Volatility 2020 Weathering the Storm: Coronavirus response by generation

Moderated by Will McKenna, featuring Mike Van Wyk and Paul Cieslik

Will McKenna: Hello, and welcome to Capital Group's Volatility 2020 Webinar and Podcast Series. I'm your host, Will McKenna, and I want to thank you all for joining us today. Great to have you on the call. And we all hope you're doing well out there and staying safe.

You know, today I'm really excited because I think we've got fascinating new research to share with you. And it's all about the impact that the coronavirus is having on different generations of investors. And, and what the implications are, for all of us who are those investors or who serve those investors.

And our two guests today are Mike Van Wyk and Paul Cieslik. Mike heads up our Market Research Team at Capital Group as VP of Customer Research and Insights.

And before joining Capital, Mike spent more than 10 years at Procter and Gamble, which all of you know is the top, or one of the top, consumer brand companies out there, where he gained a lot of experience looking at consumer behavior. And he's brought that same focus to investor behavior here at Capital Group. So, interesting stuff.

Paul Cieslik is our senior VP of Practice Management at the firm. And some of you on the call may actually know Paul, or have been to one of his events, because Paul literally works with thousands of financial professionals each and every year, providing coaching and ideas for how to improve their business and serve clients.

Paul is going to help us take Mike's research insights and then turn them into actionable ideas. So, Mike and Paul, welcome to the program.

Paul Cieslik: Well, thank you for having us.

Mike Van Wyk: You're welcome.

WM: Great to have you guys. Thank you, sir.

Before we jump in, as, as usual, and as those, those repeat visitors know, I'm going to cover a couple of housekeeping details.

We've got CE credit available for those of you who need it. And, you know, we'd like to let you earn while you learn. So, that's available for both CFP and CIMA designations.

And what I want to put on the screen now is the Resources page that you can see there. To get your credit, you're going to need to do two things. Number one, you got to stay on the call till the end, for at least 50 minutes.

And number two, you're going to need to complete a short quiz at the end of the event. You're going to find that quiz in the Additional Resources tab that you can see there, as well as the slides from today's event.

We've got some great slides. Um, and a lot of the, the quiz questions are drawn, drawn from those charts and slides. So, maybe go ahead and open those links so you have access to them, when the event ends. And give us up to 10 days to process your credit.

You're also going to see the Q&A window there. Boy, do we love getting your questions throughout the event. So please keep them coming. We'll try to get to as many as we can.

Type them in the Q&A window at any time. If you do have any technical problems, use that same window, and we'll get right back to you.

So, that's enough blabbing from me. Let's go ahead and jump right in.

And Mike Van Wyk. I want to start with you. And we're actually going to start and stay with you for a little while. So, Paul, grab a cup of coffee. We're going to come to you in a little bit.

You know, Mike, I'm very excited to share the new research you and y- your team have been doing on the different generations, and how they're responding to the coronavirus. And, and, we're going to get to that in a few minutes.

You know, but first I thought it would be important to ground our audience in what we've already learned about the generations before the pandemic hit. And that's really because, you know, you and your team have been researching this topic for, for at least the past two or three years.

So why don't you bring us up to speed on what we know about these different groups, and their attitudes and expectations? So, over to you, Mike.

MV: Great. Thank you all. So, a good place to start is by explaining why we got so much interest in studying generations in the first place.

These four generations that we'll be talking about — the Gen Zs, the millennials, the Gen X and the boomers — they represent over 90% of the U.S. population, and over 97% of the U.S. working population. So, these generations really are the U.S.

And when you think of it that way, it becomes clear that these generations are actually just an organized way to study and understand America itself. And that understanding can be turned into action.

You, Paul and I are going to talk about that today. The experiences of the generations during their formative years has a strong implication for how they make decisions and navigate the world for the rest of their lives.

Each of us has fingerprints that identify us as individuals. Well, these generations have imprints from their common experiences that become a predictor for how they may behave as they go through different life stages.

So, it's for those reasons that organizing framework that the generations lend, and the fact that it creates actionable insights. And we've been studying the generations for quite a bit of time.

