The introduction of the Retail Distribution Review (RDR) had huge implications for the financial services industry; in particular, it has changed the way financial institutions decide who to target as customers.
In order to defend profit margins, advisers are focusing their efforts on wealthy, older customers who have more complex financial needs and more money to spend.This is leaving many people, particularly those of the so-called ‘Generation Y’, to fall into something of an advice gap.
With times changing, many critics are arguing that financial advisers are not doing enough to keep up. Despite having a central role in society’s future, the people of Generation Y - those born between the early eighties and late nineties - are just not being targeted enough.
Research supports this theory as well: according to a study from the University of Oxford, 59 per cent of UK Millennials say they don’t feel the products available cater for people of their age.
With high unemployment rates, comparatively low wages, high house prices and the near impossibility of gaining a foot on the property ladder, it’s not too difficult to understand why this young demographic group is not always the first-choice target market for financial institutions.
Yet, despite the current struggles, these young people are optimistic about their financial future. In the last five years, the overall income and economic standing of Generation Y has improved more than any other age group.
It is thought that by 2015, the group’s income will move ahead that of the baby boomers. In fact, Javelin Strategy and Research predicts that by 2020, Generation X will have fallen behind too.
The credit culture that Generation Y has grown up in has damaged the savings culture before it, but the RDR has simplified financial services and made them easier to understand, making now an excellent time for professionals to reach out to young people.
Society has been criticised for failing to install a savings culture in young people of today, so a greater commitment to encouraging financial planning is clearly needed.
Retirement age continues to rise alongside the average Brit’s lifespan, making the need for long-term saving all the more important. Millennials will need to save more of their earnings than their parents, and they’ll need to start earlier too.
These facts, combined with new rules concerning workplace pensions, should be enough to encourage individuals to take more financial responsibility. All of this means that there are tens of millions of Millennials out there who will soon want and need financial advice.
Once again, the research backs this up. According to a study by industry trade association LIMRA, 52 per cent of Generation Y consumers say they want professional financial advice to determine their need for life assurance.
Not only are youngsters demanding high quality advice, they are also expecting it instantaneously. These customers don’t always expect face-to-face contact either, they have grown up around instant connectivity and having access to information at the touch of a button, meaning the use of time-saving automation services in place of lengthy in-person meetings will not seem unusual for them.
Flexibility and efficiency are key factors, as is the breaking down of formal barriers. Many are confident in ‘DIY’ research too - using the internet as part of the advisory process. The results of a recent Deloitte survey even suggest that the direct-to-customer channel is set to grow significantly in the next few years as consumers increase their reliance on the web.
If financial advisers are to target Generation Y successfully, they will need to take note of and adapt to their evolving needs. This means that new products and approaches will be required if a savings culture is to be established. Researchers from the University of Oxford generated a great example of this during their recent study.
They found that just over half (51 per cent) of all British Millennials would be more inclined to save for the future if their money was not completely locked away.
The same study also found that 51.88 per cent of Millennials in developed countries would turn to their parents before anyone else when seeking financial advice. It’s clear that while there is a want and a need for financial advice, more education on the options available is necessary first – especially as around half of Millennials say they don’t understand how pensions work and do not prioritise saving for retirement.
Education will certainly help to reduce this, though - as will more impactful marketing efforts aimed at this forgotten audience.
Why target Gen Y?
Generation Y is the future. These young people will, in the coming decades, become the next high earners – the equivalent of today’s baby boomers. Female Millennials in particular are poised to earn more and take on greater roles in financial decisions than previous generations. It’s this kind of shift that financial advisers must keep in mind if they’re to stay ahead of the curve.