The Race for Next-Generation Assets: Can Banks Maintain Their Lead? July 2012

Transcription

1 The Race for Next-Generation Assets: Can Banks Maintain Their Lead? July Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited.

2 AN AITE GROUP REPORT PREPARED FOR: Scivantage 499 Washington, 11th Floor Jersey City, NJ Toll-free: Phone: Fax: Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited.

3 TABLE OF CONTENTS IMPACT POINTS... 4 INTRODUCTION... 5 METHODOLOGY... 5 INVESTMENT PROVIDER CHANGES AND PREFERENCES AMONG THE YOUNG... 7 POST-CRISIS PROVIDER CHANGES... 7 BANKS AS THE PREFERRED INVESTMENT PROVIDER HOW TO ATTRACT AND RETAIN NEXT-GENERATION INVESTORS FEES AND TRADING COMMISSIONS FINANCIAL ADVISORS AND ADVICE CONVENIENT SERVICE ONLINE TOOLS MOBILE TOOLS PRODUCT SELECTION CONCLUSION LIST OF FIGURES FIGURE 1: INVESTMENT PROVIDER CHANGES MADE OVER THE LAST THREE YEARS, BY GENERATION... 7 FIGURE 2: INVESTOR OUTFLOWS, BY PROVIDER TYPE AND GENERATION... 8 FIGURE 3: PRIMARY INVESTMENT PROVIDER, BY GENERATION... 9 FIGURE 4: PRIMARY INVESTMENT PROVIDER, BY GENERATION AND MAIN BANK TYPE FIGURE 5: REASONS FOR SHIFTING INVESTMENTS TO ANOTHER FIRM FIGURE 6: REASONS FOR LEAVING AN INVESTMENT PROVIDER FIGURE 7: WHAT BANKS CAN DO TO GROW SHARE OF INVESTMENTS HELD BY THE AFFLUENT OR HIGH- INCOME GEN XERS AND YERS FIGURE 8: FREQUENCY OF ONLINE TRADING, BY GENERATION FIGURE 9: INVESTOR STYLE, BY GENERATION FIGURE 10: INVESTMENT PRODUCT OWNERSHIP, BY GENERATION Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 3

4 IMPACT POINTS This report is based on Aite Group s December 2011 survey of more than 1,000 U.S. investors who hold a minimum of US$25,000 in investable assets and have access to online trading capabilities. The sample is representative of approximately half of the U.S. population. Younger generations present multiple opportunities for wealth management firms to capture significant assets over the next 30-plus years through inheritance and wealth-building endeavors. Wealth management firms that can understand and address the unique needs of today s younger-generation investors will be the best positioned to capture their future wealth. Aite Group s research reveals that the wealth management industry may not yet be sufficiently in tune with the needs of younger generations. Gen Xers and Yers have been far less loyal to their investment providers over the last few years (e.g. over half left an investment provider or shifted assets during this time period) compared to Boomer and Silent Generation investors, indicating that young investors have yet to find their ideal investment provider(s). In spite of these provider changes (which impacted banks disproportionately), close to 40% of young investors still consider a bank to be their primary investment provider. By contrast, only 20% of young investors consider an online brokerage firm to be their primary investment provider in spite of their strong adoption of online trading. Young investors preference for banks as primary investment providers is higher among investors who consider a top five U.S. bank to be their main bank one in two Gen Y banking customers of a top five U.S. bank invests primarily with a bank. There s no doubt that the superior online capabilities provided by the top five banks make it convenient and easy for these customers to start their investing lives with their bank. According to investors, attracting and retaining the assets of the most affluent of Gen Xers and Yers the young affluent or high-income will require banks to lower the fees and commissions they charge, improve the financial advice they provide, expand the convenience of their services (including providing online and mobile tools), and provide a wider product selection (including alternative investments). Online investing capabilities are now second nature to Gen X and Y investors, and will be a requirement for banks that want to go after future high-net-worth or current affluent or high-income Gen Xers and Yers. Slightly less than 70% trade online more than five times per year, and one-third trade more than 25 times per year Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 4