So with that, let's go ahead and define these four generations. As I mentioned, we'll be looking at the Gen Z, the millennials, the Gen X, and the boomers. And we'll start with the youngest generation, and that's the Gen Z generation.

The Gen Z Generation will be as young as eight this year, and as old as 23. The youngest generation, the eight-year-olds, are just entering grade school. The 23-year-olds are actually just in their first years of graduating college. And so, it's a good range of ages.

They're similar in size to the millennial generation, in that they're about 74 million of the Gen Z generation in the U.S.

The millennial generation is the next-oldest generation. They are 24 to 39 years old. They're now the largest generation in the U.S., fully into their adult years. And they passed the boomers to become that largest generation just a couple years ago.

The Gen X generation — and I am a Gen Xer — are between 40 and 55 years old. This generation is unique because it's stuck between these two population bubbles, the millennials and the boomers. And they tend to be overlooked a bit because they are a smaller generation that's at 66 million.

Baby boomers are between 56 and 74 years old. And so, when you look at those age ranges, they're at that retirement age. But they're really redefining what retirement looks like, just like they did for every other life stage that they encountered.

So that introduces you to the, to the generations — gives you a bit of context in terms of their sizes. And with that in place, let's go ahead and take a look at the imprint that I mentioned, so you can get a feel for the collective experiences that they've had.

And so, now as we move into the imprints, we'll start with, again, the Gen Z generation. And for the Gen Z Generation, we call them the Truth Seekers.

This is a generation that's growing up against this backdrop of fake news. And they're just having none of it. It's a serious generation. As an example, they are three times less likely to say that it's important to have funds than the millennials, than the millennials did when they were at the same age.

They want information. They like data. And they have a healthy skepticism that the older generations are taking care of the things that matter in the world. So, they're Truth Seekers.

On a personal note, I have three Gen Z kids. And as we've gone into this period of stay-at-home orders, I'm spending a lot more time with my kids. And it's coming to light to me in my own home, the extent to which this generation is Truth Seekers.

My job at Capital Group is often about, about convincing people to believe my data. Over the past couple months with my Truth Seeker kids, I've found it's even harder in my home now than it is in the work environment to convince those around me to believe anything I say.

WM: I've got a couple of those  Truth Seekers at home, too. And I hadn't thought of it that way. So, thank you, Mike. That helps clarify, you know, why my teenagers behave the way they do. Appreciate that.

MV: Yeah. So, all of us can take a, a breath of relief and saying, "It's not us. It's probably that generation that we're interacting with."

Millennials, the, the next-oldest generation, we describe them as Navigators. The millennial generation grew up as digital natives with technology available all around them. And they grew up having to deal with very significant events: 9/11, the Great Recession, the rise of school shootings, and now, coronavirus.

Those major events threw challenges their way. And their use of technology gave them access to social connections and information that they used to navigate through those challenges. The very adult-like experiences that they had to deal with at a very young age, but a connectedness that gave them the ability to navigate through those very effectively.

The next generation is the Gen Xers. And the imprint for them is that they're Skeptics. Gen Xers grew up being called latchkey kids, because they grew up with a lot of independence. Their parents were also a little bit more hands off. You know, the parenting styles that they grew up with.

In addition, they're part of a generation where it became more common for both parents to work, or for there to be a single-parent household. So, it's a lot more independent, and then also the world events that they saw bred skepticism.

The aftereffects of Watergate, the energy crisis, the Gulf War, the Challenger explosion — all those things created this backdrop where it wasn't these major defining events in a positive way, like the Boomers experienced. The more things that had mixed effects on their view of society. So, they grew up with skepticism and they grew up fiercely independent.

The baby boomers — the, the final generation that we'll talk about here — the baby boomers can be described here as Enduring. As one striking example, we've now had a baby boomer president for 27 straight years.

