Young investors more likely to switch advisers, citing high fees: J.D. Power survey

TORONTO — Traditional wealth management firms are at an increasing risk of losing younger clients, particularly as new rules to make investment fees more transparent loom, a new survey shows.

An investor satisfaction study released Thursday by J.D. Power finds 25 per cent of gen Z respondents and 22 per cent of millennials would consider switching wealth management firms in the next year, citing high costs as their top concern. That compared with 13 per cent of gen X.

The upcoming fee transparency regulations, called total cost reporting, are set to take effect in 2026. 

The study, which spanned between October and January, said millennials are more susceptible to switching advisers based on high costs and potentially not seeing value for their dollar. 

“We expect that willingness or at least consideration of leaving will remain fairly high,” said Craig Martin, executive managing director at J. D. Power, in an interview.

“Unless you have a long-standing positive market, (clients) are going to be more sensitive and focused on, ‘What are you really doing for me?'” 

“It’s going to create kind of this natural tendency to talk more about fees and cost and it’s going to be more front and center,” Martin said. 

He added the total cost reporting rules would require more clarity and communication in explaining the costs and fees associated with investments. 

The study showed a little more than half of advised client experiences are purely transactional in nature, which can result in lower loyalty to a particular firm or adviser.

But wealth management companies can get ahead of the new regulations by having the right discussions with their clients such as the firm’s values and personable skills. 

“It actually helps (advisers) build up a stronger relationship,” he said.

Having a human-centric approach can help wealth management firms retain young investors and show value for their service, the report said. 

Nearly one-third of millennials who have an adviser also have a second adviser relationship, the report showed, giving them a potential exit if it doesn’t work out with one firm.

That jumps to 44 per cent among wealthy millennials with assets totalling $1 million or more.

“People are testing out and maybe exploring different options early on to see what’s a great fit for them,” Martin said.

The millennial generation is also becoming the core group and hitting their key years of asset accumulation and need additional financial advice and guidance, Martin said, making it more important for wealth management firms to retain them.

The study shows National Bank Financial topped J.D. Power’s ranking for overall investor satisfaction, followed by Raymond James and Edward Jones.

This report by The Canadian Press was first published May 2, 2024.

Ritika Dubey, The Canadian Press