5 INTRODUCTION Younger generations present multiple opportunities for wealth management firms to capture significant assets over the next 30-plus years. Not only will they accumulate assets through their own efforts for decades to come, but they also stand to inherit assets from their parents and grandparents the baby-boomer investors (herein referred to as Boomers ) and Silent Generation investors who hold most of the wealth today. According to The Boston College Center on Wealth and Philanthropy 1, more than US$40 trillion is expected to transition to younger generations in the U.S. over the next several decades. Wealth management firms that can understand and address the unique needs of today s younger-generation investors will be best positioned to capture their future wealth. Aite Group s research reveals that the wealth management industry may not yet be sufficiently in tune with the needs of this generation. Gen Xers and Yers have been far less loyal to their investment providers over the last few years compared to Boomer and Silent Generation investors, indicating that these younger segments have yet to find their ideal investment provider(s). In this report, we take a look at the investing preferences of younger generations and discuss how wealth management firms can adapt to better meet the needs of Generation X and Generation Y. In particular, we focus on the importance of banks to the younger investor population and discuss how they can maintain their advantage in the race to capture next-generation assets. Herein, generational segments are broken out into the following categories: Older Boomers and the Silent Generation (currently over 57 years of age) Younger Boomers (47 to 57 years of age) Generation Y (21 to 31 years of age) Generation X (32 to 46 years of age) We also analyze the specific needs of future high-net-worth investors the young affluent or high-income which we define as Generation X and Y investors who hold at least US$250,000 in investable assets or have a household income of more than US$140,000. METHODOLOGY Aite Group conducted an online survey of 1,014 investors in December Given the sample size, the data has a margin of error of three percentage points at the 95% level of confidence. Participants were required to hold at least US$25,000 in investable assets, including bank, brokerage, and individual retirement account (IRA) account balances. Given this requirement, our survey is representative of the top 65% of the 119 million reported U.S. households as of 1. John J. Havens and Paul G. Servish, Why the $41 Trillion Wealth Transfer is Still Valid: A Review of Challenges and Questions., The National Committee on Planned Giving s The Journal of Gift Planning, 1 st Quarter 2003, Vol. 7, No.1: 11-15, Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 5

6 2011, based on net worth and median investable assets. 2 The second criterion for participation was access to online trading. Investors were asked whether a portion of their investable assets are held with a firm that offers online trading, whether or not the investors trade online. Approximately three-quarters of investors who met the investable assets criterion stated that they have some funds with a firm that offers online trading. Thus, our survey population is representative of about half of the U.S. population (59 million households). 1. Investable assets include investment and bank assets, excluding 401(k) plan assets and other assets that are not easily transferrable. Data sources include the 2007 Survey of Consumer Finances, the U.S. Census Bureau, and Aite Group Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 6

7 INVESTMENT PROVIDER CHANGES AND PREFERENCES AMONG THE YOUNG POST-CRISIS PROVID ER CHAN GES The many notable market events of the last three years (e.g., the credit crisis and firm collapses, the market fluctuations of 2011, etc.) drove many investors to restructure portfolios, shift assets, and switch firms. Approximately 60% of investors surveyed in December 2011 have made changes to their investment providers over the last few years, with younger investors constituting 65% of investors who made such changes (Figure 1). Most investment provider changes from 2008 to 2011 comprised a switch in firms or a shift in assets across firms; half of Gen Y and almost half of Gen X investors surveyed made such changes. Only 15% of these investors reduced the number of investment firms they work with, indicating that most investors did not make changes in order to consolidate providers and simplify their financial situation. Furthermore, only 7% increased the total number of investment providers, indicating that investors are not looking to add to their existing offers. These movements show that younger investors are looking to improve their situation and find offers that better meet their needs. Figure 1: Investment Provider Changes Made Over the Last Three Years, by Generation Q. What significant changes have you made in the last three years regarding the firms where you hold investments? Across segments (n=1,014) 18% 19% 15% Older Boomers and Silent Generation (n=244) 13% 5% 15% 4% Younger Boomers (n=227) 15% 13% 7% Generation X (n=302) 23% 24% 15% 7% Generation Y (n=241) 19% 31% 17% 7% Shifted a significant percentage of investments from one firm to another but kept the number of firms where I hold investments the same Switched firms but kept the number of firms where I have investments the same * Decreased the number of financial institutions I work with Increased the number of financial institutions I work with *Boomer and Silent Generation investors were less likely to make changes over the last three years Source: Aite Group survey of 1,014 U.S. investors, December Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 7