They're enduring in their impact. They witnessed major change and progress during their formative years: the man on the moon, the rise of technology. And now they're redefining this third stage of life, away from this idea of going from full-time work to full-time leisure, into something that's much more nuanced — frankly, much more aspirational, which is enduring their impact and connection to the world around them, and maybe moving in and out of the work experience. So, with that context on their imprints, let me go ahead and take a look at some of the financial backdrops that these generations experience.

What this slide shows is the market performance during the working years of each of the generations. And so, you see the jagged lines that the S&P 500 Index returns from 1980 until 2019. And I know now it feels, if you end like this slide does, with December 2019, that feels like the old world, because so much has changed.

But we'll use this to create a context for the backdrop that they've experienced before we move into the reactions to the coronavirus.

So, to orient you to the slide, as I pointed out, you have the S&P 500 Index return. And then what you have are the working years of each of the generations mapped against that. Starting with the baby boomers to the bottom, whose working years have spanned that whole period, and then Gen X, millennials, and Gen Z.

So, for the baby boomers, the lessons that they've learned from this market, performance during their working years, are really two very important things.

The first is that the market just continually, over time, has gone up; it's gone up very well. And so they've learned that the market is a great way, to build their own wealth.

But they've also learned that when the market has gone down, which it definitely has across this time period, it’s always returned to positive performance. So, two great lessons that the boomers have taken away from looking at and investing in the market during their working years.

The Gen Xers have a bit more of a mixed experience, and it ties into the skepticism that they have as a generation. If you look at the early portion of the Gen Xers' working years, they went for a long period of time when the market was relatively flat.

And many Gen Xers will say that while they do believe that the market is a primary way to build wealth, they think that they haven't had the same advantage within that market as the baby boomers.

For millennials, there's a duality to the way the millennials view the way the market has performed. They know that as the Great Recession hit, that they had a hard time getting jobs. They felt the impact of the Great Recession on their parents' portfolios. And so, they have a conservatism in the way they think about their finances.

But, they've seen this great run and these great returns to the market over time. And so they had maybe, had a whack at the patience what the market can do. So, that blend of conservatism with great returns that they've seen from the market more recently have combined to create,  again, this duality that pulls in different directions.

For the Gen Z generation, they've only been in the workforce for the past couple years. And that's just the oldest portion of the Gen Z generation. But they've come in at the tail end of a 12-year run. And so, it's built for them an expectation and an understanding of just how great the returns can be from the marketplace itself.

So, that's the background. That's the imprint that these generations have had, and that influences the way they respond in this current environment.

WM:  Wow, that's dynamite. I, I, I love this chart, Mike, and I, I'm guessing that our audience will probably write, write some comments in the Q&A window. "Hey, where can (laughs) I get a copy of this chart?" Because,  this kind of says it all.

And, you know, in turn, I'm sort of translating what you were saying. You can see the baby boomers have really seen it all. And they've seen wealth creation, and the market's always come back.

You and I as Gen Xers, and, and I thought it was interesting to hear you talk about that group as, as Skeptics. And you know, we did grow up in that era where, you know, the Era of Irony, for lack of a better term, where you had things like David Letterman and Seinfeld and, you know, bands like Pearl Jam roaring out of the Pacific Northwest.

But also we've had a very mixed kind of up-and-down experience as investors. Millennials, boy, a great run there. But an interesting balance that you talk about between conservatism, and yet, maybe expectations that are unrealistic.

And then Gen Z, just starting out. And, and heading into the teeth of this difficult period. Very powerful   way to frame this up. Thank you for that.

What I'd like to do now is turn to some of the new research that your team has been doing to build on this learning that we have about the generations. And give me just a minute to set this up, and, and provide a little context.

Because I think, you know, one of the things that I think is really interesting about what you and the team have been doing recently is you've been partnering with our, some of our investment analysts, to do essentially a series of weekly consumer surveys. And I think you're on, you said, week nine — eight or nine, at this point, Mike?

MV: That's correct. We're into our ninth week.

WM: Ninth week. So, this began in early March. And, you in our- those of you in our audience, think about that. I, I believe that's a very powerful idea that our investment analysts are partnering with Mike.

