Typically considered overconfident and overpaid, Generation Y has a reputation for asking for the world and offering little in return. They aspire to run their own business – but balk at the thought of a 40-hour week. They expect training, cash bonuses and other perks as part of their employment package, yet wouldn’t hesitate to leave a job after as little as one year.

But while their attitudes and values might be at odds with their Baby Boomer parents, Generation Y is the future of the workforce and is soon to be the lifeblood of financial planning firms. Bernard Salt, partner at KPMG and commentator on consumer, cultural and demographic trends, says financial planners must establish a connection with the Baby Boomers’ Gen Y kids or risk being left behind.

Gen Y – broadly defined as those born between 1978 and 1994 – will inherit Baby Boomer wealth and should be a major focus of the planning industry over the next five years, he adds. “You have a relationship established over 30 years with Baby Boomers as parents, you need to establish a relationship with Generation Y,” Salt told planners at the Securitor convention in Auckland in late April. “The financial services industry is starting to wake up to the fact that the Baby Boomer opportunity ends at the end of the decade and if you don’t move now as a financial planner or business you’ll be wrong-footed and out of sync with the market in five to 10 years.”

Salt says while the bulk of funds under advice belongs to Baby Boomers, this will change imminently as this older generation moves into retirement and eventually dies off. He also quoted unpublished data from the 2006 Census, which revealed the average income per person aged 15 to 100 typically rises through their 20s and 30s and peaks between the age of 45 and 49. Contrast this with the 1986 Census, which found wealth peaked at between 39 and 44 years of age, and it’s clear that the wealth accumulation phase is broadening.

“The peak average income age is migrating slowly to the right,” Salt says. “At this age, you should have surplus funds which you invest and then later draw down. This is important information if you’re trying to sell financial services product to people at their peak wealth.” Data from Morningstar also supports the need for a shift in focus from boomers to their children. According to Morningstar’s Market Share Report for December 2007, more than $1.4 billion went into BT’s SuperWrap pension product in the December quarter – double the flows into the investment wrap option ($600 million). “Pension application volumes doubled in the second half of 2007 to a high of 1400 in September while internal transfers from accumulation to pension products quadrupled from around 400 to 1800 in August 2007,” says Chris Freeman, BT’s head of wrap solutions.

These figures reflect take-up of transition-to retirement opportunities and tax-free super over the age of 60, and indicate boomers will begin to draw down their savings shortly. According to Salt, the best way for planners to engage with Gen Y is through their parents. “There is an opportunity for events where parents bring their kids along to meet with planners,” he says. “Parents will be susceptible to long-term savings plans for their kids; any parent would welcome an opportunity to talk about long-term financial goals with a professional and with their kids in tow.”

The hook is the need of the boomer generation to progress succession planning, he adds. “Succession planning could mean bringing the kids into the business, engaging them as executives of their will, estate planning – a whole range of issues,” Salt says. “It’s been easy with the boomers to singularly focus on one generation, and if you’ve focused on the Baby Boomers you’ve probably done well, but that won’t be there in future. “You need to be a generalist, dancing between clients, and you need to talk across client segments. Planners in the past only needed to focus on one segment, now they need to focus on multiple segments. People that do that will thrive.”

However, a recent KPMG survey on attitudes towards financial planning from Gen Y revealed this technologically-savvy and socially-aware generation has very different aspirations from those of their parents. Gen Y typically desires access to the housing market, travel and education experiences, control over their investments and a “flight path” to wealth, Salt says. This calls for a “sexy, funky Generation Y website” and requires planners to tailor communications and services to suit the investment needs and goals of this “here and now” generation, he adds. “They are not a set and forget generation, they want to tinker and change their investments,” Salt says.

Neil Younger, head of advice business solutions at Securitor, agrees the key issue for Securitor’s planning practices as their client bases get older is the ability to connect to the younger generation. “The reality is that you will get a new generation of clients,” he says. “The pre-retirees and the wealth accumulators have different needs; they have needs around debt – they’ve got mortgages, they have different needs around risk because they’ve generally got families and have to protect their incomes and their lives, so the conversations and solutions are different to what they are for a pre-retiree or retiree market.”

He adds: “A lot of [what Securitor is doing to position itself ] is about providing the equipment and tools to give advice to that segment of the market. Generally, the industry is focused on pre-retirees and retirees, and that’s not to say we won’t continue to provide solutions to that segment of the market, but there’s a growing segment of the market that needs a broad proposition. There are kids of the parents that are retirees today, and [planners] have to work through the process of engaging that next generation.” Justin Wood, head of strategic solutions and client advisory group at Barclays Global Investors, says financial planners should be aware that a low level of financial assets does not equate with low net worth for generation X and Y.

Human capital – the stock of productive skills and technical knowledge embodied in labour – reflects the present value of future income earning potential, he says. It is far greater during an individual’s youth, making Gen Y a lucrative target for financial planners. “Thinking about clients with higher financial assets will push you towards older people,” he told planners at the Securitor convention. “But younger people have more human capital, which will translate into wealth.” Putting a value on human capital will motivate the need for death and disability insurance, and has implications for an individual’s asset mix, he says.

Human capital also motivates the need for lifetime financial advice, including lifetime spending and saving, superannuation contributions and advice on managing human capital as an asset. Wood believes the number of Australians seeking advice is set to grow dramatically, the main triggers being retirement, selling or starting a business and receiving an inheritance. “You’re in a great position, your businesses will grow,” he told planners. “Demographic changes are driving a growth in assets and demand for advice.”

Join the discussion