8 How do investors changes impact firms? Banks and large brokerage firms experienced the most disruption from the shifts and switches of young investors (Figure 2). Approximately one-third of Gen X and Y investors surveyed (both affluent or high-income and less affluent segments of Gen Xers and Yers) removed investments from a bank. In addition, the same percentage of young affluent or high-income investors removed investments from a large brokerage firm. These types of firms manage investments for a significant share of the retail investor population, which partly explains the greater volumes of people shifting assets or switching away from these types of firms. One-quarter of investors state that their primary investment provider is a bank, and the same percentage cites a large brokerage firm as their primary provider (Figure 3). Similar to banks and large brokerage firms, one quarter of investors indicate that an online broker is their primary investment provider.. But these firms lost far fewer investors compared to large brokerage firms and banks. Fewer than 10% of Gen X and Y investors and fewer than 10% of Older Boomers and Silent Generation investors removed investments from an online brokerage firm. Figure 2: Investor Outflows, by Provider Type and Generation Q. What is/are the type(s) of firms from where you removed investments? Older Boomers and Silent Generation (n=244) Younger Boomers (n=227) Gen X and Y affluent or high-income (n=148)* Gen X and Y less affluent (n=395)** 7% 8% 11% 5% 11% 7% 19% 12% 9% 28% 28% 33% Investment division of retail bank Small and midsize brokerage Large brokerage Online brokerage *28% (large brokerage) is larger than and 8% (Boomer and Silent Generation) **33% significantly higher than 11% and 7% (Boomer segments) Source: Aite Group survey of 1,014 U.S. investors, December Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 8

9 Figure 3: Primary Investment Provider, by Generation Q. Which type of firm do you consider to be your primary investment provider? (By generation) Across segments (n=1,010) 25% 28% 2 7% Older Boomers and Silent Generation (n=244) 11% 38% 25% 7% 11% Younger Boomers (n=227) 32% 24% 8% Generation X and Y affluent or highincome (n=147) 25% 19% 28% 5% 13% Generation X and Y less affluent (n=394) 37% 22% 27% Investment division of retail bank* Large brokerage firm Independent investment advisor Private bank Online brokerage** Small to midsize brokerage firm Insurance firm *37% is larger than same percentage for other segments **38% and 32% larger than 19% and 22% Source: Aite Group survey of 1,014 U.S. investors, December 2011 One reason for the limited investor and assets outflows from online brokerage firms is the demographic profile of their client base; the majority of online brokers clients are Younger and Older Boomers as well as Silent Generation investors. These investors are less inclined to make changes to their portfolios and relationships at their life stage than are younger investors. The success of online brokers over the last few years is not only due to the greater investing inertia among older clients, however; it is primarily due to these brokers ability to keep up with the changing needs of their client base. Previous Aite Group research 3 shows that online brokers have surpassed their pre-crisis (2007) asset levels by around 12%, while wirehouse firms remain 10% behind their 2007 levels. Online brokerage firms have been particularly successful with retaining and growing client relationships by continuously enhancing their online platform to keep up with the latest technology innovations and by expanding their wealth management services to meet the full range of their clients financial needs (e.g., by offering bank and trust products as well as fee-based portfolio management). These firms are also well-positioned to cater to the mainstream investor of today, who seeks control over the investment decision-making process. Across generations, the majority of investors prefer to make their own investing decisions after receiving advice from experts ( Figure 9). 2. See Aite Group s report, New Realities in Wealth Management: From Dusk Till Dawn, July Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 9

