Baby Boomers vs. Generations X and Y – an Online Investing Balancing Act

One of the biggest mistakes a bank or a brokerage can make is tailoring their services to one market segment. In order to secure future profits, it’s important to focus on the needs and wants of future generations, such as Gen X and Y. Although it wouldn’t be prudent to ignore the nearly 76 million customers born between 1946 and 1964, most firms are not paying enough attention to future waves of investors.

Transfer of Wealth

More than $40 trillion is expected to transition to younger generations in the US over the next several decades – making Gen X and Gen Y the next frontier. Firms offering brokerage services should be planning for new clients. One of the main differences of this next generation is the fact that while less than 10% of Baby Boomers have removed investments from their retail bank between 2008 and 2011, nearly a third of Gen X-ers and Gen Y-yers did so, according to a recent report from Aite Group. This shows that the younger client base is more prone to changing providers or using multiple firms to satisfy their various investment needs.

Keeping in mind that close to 40% of Gen X/Y customers consider a bank to be their primary investment vehicle, banks should be looking at how they can improve their online brokerage channel in order to keep this fickle demographic happy. In addition, the younger generation is more likely to be open to shifting additional funds into an investing account with a bank – a third say they would – according to the Aite Group survey.

Two for the Price of One

Although the two client segments differ in some imperative ways – offering a self-directed channel will be appealing to both and will help grow the current and future client base when the generational transfer of wealth occurs. As expected, younger investors are more likely to shift assets to a firm with better online tools. However, surprisingly the average age of an online retail brokerage client is actually 50 to 55. The Baby Boomer – who grew up in a siloed investment environment where a bank was for holding money and a brokerage was for investing money – have learned from the 2008 crisis that a hands-off approach might not be best.

The data shows that adopting a self-directed, online investments channel into a more holistic service offering is essential for future growth for financial institutions. Whether it is to capture the Gen X/Y demographic or hold on to the evolving Baby Boomer generation – an online option is a must. More than 90% of affluent and high-net-worth investors have shown a clear preference for self-directed decision making, according to Aite Group. That is a tough number to ignore.

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