Who manages zillennial’s investments?

Some retail investing apps offer to let you speak to a financial advisor with extra payment and even then there are limits on the amount of time one can actually speak to their financial advisors. 

If one wants to speak to a professional consistently, they will have to elicit the help of a financial advisor. Studies (put out by financial advisors) suggest getting financial advice from a professional can increase their clients’ returns more steadily over time. And generally, they are right. Just like I’d rather have a board certified doctor fix a broken bone, I would rather have a CPA (certified public accountant) manage my financial assets.

But what about those crazy success stories? Individuals who not only make money from a single asset class, but also single trades within: the Bitcoin billionaires and the winners of the Reddit GameStop short squeeze. These stories are far more nuanced than their clickbait titles and present scenarios that are unrealistic to most.  

In addition to generating more consistent gains of investments over time, financial advisors can offer benefits beyond investments. Advisors can make recommendations for complicated financial situations like purchasing a home, starting a business, changing jobs, and death.

There are several reasons why one would use a financial advisor. We won't get into all of them, but they can include: people with a lot of money, people who are close to retirement, people who are about to make a major financial change (marriage, job, school, etc.), and people whose parents have a financial advisor. 

Similar to wealth, financial advisors are often passed down. Many wealth managers and financial planners hold financial planning sessions with the children of their clients. 

Financial advisors have incentives to manage the future assets of their client’s children. They are already familiar with the financial circumstances of their family, college savings, trusts, etc. 

This result also calls us to question what we perceive as our own money versus our future assets. While individuals may not be investing their “own money” using a financial advisor, their parents could be investing money which eventually will be theirs.

Key insights:

1. Female respondents are ~30% more likely to have a financial advisor than their male and non-binary counterparts. 

   So we know some things as true. According to our survey, men are more likely to invest their own money. Women were also ~8 times more likely than men to not hold investments. There are several potential reasons as to why this may happen. Women respondents may feel less confident utilizing self-help tools and resources when it comes to financial advice and may rely on financial advisors for guidance. On the other hand, male respondents may be more likely to have done their own investing previously and feel more comfortable making their own investment decisions. 

   These insights are consistent with a study by Spectrem Group whose 2021 study states, 61% of women use a financial adviser compared to 56% of men. The same study outlined women feel less knowledgeable about financial products and investments are more likely to seek investing advice from a professional. They stated 47% of men feel they can do a better job of investing than a professional (we love the confidence). 

2. White respondents are almost four times as likely than their Black and Asian counterparts to have a financial advisor manage their investments. 

   Generally, white households in the United States are far wealthier than Black or Hispanic households. A 2019 study from the Survey of Consumer Finances shared that the typical White family has eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family. 

   Long term financial planning with a professional advisor is an indicator of long term financial success. Parents of White respondents may have longer history of using financial advisors, resultantly, their children may be more trusting of financial advisors, who also tend to be majority white. Black and Latinos account for 4.1% of more than 87,000 CFP professionals in the U.S., Asian or Pacific Islanders make up less than 4%. 

3. Respondents with a graduate degree are ~50% more likely to utilize a financial advisor. 

   People with graduate degrees tend to be older and therefore may require more holistic financial planning to manage their investments and assets. A majority of our graduate student respondents received degrees in industries like finance and technology. These respondents likely have a higher financial literacy baseline or are in professional jobs that make them too busy to actively manage their own investments, potentially leading to greater use of financial advisors. 

4. Zillennial respondents who are financially dependent on their parents are twice as likely to use a financial advisor.

   Now this seems odd, if one is financially reliant on their parents how can they afford to have a financial advisor manage their investments? My hypothesis here is that these respondents are financially reliant on their parents not because they need help, but rather because they can receive help to sustain their lifestyles. If these individuals' parents can financially support them in their 20s -30s, it suggests their parents are well-off too. These “financially savvy” parents may hand off their financial advisor to their children or recommend they get their own. Especially to ensure their Zillennial children have financial literacy to eventually manage gifted investment vehicles or trust funds. 

   Stay tuned for a deeper dive into the background of respondents who are financially dependent on their parents. Where do they live? What jobs do they have?