10 BANKS AS THE PREFERRED INVESTMENT P ROVIDER In spite of the significant percentage of Gen X and Y investors removing investments from their bank(s), close to 40% of these investors still consider a bank as their primary investment provider (including private banks; Figure 3). By contrast, only 20% of younger investors consider an online brokerage firm as their primary investment provider. This preference for banks over online brokers is somewhat surprising given the higher adoption of online trading by young investors relative to Boomers and Silent Generation investors (Figure 8). Thus, the switches and shifts of the last few years did not lead to an exodus of young investors from traditional wealth management providers (e.g., banks and large brokerage firms) toward online/discount brokers. Rather, our research indicates that some of the shifts and switches have occurred between banks; many Gen Xers and Yers report that they have more than one bank relationship. Banks differ widely in their investing capabilities. The top five U.S. banks by deposits all provide comprehensive wealth management capabilities through multiple channels (online, phone, and via branches). Banks that fall below the top 20 based on deposit size may not all yet provide an online brokerage option, or the ability to receive investment services remotely. Many Tier-3 banks and credit unions do not currently offer investments to their clients or provide a limited solution set and delivery capabilities. Given this diversity, we segment banks into three groups: Top five retail banks based on assets and number of retail customers Bank of America, JPMorgan Chase, Citibank, U.S. Bank, and Wells Fargo which represent approximately half of investors surveyed Other large banks: Tier-1, Tier-2, and a few larger Tier-3 banks, 4 which represent approximately 20% of investors surveyed Credit union, community, and small banks, which represent approximately 15% of investors surveyed This segmentation reveals that the preference for banks as primary investment providers is highest among investors who consider a top five U.S. bank to be their main bank. Thirty-five percent of affluent or high-income Gen X and Y customers of a top five U.S. bank state that they invest primarily at a bank. Only indicate investing at an online brokerage firm (Figure 4). When adding the percentage of young affluent or high-income investors who indicate that they invest with Merrill Lynch or Wells Fargo (part of the large brokerage category), we can state that the top five U.S. banks have a primary investment relationship with half of their affluent or highincome Gen X and Y banking customers. There s no doubt the superior online capabilities provided by the top five banks are making it convenient and easy for these customers to start their investing lives with their bank. 2. Tier-1 banks have more than US$80 billion in assets, Tier-2 banks have between US$40 billion and US$80 billion in assets, and Tier-3 banks have between US$1.5 billion and US$40 billion in assets Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 10

11 Young (GenX/Y) affluent or high-income Generation Y (21 to 31)* Generation X (32 to 46)** Boomers (47 to 65)*** The Race for Next-Generation Assets: Can Banks Maintain Their Lead? July 2012 Figure 4: Primary Investment Provider, by Generation and Main Bank Type Primary Investment Provider Type by Generation and Main Bank Type Top five bank (n=156) 37% 2 24% 13% Other large bank (n=71) 34% 20% 25% Credit union and small banks (n=100) 33% 23% 9% 35% Top five bank (n=156) 18% 35% 39% 8% Other large bank (n=68) 25% 2 24% 25% Top five bank (n=145) 17% 20% 49% 14% Other large bank (n=49) 12% 35% 35% 18% Top five bank (n=75) 29% 35% 20% Other large bank (n=34) 29% 29% Online brokerage Investment division of retail bank Large brokerage firm Other investment providers *49% is larger than 24% (Boomer percentage); 20% (top five banks) is smaller than 35% (other large banks) **39% (top five banks) is larger than 24% (other large banks) ***Percentage with online brokerage at top five banks is higher than same percentage for Gen X and Gen Y Source: Aite Group survey of 1,014 U.S. investors, December 2011 Young banking customers of other tier 1 and tier 2 banks are less inclined to invest primarily with their bank in comparison to young banking customers of the top five U.S. banks. Gen X investors who bank primarily with other large banks (Tier-1 or Tier-2 banks other than the top five) have an equal preference across the three main investment provider types (retail banks, large brokerage firms, and online brokerage firms). Customers of small banks and credit unions (mostly Younger and Older Boomers and Silent Generation investors) are the least likely to consider a bank to be their primary investment provider. More than one-third view an online brokerage firm as their primary provider. Small banks and credit unions have been slower to acquire wealth management capabilities over the last two decades in comparison to larger banks. In addition, they have older clients, who are less inclined than younger clients to invest with a bank. Offering multi-channel investing capabilities may be one way to acquire younger customers. What can banks do to catch up to the top five U.S. banks and grow the share of investment assets held by their Gen X and Y banking customers? What can the top five U.S. banks do to 2012 Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 11

