GenX Assets Are The Underrated Prize Going Forward: Tiburon

Many financial advisors are focused on the massive pile of baby boomer assets, or the future potential of millennial savings. But what about Generation X?

The reality is it’s Gen X who will produce the most new investable assets in the coming years, said Chip Roame, managing partner of Tiburon Strategic Advisors.

“Gen Xers will have more incremental assets, the thing you’re trying to capture, in the next 10 years than will boomers and millennials added together,” Roame said during a webinar Thursday. “And I think everyone’s missing that point.”

Projections to 2027 show boomers still controlling the most investable assets with nearly $41 trillion, he explained. Gen Xers come in next with nearly $35 trillion, while millennials are in third with $10.5 trillion. Studies show Gen Xers gaining some $25 trillion worth of investable assets from 2017-27, while gains were far less for the other generational cohorts, Roame said.

The growth of Gen X assets is one of six key trends Roame identified during Tiburon’s State of the Wealth and Investment Management Industry.

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Here are the other five trends:

The ‘Race To Zero’

This trend toward “cost-conscious investing” has been under way for several years now and will continue, Roame said. This is marked by three mini-trends within the bigger trend:

The elimination of stock trading commissions and a shift in industry profitability dynamics. 

The online brokerage industry is “somewhat underappreciated in many ways,” Roame noted. Two of the biggest transactions in the last few months are in this space: Charles Schwab acquiring TD Ameritrade and Morgan Stanley acquiring E-Trade.

That will continue, Roame said, forecasting “huge growth” for online brokerage firms. “No one likes zero (commissions) unless you’re the client,” he added.

The rapid shift to passive investing, exchange-traded funds (ETFs) and other cost-aware investment products.

ETFs registered $4.4 trillion in assets under management in 2019, more than 100% growth in four years. ETFs held a measly $1.1 billion in AUM in 1993, and just $531 billion as recently as 2008.

The ongoing shift to managed accounts, emergence of  robo-advisors, fiduciary standard (or not) and potential for both cost-aware financial advice and new pricing methods.

Online advice firms had nearly $500 billion under management in 2018, up from $293 billion in 2016 and $118 billion in 2012. Two-thirds of online advice business comes from the small accounts of millennials, Roame said, and some in the industry scoff at those small numbers.

Just like they scoffed at then-little Charles Schwab 25 years ago, Roame recalled.

“I trust they now sit around their boardroom and go ‘Schwab is twice as big as us now,'” he added. “That’s a fact, by the way, in case you don’t know that Schwab has twice as many assets and accounts as does Merrill Lynch today.”

In other words, it would be unwise to disregard robo-advice platforms, Roame said.

“I worry when I hear the big, entrenched firms looking down at the robos saying, ‘Oh, they only have young people or poor people,'” he said. “That’s what they said about Schwab 20 years ago and that was the wrong view to have.”

ESG Investing

Sustainable investing firms generated $13 trillion assets under management in 2018, up sharply from $8.1 trillion in 2016 and $3.7 trillion in 2012. It is a big-time trend, Roame said, one that is only going to get bigger, but in a slow but steady fashion as millennials age.

“When (millennials) do get more and more money, then you’ll see sustainable investing take off,” Roame said. “It’ll just take longer than you expect it to. But I do think it’s coming.”

Anyone doing long-range planning for a firm 10 years out would be wise to have a sustainable investing department, Roame suggested.

New Opportunities As Clients Age

Tiburon surveyed its CEU Summit attendees on the future prospects for serving clients products such as longevity annuities and health insurance.

Thirty-three percent of respondents said longevity annuities will experience “huge growth” going forward. These products can help address the chance of living to extreme ages, 100 and beyond, Roame noted.

With the possibility of living past 100 growing, advisors and clients have to account for it, he explained, but it can create problems with some planning models. A simple longevity annuity addresses the outlier threat.

Still, “it feels like a 20-year view that everyone thinks annuities should grow and they never do actually grow all that much,” Roame said.

Annuity assets under management remain about $2 trillion, where they have been for several years.

When it comes to health insurance, 100% of CEO Summit respondents think advisors will take on a role providing it. That figure was 60% a year ago.

“Advisors getting involved in consumers’ healthcare choices is a big deal,” Roame said.

Fee-Based Advisor Growth

The number of financial advisors in all of the financial advisor channels remains at about 335,000, right where it was 15 years ago. Within that figure, there is a good deal of movement.

Ninety-one percent of CEO Summit attendees say the independent advisor channel will grow fastest over the next five years, up from 76% two years ago.

Fee-based financial advisors are outpacing other channels due to breakaway brokers, Tiburon noted. This group holds $4.3 trillion of AUM, up from $2.2 trillion a decade earlier.

“The big, fee-based advisors are kind of the future,” Roame said. “I think many of us believe that.”

One other interesting data point: the number of fee-based financial advisors with at least $5 billion in AUM jumped from 28 in 2014 to 52 in 2019.

Female And Minority Opportunities

About 16% of executives (at the executive vice president level and higher) in financial services are female and only 1% to 2% are minority, Romae said, a longstanding issue for the industry.

“That’s pretty ugly,” he said. “That needs to be fixed.”

CEO Summit attendees are confident that progress will take place over the next five years. Sixty-five percent of respondents say “substantial progress” will be made promoting female executives, and 57% say the same for minority executives.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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