Generation Y and women are going to be key forces in investing, says the president of TD Ameritrade Institutional, one of the world's largest investment firms.
Thomas Nally was the guest speaker at the 20th anniversary celebration of JoycePayne Partners on Tuesday night. JoycePayne is a fee-only, Securities and Exchange Commission-registered investment firm with offices in Bethlehem and Richmond, Va.
Nally spoke to a group of 125 invited guests about the financial planning industry and the changes he sees ahead.
In an interview before his speech, Nally said a shift in the demographics of investors is a big part of the industry's future.
"The younger generations, the Xs, the Ys and the Millennial, are gaining wealth incredibly quickly," Nally said. Generation Y, or the Millennial, followed Generation X, which in turn followed the Baby Boomers.
Nally said that just looking at the group considered Generation Y, there are 75 million to 80 million people generating their own wealth to the tune of about 2 trillion in investible dollars. In a decade, he said, that will jump to $28 trillion and will be stoked by the approximately $18 trillion that age group will be inheriting from the Baby Boomer generation.
With the majority of current financial advisers in their mid-50s, they'll need to find new ways to operate to attract and service these clients.
"We need to breed the next generation of financial advisers," Nally said. "People want to do business with someone like them – people who understand social media, who text."
And it's not just the age of the future financial investor demographic that the industry needs to pay heed to, he said.
He said women have become a major force in making investment decisions, and investors need to understand and adapt to women's needs in investing.
Four out of five women are their family's primary source of income, and those women will be inheriting 70 percent of the $18 trillion coming from the Baby Boomer generation.
"That means don't take a broad stroke approach to what a woman needs based on her gender," Nally said. "You need to find out what her needs are by asking questions and listening."
He also outlined a big current trend in financial planning: the shift toward fee-based advisers versus the more traditional broker/dealer adviser.
Nally said that as more consumers become aware of the conflict of interest that can exist when a broker is selling his or her own company's financial product, more people choose the fee-only adviser.
In fact, he said, since 2005 the investment rate in fee-based advisers grew 75 percent while broker/dealership investments only grew by 21 percent.