And rather than relying on third-party information about consumer trends, consumer attitudes and behavior, we're out there conducting our own proprietary research to really understand what are the behaviors, attitudes, habits, that are changing? And, and what of those might stick once the pandemic, perhaps ebbs, ebbs down a little bit?

So, you know, Mike, with, with that as kind of a, a backdrop, why don't, why don't you paint a picture for the audience about what you've been doing, what you've been learning? I understand this is a little bit of myth-busting in here, so I'm looking forward to this, and maybe I'll jump to the next slide to set you up.

MV: Great. So, we have been learning actually a lot of different ways. And partnering with the investment group, we've been actually harvesting social media data. We've been doing video calls with investors every week; the same thing with advisors.

So, we've been learning from a lot of different data sources. And I'll be pulling from the data sources to go through a few pieces of information that we think that you'll find really useful.

And we'll start actually just with some myth-busting. Because I personally feel, and the data would show, that the millennials have been misrepresented in terms of behaviors that they've exhibited coming into this period of adjustment with coronavirus. And probably the behaviors that they'll exhibit coming out of it.

And so, this slide starts with, it starts in early March with tracking on the percent of each of the generations that were making changes to their social life. And so, it's the adjustments they're making in terms of going out, getting together to eat, or any aspect of their social life.

And what you see is in the early weeks of March, the boomers are actually not making many changes, while the Gen X and millennial generations were making changes quite quickly. Remember in early March, for most states, it wasn't required to make adjustments. And so, this was voluntary. And then what happened as March went along is it became required.

And so millennials and Gen Xers made adjustments very quickly. The boomer generation was actually much slower in making adjustments to the social life.

And in the next slide, it takes the same idea. Except this slide was taking changes in social life, and the next, we show the percents that were stocking up. And yes (laughs), this is about buying toilet paper and buying toilet paper and buying pantry items. What you see is millennials, again, right away they're making adjustments, they were reacting. And so 70% of millennials by the first week in March were saying that they're already stocking up on supplies, getting well ahead of the other generations in terms of reacting. So, they're more in touch with it, they're faster to react. And the fact is millennials were also the ones that experienced the impact most deeply, and they have experienced the impact in a most significant way.

About 50 to 55% of millennials at this point are saying that they have taken an income hits based specifically on the coronavirus, that's ahead of the other generations. And so in these early days, in these early weeks, they were probably starting to see those, those impacts, they were leaning in and making adjustments to their social life and stocking up. And it's had some impact in terms of the way they think about how long this is going to last.

And so here you see that about 85% of millennials think that there's going to be a longer-term negative market impact that's ahead of the other two generations. Everybody at this point is definitely saying there will be an impact. Millennials, though, expect that longer-term market impact to be more negative, to be more lasting. Now, across all the generations, they do expect, while there will be this significant impact, they just have optimism for the long term. They expect America will come out of this in a good position. They just think the impact will be taking a b- a bit of time. This would be more than 12 months before the markets themselves correct. So that's the investor mindset today.

So, with that backdrop, let's look at the return expectations that each of these investors held right before coronavirus hits in January of 2020, and then right after coronavirus showed up and began to have an impact on the markets. And so the question here is, “What annual return do you expect from now until retirement?” We asked that of all three generations, and it requires a little bit of explanation to digest why the younger generations have such higher expectations. We'll get to that in a sec, but we'll start with the baby boomers. The boomers’ expectations from now until retirement, or if they are in retirement for the next 10-year period, is 8%. And if you think of what they've seen in market performance over the course of their working years, that pretty much lines up with what you would expect them to say. That's about what they've been seeing.

For the Gen X generation, they have more ambitious expectations. They say 10%, again, within the bounds of what you could expect a generation to expect returns from the marketplaces, slightly aggressive. But then as we get into millennials and Gen Zs, their expectations are quite high; millennial at 12%, so think of this 12-year bear market that we've been in, or bull market, sorry, that we've been in. They've seen these really strong returns and what they're playing back is an expectation for those returns to be consistent with what they've been experiencing. The Gen Z generation, they're still building their financial literacy. All they've seen are good returns at this point. And so their expectations for returns moving forward, they're just really, really high, beyond something that anybody would want them to be holding as expectations. But that's where their mindset is grounded.