12 ensure they retain these fickle investors as their financial lives grow more complex? Based on investor feedback, we provide answers to these questions in the next sections of this paper Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 12

13 HOW TO ATTRACT AND RETAIN NEXT- GENERATION INVESTORS To help banks answer this question, we asked our sample of Gen X and Y investors why they shifted assets and left their investment providers over the last few years. We also asked where their main banks would need to improve in order to attract more of their investments. The reasons cited in both cases were similar (Figure 5, Figure 6 and Figure 7). Figure 5: Reasons for Shifting Investments to another Firm Q. Why did you shift investments to another firm? (n=181) Fees (such as account fees, financial advisory fees, and asset management fees) Financial advisor Interest rates Trading commissions Financial advice Convenience Customer service Selection within product types (e.g., types of ETFs, mutual funds) Availability of product types (e.g., options, futures, FX, annuities)** Online tools* Rewards program*** Mobile tools**** 0% 28% 27% 25% 17% 18% 19% 17% 12% 10% 14% 13% 9% 9% 20% 9% 17% 33% 33% 25% 19% 2 14% 19% 23% 28% 24% 28% Boomers and Silent Generation (n=67) Gen X and Y affluent or high-income (n=43) Gen X and Y less affluent (n=71) * significantly lower. **24% higher than 9% ***20% higher than ****17% higher than 0% Source: Aite Group survey of 1,014 U.S. investors, December Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 13

14 Figure 6: Reasons for Leaving an Investment Provider Q. Why did you leave your former investment firm? Fees (such as account fees, financial advisory fees, and asset management fees) Interest rates Financial advisor Convenience Selection within product types (e.g., types of ETFs, mutual funds) Financial advice Customer service Availability of product types (e.g., options, futures, FX, annuities) Trading commissions Online tools* Rewards program*** Mobile tools** 10% 9% 8% 13% 10% 4% 5% 2% 5% 9% 7% 12% 14% 13% 11% 15% 14% 14% 15% 20% 15% 18% 17% 15% 25% 20% 2 23% 20% 14% 20% Boomers and Silent Generation (n=114) Gen X and Y affluent or high-income (n=56) Gen X and Y less affluent (n=178) *5% significantly lower **2% lower ***11% higher Source: Aite Group survey of 1,014 U.S. investors, December Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 14

15 Figure 7: What Banks Can Do to Grow Share of Investments Held by the Affluent or High- Income Gen Xers and Yers Q. Concerning your primary bank, what would your bank need to offer you for you to consider moving more of your investments there? (Investors with some investments at their main bank) Better financial advice Lower fees related to investments 32% 23% 29% 31% Financial advisors and/or bankers who recommend solutions that are in my best interests* Better rewards program More convenient service (e.g., being able to receive service over the phone)* 15% 13% 27% Better investment product selection/choice More services (e.g., financial planning) Better online brokerage/trading capabilities Nothing I do not want all of my investments at one institution* Nothing I do not want to move my investments over from where they are Nothing I don t think of my bank as a place where I want my investments managed 13% 19% 20% 18% 20% 5% 10% 4% 11% Gen X and Y young affluent or high-income (n=104) Baby Boomers (n=120) *Significant difference between two groups Source: Aite Group survey of 1,014 U.S. investors, December 2011 FEES AND TRAD ING COMMISSI ONS The top reasons cited by investors across generations for shifting assets and leaving firms relate to the price of investment products and services, including account fees and commissions. Fees were also cited as the number two improvement area for banks by affluent or high-income Gen Xers and Yers. The fees that are particularly concerning for the young affluent or high-income are trading commissions (a quarter cites shifting investment assets because of trading commissions). This is because this group trades online most actively; slightly less than 70% trade online more than five times per year and one-third trades more than 25 times per year (Figure 8). This online trading 2012 Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 15

