accounts, where they earn practically nothing, if they are so concerned about inflation?
Here are the answers: They like the safety and transparency of banks – they know their money is insured and they can see their balance at any time – and they think they’re earning 3.3%.
You read that correctly. Younger investors think they’re earning 3.3% on a one-year CD – not the 0.34% they’re actually earning. Don’t ask me why or how younger investors can be so off the mark, but that’s what they’re saying.
Unless you, as an adviser, are having meaningful conversations with your younger clients or prospects, it’s unlikely that this disconnect will make itself evident. Most times, advisers lapse unknowingly into the financial industry jargon they’re most comfortable speaking in – using terms like “risk-on,” risk-off,” “asset allocation,” and “large-cap value,” for example – without realizing that their clients, especially Gen X and Gen Y clients, may not be fully familiar with these terms and are turned off by them.
What’s more, appealing to traditional investment logic and speaking in ways that highlight your knowledge of Wall Street lingo only serves to make younger investors more anxious and drive them deeper into cash.

Reaching younger investors

But younger investors are serious about their long-term goals (63% of them, in fact, are more concerned than ever about being able to retire when they thought they would, compared with 56% of Boomers) and they want your help to reach their goals.
Consider that 45% of Gen Y investors and 34% of Gen X investors said their need for professional financial advice has increased over the past 12 months, compared with just 19% of Boomers who felt that way.

Given their concerns, here’s how to frame conversations with Gen X and Gen Y clients and prospects:
1. Focus on protection. Like Boomers, younger investors are worried about rising healthcare costs, higher taxes, the economy and all our other woes. They’re even more worried about rising interest rates. When speaking with younger investors, concentrate on how you can help them protect their nest egg – including their cash – and even help them protect against inflation.
2. Drop the jargon. We’ll get into this area in a bit more depth later on, but for now just keep in mind that using investment lingo is more of a turn-off to market-wary younger investors than it is assurance of your expertise.
3. Customize your advice to each younger client. Younger investors want solutions that are geared to them. Anything that smacks of selling a cookie-cutter solution or product will turn them off.
How can an adviser “customize” the solutions he or she provides to scores of clients? We’ll provide the solution in the next blog post.

About the Series

Financial advisers seeking to expand their business may not be aware of the potential afforded by Gen X and Gen Y investors. Wealthier than most advisers realize, these younger investors want help. But their expectations of advisers are different from those of Baby Boomers. Using data from his firm’s extensive Investing Sentiment Survey, William Finnegan, Senior Managing Director of Global Retail Marketing at MFS Investment Management, offers insights into tapping this huge, underserved market through a series of six articles.

About the Survey

MFS, through Research Collaborative, an independent research firm, sponsors a regular online survey among individual investors with $100k+ in household investable assets and who make or share in making financial decisions for their households. Generation Y investors are those under the age of 33; Generation X is defined as investors between the ages of 33 and 47.

About MFS Investment Management

MFS is a premier global money management firm with investment offices in Boston, Hong Kong, London, Mexico City, São Paulo, Singapore, Sydney, Tokyo and Toronto. The firm’s history dates to March 21, 1924, and the establishment of the first US “open-end” mutual fund. MFS manages $293.4 billion in assets on behalf of individual and institutional investors worldwide, as of August 31, 2012.
Please visit MFS.com/InvestingPulse for more information.