WM: And Mike, how much of this do you feel is just kind of the wisdom of experience? And, and back to that, maybe back to that earlier chart, we were looking at the life experience or market experience with these folks and, you know, what, what they've learned through that. Is that just part of what we're seeing here?

MV: I think it is, this is the experience of the boomers, playing out in terms of they, they've learned from the markets, they've seen what to expect, they're grounded a bit more in reality. When you get to the millennials and the Gen Z generation, they're still building their financial literacy. And that's part of why they can hold such high return expectations. But the other thing is they've seen markets that have only been good, and so they are playing back aspects of their experience, they just aren't tempering that experience with, longer-term, viewpoints that shows them what realistically they should be able to expect.

WM: And I think, Paul, you were, you were telling me earlier you had, you had seen this and had kind of an interesting way to think about it as against the rule of 72, is that fair? W- what were you thinking about that?

PC: It might be an interesting conversation dinner tonight with a couple of Gen Zs across from me, my kids, when I explained to them that if they take 72 and divide into the number 72 a rate of return, which we see in the screen is 23, their expectations, right? What we're hearing is that in about every three years it will double their money. So, let me play that back. Dividing into 72, 23% says that their expectations, in my opinion, obviously are, are, are way off, and we need to have a conversation. But I can only imagine generationally that will be a challenge. You will, all the way to the other spectrum, you know, where I am and you're expecting a double about every seven to eight years. Those expectations obviously need to be chatted about. So I'm looking forward to dinner tonight. Thanks, Mike.

WM: (laughs) You had a good reminder tool like the rule of 72 is a helpful way to frame this. So, Mike, you, you then did, ran this at a different time. Let me jump to that slide for you.

MV: Yeah, Paul your, your dinnertime conversation doesn't get any easier. We knew that expectations surely has to change based on the coronavirus. And so we ran, we ran the survey, we ran it. This data was collected towards mid- and late March. So, coronavirus had impacted the markets, the markets had taken some hits, and we didn't know what to expect. We did this large base survey, so we knew the data would be valid, but we were really curious how people would react to the downturn in terms of resetting their expectations.

And what you see with the boomers is they moderated slightly from 8% to 7%, just this 1% decrease. Gen X was all firm. They said they continued to expect what they had expected before. But then the part that surprised us and then we dug into deeper was the millennials actually raised their expectation and the Gen Z generation raised their expectations as well. And while it makes it even more difficult to have a conversation that Paul was saying over dinner or the conversation that the advisors would have to have with younger clients, the logic behind this on the part of the millennial and the Gen Z generation is that they feel that we're now in a situation where the market has been devalued. And so they held to the previous thought that they should be able to get great returns to the market, but it's coming out of this trough. And so they just tag that on to the previous expectations that they had held.

WM: Right.

MV: Yeah. And then the interesting thing was we're not the only ones doing this type of research. Looking at how return expectations have shifted and this pattern that's you showing up in other datasets as well. Out of our e- expectations among the younger generation for returns. And then those expectations actually raising because of the thought that there's some value in the market. So maybe there's a silver lining within this that shows that longer-term optimism that the younger generations hold.

WM: And, you know, Mike, one of the things I know that had, had come out of this is, is some changing attitudes about, you know, the, the, the value of advice and, and those kinds of statistics. And let me  jump ahead to this idea. Talk about this 'cause I think our audience will be very interested to hear about this.

MV: Yeah. This, this time period could really be described as a moment of truth where investors’ opinions about the value of advice is really getting crystallized. If you go back to June of 2019, only about half of people, if you ask them if professional advice was worth paying for, actually has an opinion. So, half the people would say they're either neutral about it, or they'd say they didn't know enough to really say whether it was worth it or it wasn't. Then fast-forward and actually, this is the same people. We went back and resurvey those same people in March of 2020, and now it's two-thirds of people are holding a distinct opinion.