16 behavior indicates that firms which do not provide online trading capabilities will face challenges in capturing these investors. Investment firms that provide online trading and can differentiate on price will be in a better position to attract the assets of these future high-net-worth investors. Figure 8: Frequency of Online Trading, by Generation Q. How many times do you make changes to your investments on your own by placing trade orders online? Across segments (n=1,010) 31% 35% 11% 23% Older Boomers and Silent Generation (n=244) 40% 5% 34% Younger Boomers (n=227) 33% 27% 8% 32% Generation X (n=302) 29% 38% 15% 17% Generation Y ( n=241) 23% 53% 15% 9% Young affluent or high-income (n=148)* 39% 27% 13% Less than five online trades per year Between five and 25 trades per year, on average More than 25 trades per year, on average Never *Gen X and Y investors with at least US$250,000 in investable assets or US$140,000 in household income; 27% is significantly higher Source: Aite Group survey of 1,014 U.S. investors, December 2011 FINANCIAL ADVISOR S AND ADVICE In addition to lower fees and trading commissions, younger investors are also looking for better financial advice from their advisor, particularly as a condition for moving more investments to their main bank. Younger investors (particularly Gen Yers) also cite financial advisor and financial advice as top reasons for shifting assets. Most of these financial-advisor-led movements are positive for the advisor and driven by first-time advisor relationships among young investors. The response of the young affluent or high-income players, however, at least with respect to their bank s financial-advice capabilities, shows that banks do have room to improve on the quality of the advice they provide. Areas of improvement for financial advisors are investment-performance- and client-service-related (e.g., more proactive contact and more focus on client needs). Close to one-third of the young affluent or high-income investors who have some investments with their bank also state that they would shift investments to their bank if financial advisors would recommend solutions that are in their clients best interests. Given this awareness, firms that can reduce or eliminate product-compensation-based conflicts 2012 Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 16

17 of interest between the advisor and client will be more desirable for this group of investors. This preference for advisors who are aligned to investors interests also shows that advisors who have a legal fiduciary obligation to act in clients best interest (as RIAs do) would be desirable for this group in particular. Younger investors interest in online trading and in working with a financial advisor (almost 70% of the young affluent or high-income work with a financial advisor) indicates that this group wants both self-directed investing capabilities and access to advice through a financial expert. Firms that can integrate both direct and advisor channels to provide investors with ongoing expert advice on all of their investment holdings, including those held in a self-directed account, will be in a strong position to retain and grow relationships with younger investors. CONVENIENT SERVICE The third most frequently cited reason for leaving a firm or shifting assets to the bank is convenience. The young affluent or high-income Gen Xers and Yers were more likely than both Younger and Older Boomers to state that improving the convenience of the investment service would lead them to move more assets to their bank. Convenience is a high priority for this group; our survey revealed that these investors are likely to be time-pressed (the majority are dual-income couples with young children). Convenient service includes the ability to receive services remotely, such as through online or phone channels, rather than solely at the branch. O N L I N E T O O L S Online tools are an important driver of asset shifts for the young affluent or high-income group; close to one-third of young affluent or high-income investors cited online tools as a reason for shifting assets. By contrast, only of older investors selected online tools as a reason for shifting assets. Convenience and online tools are related since the ability to access and manage investments online is typically more convenient than is working through a financial advisor, who may not always be available. Younger generations are used to meeting banking and billing needs online at any time of the day, and they expect similarly convenient service on the investment side. The ability to manage investments online also gives investors the control they desire over their investments. Our investor survey revealed that investors young and old are looking for control over the investment decision-making process. They may not all seek to manage investments completely on their own (half of the young affluent or high-income do), but they want to be in control of the ultimate investment decision (Figure 9) Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 17

