New affluents are willing to receive advice, but not ongoing fees

Andrew Braun speaking at the SMSF Association National Conference

“Emerging payers” are the cohort with the highest potential customers for advisors, but their preferred pricing method may not align with many advisors’ preferred business model.

Speaking at the SMSF Association’s national conference, Netwealth chief marketing officer Andrew Braun said the fixed fee trend is intensifying – despite much of the industry’s reluctance to cut its dependence on current costs.

“What we’ve found is that reality doesn’t necessarily match what the emerging tributary wants,” Braun said. “Unfortunately for us, margins are compressing with flat fees according to our data. This is something you need to be aware of… your margins may compress slightly.

Some 67% of emerging affluent clients prefer a flat fee, but are split on whether it’s an annual, monthly, hourly fee or service fee for each advice.

Another 27% preferred percentage-based fees, with 19% preferring performance-based fees and 8% wanting them as a percentage of funds under administration.

“It reflects their financial literacy and commitment,” Braun said. “They are happy to take risks if there is a reward.”

Meet the new rich

The emerging affluent cohort numbers just under 2 million people with an average age of 33 holding collective assets of $1.5 trillion.

However, with decades of retirement on the horizon, their needs are more focused on career advancement and the costs associated with overstretching a family (i.e. high tuition fees), as well as repayment of their own debt.

“They make a lot of money,” Braun said. “Their household income is over $300,000. They are probably dual income. If you compare that to the mass market, that’s three times the money they make.

Their average home size is $1,000,000, but 40% have homes worth over $1 million. They have $1.1 million in investable assets, which includes their combined superannuation balances.

“I like to label the new affluent millennials with money and they are fantastic potential customers.”

ESG considerations are going to be important to their advisors as two in five have already invested in socially responsible options and the other three in five would consider them.

“You need to educate yourself about the different types of responsible options and then you will be able to educate your customers,” Braun said.

While 40% already use a financial advisor, 33% plan to use one, with 63% planning to do so within the next three years.

They generally have a high propensity to use professional services, with 30% already using a stockbroker, 36% a private bank, 59% an accountant and 42% a mortgage broker.

Customer portals

Millennials are generally defined as being born in 1982, reaching adulthood at the start of the new millennium. They are accustomed to using computers and telephones and for this reason, customer portals will be their most used point of contact.

“Customer portals are a very important way to scale the relationship, especially with this cohort,” Braun said. “They are used to self-service. They are used to shopping on their phones through eBay, Amazon, surfing Netflix and solving problems themselves using phones.

When Netwealth surveyed consultancies, they found that 29% were using a client portal and 62% were planning to deploy one within the next two years.

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