Introduction

DFMs are an established part of the investment landscape in South Africa. Research conducted by NMG1 showed that 67% of South African advisers operating outside of networks, use a DFM. In addition, 80% of IFAs under the age of 40 say that they will be using a DFM within the next three years. The reality is that the issues facing the DFM industry are no longer about winning new adviser relationships but rather, how to continually develop and help advisers as the broader investment industry changes.

To tackle the challenges and remain relevant, DFMs need to understand what is changing in the advisory world – and that means understanding how the client base is likely to change. Know thyself in psychology becomes know your audience within business. The audience is increasingly composed of millennials and to a lesser extent (for now), older Gen Z. Other clientfacing businesses have had to adapt to changing audience preferences and the investment world is no different.

In this article we explore what we can learn from other industries to see what millennials and Gen Z are likely to expect, demand and pay for when it comes to financial services.

Observing behaviours

Travel is a particularly instructive sector showing that, on average, millennials travel more than any other generation.

The way younger generations behave, and their expectations of service are very different to that of older generations. While there is not enough information yet on how Gen Z behaves, there is a wealth of data with respect to millennial travel. This generation, first called Gen Y before the millennial label stuck, is now straddling their 40s and while members typically have children, mortgages and financial liabilities, they also have spending power. What they want (demand) is starting to translate into how travel operators and hotels offer their services (supply).

Accessibility – wherever they are, wherever you are

74% of millennials typically book travel or holidays on their smartphones . More than just looking at restaurant photos or opening times, millennials are transacting and spending money on their phones and screen time is increasing as time passes. Usage amongst millennials has increased from 2 hours and 5 minutes per day in 20144 to 5 hours and 28 minutes per day in 20245 . It is almost as if the smartphone is being used as a wormhole device: wherever they are in the world, no matter how far away, younger travellers expect to be connected via the phone and able to access the same services as they do when at home.

Access to information

Younger investors have become accustomed to accessing information easily, quickly and, for the most part, cheaply. The internet has ushered in a generation that expects to find significant information at the click of a button. Google search and its peers are both a boon and a curse. Not having an online presence means not being part of the digital environment – without a footprint, there is no digital access. Moreover, it is considered par for the course that a service provider be able to furnish information about a wide range of ancillary services and topics. Booking.com, for example, no longer just provides hotel bookings but also provides travel advice, restaurant and transportation services, ratings and even travel guides. What was once an aggregator, and first point of contact is now expected to be a one-stop shop with information on products that lie outside of the Booking.com group.

The same will apply to financial advisers, as younger investors will expect them to provide ever greater amounts of research information and access to follow-on services.

Responsiveness – timely

Raised on a diet of constant updates, moving maps and real-time deliveries, 80% of millennials expect a substantive response to a query within 4 hours. This could be a phone call, email or message sent via WhatsApp. Younger travellers feel entitled to receiving proactive and ongoing updates – and why not? UberEats and Checkers Sixty60 give continual information; FlySafair now sends SMS messages with alerts about online check-in, which baggage carousel to use and even requests for traveller surveys. We can therefore expect that many millennials will not be satisfied waiting weeks or months without contact from their financial adviser. It has become imperative to be more present and immediate in the lives of young investors in order to ensure they feel valued as clients.

Frequency of contact

Younger travellers enjoy personalised service and engagement, to the point where their expected level of service often seems intrusive to older generations. Perhaps because they have grown up in a world where every relationship is discussed and boundaries negotiated, they seem happy to politely ask for more and greater service until such time as the service provider says no and draws a line – often to the puzzlement and disappointment of the traveller. Examples include guests asking for increasing numbers of amenities in their hotel room (“do you have extra towels?….and do you have a hair straightener?....and could you please see if you have any softer sheets?”), contacting hotel staff at night and even using WhatsApp to make requests directly to staff members, often at odd hours.

In a financial context, according to a survey conducted by State Street Global Advisors, when asked how often they would like to speak to a financial adviser, 25% of millennials responded “daily or weekly”.

What this means for DFMs

If millennials start to push these expectations on to their financial advisers, it will create a huge informational burden, as well as cost money and taking up far too much of the adviser’s time. But why should the adviser have to respond alone? One of the most overlooked aspects of working with a DFM is that it is a working partnership. As such, could the DFM assist the adviser in meeting these requirements? To go further, DFMs should proactively look to provide new and relevant services for advisers to help them satisfy client demands.

This means that, in a financial context, the DFM is well placed to answer queries about portfolio performance and questions that touch on economics, finance and even politics. After all, the bread and butter of a DFM is to research the markets and analyse funds, blend them together in appropriate solutions and report back to advisers and clients.

As a DFM we are in the fortunate position to draw on expertise within the broader Standard Bank group. We have multiple points of contact, allowing advisers and end clients to reach out to investment specialists and portfolio managers. Flexible working hours and operational scale means that there is always someone to deal with a request that comes in – no more waiting for an adviser to return from a golf holiday before a routine portfolio query can be answered!

Finally, a strong DFM can employ size and scale to improve its services to clients. This allows us to negotiate competitive pricing with asset managers and fully utilise capacity – the scale in the investment research team and the team of investment specialists that deal with client requests.

In conclusion

With more than $90 trillion expected to cascade down from baby boomers and older Gen X cohorts over the next 20 years7 , it is imperative that advisers are positioned to meet the service expectations of the new generation. It will be difficult for independent advisers to single-handedly invest in technology, be knowledgeable about a world of investment products and responsive to clients, as well as do the day job of solid financial planning.

A partnership with a strong DFM is the best and smartest route to solving these challenges and staying ahead of clients’ needs.