The investment industry faces the challenge of global aging

The statistics are familiar:

  • More than 1 in 5 Italians is already over age 65.
  • By 2020, there will only be 2.6 workers supporting each American retiree receiving Social Security benefit.
  • Within 20 years, the number of the elderly in China will exceed the number of children.

Simply put, much of the world is growing older at a very rapid pace, as life expectancies rise while birth rates fall.

Exactly what this agi5 minutes to 12ng trend means for the investment business was a question posed in many of the sessions at the Money Management Institute’s Sales and Marketing Leadership Summit held in Miami last week.

The received wisdom has been that an aging population is good for the investment industry. The logic goes like this: Older workers are more likely to have higher incomes and, with emptier nests, lower expenses – giving them greater wherewithal to save and invest.

The experience of the investment industry over the past few decades has certainly supported the validity of this story line. In the United States, for example, assets under management have grown tremendously as aging Baby Boomers have stashed money away in 401(k)s,  IRAs and other long-term savings vehicles. As nest eggs have grown, so has the investment industry. Optimists believe that the good times will even carry over to the next generation – who are expected to inherit substantial wealth from their Boomer parents.

But does this narrative still ring true? Several of the speakers at the MMI Conference argued that the following factors force a rethink the conventional wisdom:

The cost of aging. As the population gets ever older, savings may begin to shrink rather than grow – because they’re needed for increasingly expensive services to offset the physical and mental toll of aging. As speaker Steve Gresham, Senior Vice President of Fidelity Investments noted, nearly 1 of every 2 seniors over age 75 has a chronic condition that limits their activities, while every 69 seconds another person is diagnosed with Alzheimer’s.

What it could mean for the investment industry: There may be little for Gen X and Gen Y to inherit once the medical and caregiving bills are paid.

The risk of global instability. At the same time, the world that investment managers operate in may be more unstable. Aging is an issue only in the world’s most developed countries — and in China, where the one-child policy has kept the birth rate exceptionally low for decades. By contrast, societies in much of the lesser-developed world will remain quite young – and quite poor. As the gap between young and old – and between rich and poor – continues to widen, tensions are likely to increase.

What it could mean for the investment industry: Volatility may be on the rise, making investing less attractive and investment decision-making more difficult.

Aging adviser base. Within this more difficult macro environment, the investment industry is facing a micro problem: the aging of the corps of financial advisers. Today, the average financial adviser is 50 years old – and firms have not had much success recruiting new advisers to replace those who are about to retiring.

A large part of the problem is that the younger generation – the users of text messaging and social media – are feeling disconnected from the financial industry, which relies on the old technologies of email, telephone and paper. Yet firms often find it difficult to make the transition to the new technologies, because they must still maintain a substantial infrastructure to support existing advisors. As a result, traditional advisory firms may be vulnerable to competition from more creative startups.

What it could mean for the investment industry: Firms may not be prepared to serve the next generation of investors.



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