Baby boomers control 82% of financial affairs in America — from credit cards, to bank accounts to who hires planners — and will do so for at least 10 years, if not longer, according to a new study.
"Never forget that," says industry consultant Chip Roame, managing partner of Tiburon Strategic Advisors.
Tiburon has released new data on where the wealth management industry is headed, covering what it calls “the six biggest trends," including the rise of giant RIA brands, pricing pressure on advice and the shifting demographics of money.
"We get enamored with Generation X and with millennials," Roame says, but "baby boomers drive financial advice in America today. Baby boomers dominate."
Just look at the money each generation has and how that's predicted to change, he says.
As of last year, boomers had $26.2 trillion in investable assets, more than double that of their Generation-Y or millennial grandkids' combined $1.6 trillion, the study found. That compares with $11.4 trillion for the boomers parents' in the so-called silent generation and $9.2 trillion for their kids or younger colleagues in Generation X.
By 2027, Tiburon projects boomers will remain dominant with $40.7 trillion in assets compared to just $10.5 trillion for Generation Y and millennials. By that time, Generation X will creep up with $34.6 trillion and the fading silent generation will fall to $8.4 trillion, Tiburon predicts.
The lesson: while advisors need to prepare to serve larger clients, they can ill afford to take their eyes off boomers and their expanding retirement needs now or anytime soon.
Tiburon's other five trends include the following:
1. The near ubiquitous use of ETFs and passive investing strategies will continue to put downward price pressure on all financial advice.
"You see a huge trend toward smart beta [and] in the active world, toward lower cost active strategies,” Roame says.
There’s one puzzle in this category that Tiburon has yet to solve: Hedge funds continue to attract money — they have $3 trillion at the moment — despite their "miserable" returns, he says.
"Three-quarters of hedge funds underperform any given indices," Roame says. “Meanwhile their assets are ballooning. We are looking at what is going on there."
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2. Robo advisors' continuing growth will only intensify downward price pressures. That pressure won't come primarily from big-idea, venture capital-funded robo startups but from robo giants offered by the biggest firms.
"Far more interesting is what the Vanguard and Schwabs have done with their offerings," he says. "There's a lot more money there."
3. Thanks to the industrywide focus on best-interest client service, fiduciary service is the new reality, Roame thinks. This trend is being driven not by any one fiduciary rule from a regulator, but by market realities and customer expectations.
"The world is moving to a fiduciary place where advisors do the right thing for a fee," he says.
4. The fiduciary evolution points to "the return" of financial planning," Roame says. While advisors have built businesses offering investment management, customers' expectations of holistic financial advice will force more and more of them to offer planning.
"Financial planning is going to come back as baby boomers age," he says.
5. Rising to serve this demographic, as well as the younger ones, is an army of supersized RIAs, all of which are vying to become the dominant nationwide players in advice.
Roame points to
"There are some 700 firms north of $1 billion," Roame says. "They are going to continue to get better."
