Financial advisory businesses might see stronger long-term growth and less fraught client discussions by focusing on more youthful demographics based on findings of a new Dimensional Fund Advisors (DFA) study.
The DFA analysis of almost 40,000 responses to its global investor surveys over 2017-19 and 2021-23 shows younger clients (40 and under) tend to be more goal-oriented and have a higher tolerance for portfolio drawdowns than other age groups.
“Of young investors, 33% selected ‘progress toward my goals,’ compared with 26% of middle-age investors and just 18% of older investors,” the study says. “To put it another way, young investors were almost twice as likely to prioritize progress toward their goals as older investors. The most frequently selected first choice by older investors was ‘percentage return over a given period’.”
While advice businesses have an understandable tilt to wealthier, typically older, clients, the demographic overweight is a double-edged sword.
An earlier DFA global survey of advisers, for example, found that aging client books were “one of the most meaningful challenges and strongest detractors from growth for a financial advisory firm”.
Younger clients may not be as immediately lucrative as older cohorts given their on-average lower balances but youth can underwrite longer-term business success.
“For many firms, the focus on younger clients will kick in as they seek to engage the future beneficiaries of their older clients or seek to create opportunities for their younger advisors,” the DFA report says.
Bringing on more clients aged 40 and under could also reduce adviser stress levels during market downturns, the study found.
The DFA data shows “younger investors tend to have a high tolerance for drawdowns” with older clients about 30 per cent more likely to call their advisers amid market crashes.