18 Figure 9: Investor Style, by Generation Q. What type of investor are you? Across segments 42% 3 17% 5% Older Boomer and Silent Gen (n=244) 34% 2 27% 10% Young Boomer (n=227) 35% 41% 19% 5% Gen X and Y less affluent (n=395) 45% 40% 12% Gen X and Y affluent or high-income (n=148) 49% 39% 11% I look into investments on my own and make my own decisions I take suggestions from a financial adviser or other trusted person, but often make my own decisions I take suggestions from a financial adviser or other trusted person, and use their recommendations most of the time I let a financial advisor make all the decisions for me Source: Aite Group survey of 1,014 U.S. investors, December 2011 M O B I L E T O O L S Mobile tools were also cited more frequently among less affluent Gen X and Y investors as a reason for shifting assets (17% of less affluent Gen X and Y investors cited mobile tools as a reason for shifting assets). This is at least partly due to the younger demographic among less affluent Gen X and Y investors (47% of this group are Gen Y versus 37% among the young affluent or high-income group) Gen Yers have a particularly high adoption of smartphones (almost 100% of Gen Y investors surveyed indicate owning a smartphone) and 40% own a tablet device (30% own ipads). Young investors increasingly rely on their mobile devices to perform financial transactions and access financial information. These statistics indicate that mobile capabilities are starting to drive provider choices and have a real monetary impact on firms. Investment firms that do not provide mobile capabilities will face more and more difficulty in attracting the young generation as their reliance on mobile devices grows. PRODUCT SELECTION Availability of product types was a more important driver of investment outflows for younger generations than for older groups. Younger generations are less interested in owning the traditional basket of products that their parents own particularly mutual funds and stocks. They are more likely than older generations to own alternative investments (e.g., options, futures, and even hedge funds; Figure 10) and a relatively large percentage own ETFs. This interest in lower-cost and alternative products is also driving some young investors to leave 2012 Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 18

19 investment firms altogether; close to 20% of young investors cited the selection within product types (e.g., types of ETFs, mutual funds) as a reason for leaving a firm. Figure 10: Investment Product Ownership, by Generation Q. Which of the following types of investments do you have? Stocks* Mutual funds* Bonds 51% 53% 41% 49% 41% 42% 3 31% 73% 69% 73% 70% Exchange-traded funds (ETFs) Commodities** Hedge funds/private offerings*** Foreign exchange contracts*** Futures contracts** Options contracts 5% 3% 4% 13% 14% 9% 10% 18% 15% 5% 4% 14% 1% 13% 8% 5% 11% 7% Older Boomers and Silent Generation (n=244) Younger Boomers (n=227) Gen X and Y affluent or high-income (n=148) Gen X and Y less affluent (n=395) *Gen X and Y segments lower than Boomer segments **Gen X and Y affluent or high-income higher than Older Boomer segment ***Gen X and Y affluent or high-income higher Source: Aite Group survey of 1,014 U.S. investors, December Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 19

20 CONCLUSION The top five U.S. banks and other large banks, to a more moderate extent have succeeded in capturing the new, younger investors that constitute Gen X and Gen Y. These investors are, for the moment, less inclined to invest with an online brokerage firm than are their Boomer parents, despite the fact that they are more self-directed in their investing style than Boomers. The online platforms, built by the top five U.S. banks on both the bank and the investment sides of the organizations, have clearly satisfied the needs of their tech-savvy young customers. Banks cannot rest on their laurels with these groups, however. As the past three years have shown, young investors are less loyal to investment providers than are their parents and grandparents. Banks seeking to maximize their ability to retain and grow share of wallet with young investors should to work on the following: Add online investing capabilities or ensure these platforms are receiving sufficient investments to keep up with the latest consumer technology innovations. In particular, capturing the most affluent of Gen X and Y investors requires online trading capabilities and attracting Gen Y investors more generally will also require offering mobile capabilities on the iphone and ipad. Address Gen Y and X investors current needs for better financial advice by deploying the expertise of experienced financial advisors in a more scalable fashion, relying less on the face-to-face interaction and manual processes that are typical of the traditional services provided by financial advisors and depending more on virtual communication through Web-based collaboration tools, , and phone. Dive deeper into customers issues with investment fees. Investors belief that they are paying too much for investment products and accounts is pervasive throughout the industry. Banks have an opportunity to provide lower fees on the investing side through relationship pricing that integrates deposit and loan products. Continue to work on providing more convenient service. Many large banks already provide more convenient service (e.g., online banking, bill pay, access to ATMs and personal financial management capabilities) compared to other types of wealth management providers on the banking side. Banks must continue to differentiate in this area to attract and retain Gen X and Y investors through better integration of online banking and investing activities and through more intuitive and useful personal financial management tools. Expand product offerings to attract the young affluent. Many young affluent or high-income investors are shifting assets or switching firms to invest in nontraditional products for the purpose of growing investment returns. Banks should look further into leveraging their institutional and foreign exchange capabilities to provide new investment options to younger investors Scivantage. All rights reserved. Reproduction of this report by any means is strictly prohibited. 20