The Young and Rich Driving New Opportunities at Intersection of Wealth and Insurance

Know-It-All Millennials Who Spurn Professional Financial Advice Are Exceptions to the Rule; Experts on Meeting Surging Demand for Insurance Needs of the Younger Wealthy 

On November 10, the Wall Street Journal quoted a wealthy millennial declaring, “It’s easy to manage $500,000, $1 million yourself.” According to the WSJ, “Wealthy young investors don’t see much use for the wealth-management firms their parents rely on. They would rather pick their own stocks or plow their money into cryptocurrency.”

Yeah, with Bitcoin down over 50% from the date of the story and crypto markets continuing their nosedive, one can only wonder how that strategy is working for the intrepid investor who learned that it’s easy to manage $1 million into $500,000 yourself.

Though these bold and reckless investors attract attention and headlines, the truth is very few young fools are ready to part with their fortune through a mistaken belief that they’re smarter than decades of accumulated professional expertise and wisdom.

Indeed, based on past WSR surveys, the majority of younger clients with greater assets are actually sophisticated and mindful of the need for a financial plan, professional guidance and most importantly, the financial solutions in place to protect the assets and income they created.

This awareness of the need to protect assets and income among wealthy millennial and even Gen Z investors generates a tremendous amount of activity at the intersection of insurance and wealth management.

Same Products, Younger Clients

According to Josh Harris, CPA, Managing Director, Corporate Development at Coldstream Wealth Management, an independent RIA based in Seattle with offices in Portland, Oregon, and over $7 billion in assets under management, traditional insurance falls into six broad categories: property and casualty (for protecting assets), liability (for actions or association), health care, long term disability (if you can’t work), life and estate (funding the cost of estate management). 

“In the past,” says Harris, “insurance solutions were mostly targeted towards older individuals and families with assets, income and heirs to protect.” He adds that “over the past 20 years, the face of wealth has been reshaped, with many people in their 40s, 30s and even 20s achieving levels of wealth that previously might have taken a lifetime to reach.”

According to Harris, the toolkit remains the same, but products must be adapted to a younger demographic, including longer life insurance calculations and preparation for young families rather than retirement, with small children or no children yet versus adult college-graduate children. 

Insuring the HENRYs 

Robert Amoruso, CEO and Managing Partner of Gideon Strategic Partners, tells us that the boom in technology, finance and other industries that generate rapid wealth has led to growth in the HENRY (high earnings, not rich yet) client segment, those who typically earn at least $200,000 annually with a net worth over $1 million but haven’t yet reached high asset levels.

Gideon Strategic Partners, a Santa Monica-based independent wealth management firm with over $500 million in assets under administration, has developed significant expertise in serving HENRYs in its client base. 

In Amoruso’s experience, for HENRYs, “the pandemic has just escalated their awareness of the importance of insurance solutions that can protect the wealth they have achieved, and do so in ways that add value to their broader financial plan.”

The greatest current insurance needs of HENRYs are term insurance “to hedge mortality risk or specific debt/obligations,” according to Amoruso, and permanent insurance “for estate planning and tax efficient wealth accumulation and transfer.”

Insurtech for Digital Connection

Well-established financial services firms that traditionally work with financial advisors recognize that younger investors have a DIY preference that may take time to overcome, driving an increased interest among firms in acquiring or investing in insurtech businesses that directly connect insurance and consumers digitally.

As Jim Gelder, CEO of Highland Capital Brokerage, recently told us, Gen X, millennials and Gen Z “tend to look digital first,” and “digital tools and tactics will be a cornerstone of” client acquisition strategies going forward. To meet these needs, Highland recently acquired an insurtech firm providing online insurance solutions.

“Traditional insurance distribution is giving way to non-traditional insurance advisors as the main distributors of products,” notes Mr. Gelder. 

Tax, Inflation and GoFundMe

Doyle Williams, CEO of Concourse Financial Group, the Birmingham, Alabama-based provider of advisory, brokerage and insurance services with $16 billion in assets under advisement, points out that clients often seek insurance solutions to tax and inflation problems. 

“The tax proposals coming out of Washington … encourage people to explore ways to shield income and assets,” he tells us, and clients have “a desire to mitigate volatility accompanying higher interest rates and elevated inflation.”

 “Too often, a GoFundMe page highlights a planning failure,” Mr. Williams notes. 

And that’s the real bottom line for younger wealthy investors – get professional guidance and protect your income and assets with insurance solutions now – don’t leave the door open for disaster. The GoFundMe life is hard.

Fortunately, most wealthy young investors already know this. 

Julius Buchanan, Senior Contributing Editor at Wealth Solutions Report, can be reached at jbuchanan@wealthsolutionsreport.com