And interestingly, about half of those who came out of the neutral territory went positive, about half of them went negative. But what's happening is there's a crystallization of people making decisions and judging whether advice is worth it. So there's an opportunity there to step forward and really meet those investors' opinions with advice that really matters in time where they really, really need that help.

WM: That's excellent. And I'm seeing a couple of audience questions come in. And just to clarify, you know, a couple of questions about methodology here, Mike, and I believe you guys began with a weekly survey of 1,000 consumers, and since then it's been an ongoing pulse of, of 500 or so. Is that a fair way to capture it?

MV: Yeah. So I'm pulling from, from a number of different data sources — the tracking that we gave in terms of adjustment to social life, adjustment to stocking up, expectations from the market — exactly as you refer to it. We started with 1,000 and then 500 every week. The data points that are recording here, these come from surveys that include between 3,000 and 6,000 people, and these were doing points in time, large-based surveys to get good representation for that U.S. population.

WM: OK, that's perfect. And, you know, awesome stuff. Thank you. I'm seeing lots of requests for, can I get these slides and so on in, from the audience. So we'll, we'll circle back on that. Paul says, like, thank you for your patience. I want to bring you in here. Speaking of changing behavior, you were, you were regaling us earlier on the prep call that you've taken up gardening and are actually growing some of your own food there in, in, in the great state of Florida. How's that going so far?

PC: Well, it's keeping me out of the house, Will, and out of the way of these other generations, which I'm now better understanding. So it's doing a bunch of good for all of us.

WM: That's great. What I'd love to do with you is, help us think about how to take these insights and, and put them into action. How can we act on this? And just a little context here: One of the things that we've learned through this volatile period and other earlier ones, really important for financial professionals to have, structured conversations with those who they serve. And that's where we're going to talk about this client conversation four-box framework.

You know, Paul, I believe this was originally created back in the great financial crisis. I know it's been battle-tested and tried and true. I know you've been a key part of its development refinement over the years. So, let me turn it over to you. Why don't you set this up for us, and then we'd love for you to walk us through it.

PC: Yeah, thanks Mike for the background and, you know, appreciate the opportunity. Well, and I think you've hit the nail on the head, and two of the three primary reasons to consider, right? A framework for conversation, to guarantee that a client is being heard or for an investor, right, to, to be vocal, we've touched on today, and one of them is from an expectation standpoint, we touched on that. And number two, it's, it's the key focus on that advice concept to build and remain in a trusted relationship. And there's a key to, to both of those, not only in understanding managing expectations, and maintaining a strong trusted relationship with somebody who can "keep us on track," those are targeted towards something that's critical to all of us on this phone, which are to, you know, capture and ensure that our goals are prioritized.

So when we look at this framework, the four-step, if you will, on the crucial client conversation framework, it does hinge upon something that doesn't come out at you at the page, but it's really important to your introduction, which is there's a lot of history to this tool. And whether it's back to that internet bubble of the global financial crisis, as you mentioned, the tool is rooted in behavioral finance, and behavioral finance 101 would suggest that many of us fall into a trap of making decisions based on emotion. In this process, the structure moves us from an emotional, or what we call a cannot-control situation, into something that we "can control," which is a focus on our goals.

So when you think about this framework, and you think about the success that we've had historically, the one key, clear, clear takeaway I would have is that it is really rooted in behavioral finance. First being, ensure that investors are heard, right? And in hearing somebody, it's really to convey, you know, our deep connection and understanding where they're coming from, effectively put ourselves in their shoes, right? They don't want to hear a cookie-cutter discussion, or they may not like when we make assumptions about them, what we're really trying to do in the first part of any conversation to ensure that they've been heard is to acknowledge.

