Personal interest and effort fuel engagement with the next generation of clients.

As the future beneficiaries of current clients’ estates and assets, Gen-Z investors are a generation that advisors can’t ignore.

As a Gen Z-er—an individual born between the years of 1995 and 2010—I believe that what sets my generation apart is our outlook on the process of maturing and becoming financially independent. This unique perspective is informed by growing up in a technologically reliant environment, where we constantly have ready access to information and immediate answers at our fingertips. Furthermore, my generation has been instilled with a passion to learn, become socially conscious and contributing members of society, and make an impact on the world.

So how does an advisor connect with this next generation of investors? The first step is understanding what we care about. From there, advisors can work on aligning those values with our larger goals.

Of course, clients’ investing preferences are never one-size-fits-all—and Gen Z is no exception. Still, there are some broad themes that advisors can keep in mind when thinking about this group. Here, we’ll explore some notable Gen Z insights, ways to help us develop the right approach, and how to incorporate values-based investing into our overall strategy.

Advisors can observe Gen Z behavior as a starting point for working with younger clients.

Morningstar’s 2020 research paper, “Generation Z Insights: The Newest Generation’s Approach to Retirement, Saving, and More,” which drew from a sample of about 1,300 young adults, offers some findings on my generation’s perspective.

The priorities and tendencies of my generation suggest how advisors can make financial management more valuable and palatable for us. One way pertains to advisors being transparent with clients and aiming to simplify the investing process, especially as we are starting out.

When I go to find financial direction online, I am overwhelmed by the sheer volume of available products, even from the platforms designed to be straightforward and uncomplicated. It’s hard to know what is authentic. Therefore, an important step for the younger audience is to understand how to find trustworthy sites with credited contributors.

This is where the advisor’s obligation to offer guidance and clear feedback comes in, beyond just looking for the easiest possible solution. We especially value independence and autonomy in our own decisions, and professional guidance would better help us reach that informed approach. For an advisor, this involves being able to manage the specific demands of their younger client.

“Take the younger cohort seriously…Have a pretty in-depth conversation of the pros and cons and see how it can possibly fit into their financial plan,” Morningstar behavioral researcher Samantha Lamas says. “If you’re not taking these requests seriously, the client has every right to leave if they don’t feel like their needs are being met.”

Though my generation is motivated and interested in learning how to manage our finances, it’s still hard to know where to begin.

The first step is to help us get into the right attitude and mental outlook. Morningstar portfolio strategist Amy Arnott suggested a few ways advisors can help Gen Z develop the right financial mindset and begin practicing solid investing behaviors.

To start, she believes it would be beneficial for advisors to offer guidance on debt management and basic budgeting tools, which are both significant causes of financial anxiety.

And because retirement isn’t yet on the radar of many Gen Z-ers, Arnott recommends building an investing plan that balances debt management and retirement expenses. This allows us to better understand the bigger picture and is also a good way to establish practical habits early in our financial lives.

“Help them realize that they don’t have to invest a huge amount just to get started,” Arnott says. “It’s good to set that baseline and start building that habit of investing and saving over time.”

These fundamental principles also relate to other ways Gen Z can start investing, especially within the environmental, social, and governance space. A global rise in social consciousness throughout the past few decades has made a significant impact on Gen Z and, as a result, we want to incorporate our values into our assets.

Morningstar ESG manager research analyst Alyssa Stankiewicz articulated a few ways these values can contribute to actively personalizing a portfolio.

“It’s one of the earliest iterations of trying to personalize your investments in line with your own values or beliefs, beyond just trying to optimize for financial return and risk mitigation,” she says.

We as young investors are interested in synthesizing our values and goals to develop a portfolio that reflects our personal interests.

One way in which this has played out in the investing marketplace is through thematic funds. These impact-driven investments are focused on a particular theme typically associated with more sustainable outcomes.

Stankiewicz says these investments are especially appealing for young people who are looking for a targeted way to express a socially conscious outcome. For example, consider the NAACP Minority Empowerment NACP or hydrogen-focused Defiance Next Gen H2 HDRO ETFs. These are relatively specialized topics directed at specific objectives—representative of the kind of niche approach young people often take as they start planning.

Still, she recommends that these thematic funds not be the core of one’s investment portfolio as they begin to save for retirement, because they tend to be volatile. There are, however, broad market ESG and sustainable funds that could work as a core offering.

In this environment where investors want to make a larger impact while prioritizing personal preference, part of the portfolio construction process involves embedding sustainable principles into asset-class allocation to reach an individual’s preferred level of diversification.

Portfolio construction decisions are all driven by the individual’s personal preferences, but the key is that an advisor demonstrates an effort to navigate the broad landscape of options.

This is true for any client group, but especially for Gen Z. We are constantly surrounded by information but have no way to internalize it; as I start out on my own financial journey, I would appreciate an advisor’s informed insight while creating my personalized plan.

Stankiewicz says: “Willingness to do the research and get the right answer goes a long way in terms of client loyalty.”

The role of the advisor has not changed for this generation. What has changed, or rather, shifted, is the mindset that young people are taking toward gaining their financial independence.

We care about our values, and our investments reflect those values. What we seek in an advisor is help making sense of this mountain of information that surrounds us; developing a feasible strategy and executing a plan will follow accordingly.

Young investors are proficient with technology, and we are naturally more open to utilizing online financial resources for navigation. While many may think this would point us to want to invest purely through a robo-advisor, we still value the human aspect and often prefer working with someone in person when seeking financial guidance. This is significant for advisors in thinking about their next generation of clients.

“People want to be able to talk to someone who really understands what their goals are,” Arnott says. “For advisors, it’s helpful as with any generation, just to listen and really make sure that they understand what their client is looking for. And try to meet people where they are in their financial journey.”

Katie Sasamoto-Kurisu does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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