It's clear that the baby boom generation are a key part of an adviser's business model, as it's the section of the population with the most disposable income and the greatest savings.
However, many of these people are now at or near retirement and their pension assets will gradually decline, as income is taken. With assets under management a key aspect of remuneration after the Retail Distribution Review, long-term business planning for advisers must look beyond the baby boomers.
Recent Standard Life research1 shows the significant opportunity that is available by helping the next part of the population -–often known as Generation Y – to save more for their future.
These are the 28 to 40 year olds who, generally speaking, have little or no long-term savings, and who view pensions as something to worry about at some point in the future. It’s no surprise that advisers agree with over two thirds acknowledging Generation Y clients are key to the future of their business. Yet, despite this, the average adviser works predominantly with clients aged 40 and over.
Generation Y has its own distinct financial challenges. Final salary pensions are a thing of the past. A financial inheritance from mum and dad is much more uncertain with decreasing property values and increasing longevity. If parents need long-term care in future, that will add yet another financial pressure.
More than two-thirds of these people plan no more than 15 years ahead with their finances, so the attraction of a pension -–which may not come into payment for 30 or 40 years – isn’t immediately obvious.
However, more than four out of five are realistic enough to appreciate that they cannot rely on the state to support their retirement. So there is recognition that long-term savings are required, but the current offerings are not engaging this audience. So, as an industry, we need to consider how we can make pensions and other long-term savings vehicles more attractive to this generation.
Our research has provided some key insight into what Generation Y is looking for. As a starter, any product must be simple and straightforward, and described in a language relevant to their needs and wants. Online access is a necessity, for a group who consider the internet an integral part of their life.
Generation Y, as a group, are currently opting out of long-term saving, hoping for the best, while acknowledging this is unlikely to be good enough.
However, many of them are educated, intelligent people who recognise that they need to help themselves secure a strong financial future. They need a reality check to secure the future they hope for, and advisers can help them achieve this while also positioning their business for the long-term.
1Standard Life Re-Run Generation Report, February 2010
Andrew Tully is senior pensions policy manager at Standard Life
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