And when we acknowledge somebody, we are really deeply connecting with them and empathizing right with where they're coming from. And that really begins by listening. And I think when we do listen and we can identify possibly the greatest concern that somebody may have that's rooted in emotion, we can then start to shift from something that we can't control, which are emotional reactions, into something that you can control, which is to identify what it is about the situation, the environment, the market that we can start to work towards and talking with a client or an investor specific about their needs and/or their goals. Moving from the baseline engagement of acknowledging where they're coming from, there's an expectation, right? There's an expectation as an individual, as an investor, who, somebody may be a little bit emotionally charged with the environment, is to really reeducate or even share perspective that, you know, not that we've been through this before because each time it feels different. But to really let somebody know that we don't have the answers, but we sure have some perspective that's been gained, right, through our experiences and working with others. And it's really important, we believe, and we've seen this play out in the marketplace, to ensure that that perspective or that insight piece is not the first step of a conversation. Right? It's to really make sure that it becomes the second piece of a conversation and a structure only after someone's been heard. And we call it, them, allowing them to emotionally empty their bucket and moving through perspective.

And after gaining some sort of insights and acknowledging where they stand, we want to provide some framework specific to, if necessary, and that's a big if, and not making an assumption, but if necessary re-instill confidence or remind folks that we know what matters to them. And, you know, as my father has said my whole life, you know, "Paul, the thing that matters to me is that I can get on JetBlue and come down and stay for free in Florida to visit you. I mean, not much other than that, you know, I just want to take your mom down to Florida." Can I do that? That's his goal. His goal is to do something right with monies that he has saved to enjoy his life with my mom.

And when we think about framing that conversation, whether it's a needs, wants or wishes structure, and its classic form of what we might refer to at Capital Group as an essential or an enhancer or an endowment goal, it's really reminding the client that we know exactly what matters to them, they've been heard and that they may be "off track," but they'll still achieve those goals. And to me that really clears out a lot of the noise and possibly some of the emotional basis for the reaction that we may encounter. And then lastly is the expectation. We don't think there's an investor out there who's not looking for, and, or may have an opportunistic view to say, "Well, you know, all markets create opportunity," which is true. "So, what do I do?"

And, you know, one of the greatest action steps could be to stick with the plan that was built. One of the greatest action steps could be to look at an opportunity that was created through the market environment, but beginning with that emotional connection, really bringing to life that we have a thought. We have opinions through our experience and our perspective re-instilling, if necessary, the confidence that goals have been captured and are being focused upon.

And then lastly, giving a formal action step to share with somebody. This is what I would recommend, and doing is really where the rubber meets the road, right? We change people's lives by giving what those instructions from a leadership perspective to do so. I think the one key that I would kind of think about, Will, as I go through this tool and I share with you the structure of a conversation, a couple things.

One, we have used this successfully in the past. Two, it is rooted in behavioral finance, and I think there's a reason to remind the audience of that. And then, three, really think about the expectation that we all have of ourselves, and that's to maybe ensure that we've been heard. And that's not to make assumptions using the structure, that's to give folks the time to express themselves and then professionally find that way to make a connection and refocus that conversation on what we call things that they can control. So, I hope that that helps a little bit today and rounds out some of that insight that Mike was nice not to share with us.

WM: Now, that's outstanding, Paul, and I, I know, you know, sometimes in this business, and I know I'm guilty of this, you know, we, we tend to focus on facts and figures. ... and as I look (laughs) at this framework, and it's great to hear that it's- it's based on behavioral finance and this whole idea of moving from emotion,  in terms of the things you can't control to focusing on goals which you can control, I sometimes forget that first box of acknowledge and- and really meeting the person I'm talking to where they are and from an emotional standpoint. So very powerful. And I guess I would convey to our audience, reach out to your Capital Group team, your-, your-, your local team wherever you are, because we have versions of this. This is kind of intentionally left blank.

But I think the real power of this also comes to life, Paul, where we have some of the exact phrases that we have found have been really helpful in walking through each of these boxes. And I don't know if you want to, Paul, kind of offer up just kind of a few of those, you know, phrases (laughs) and ideas as you go through each of those four.

PC: Yeah. So I think we use a phrase around Capital “words to use and maybe words to consider losing”. And, it's often asked of me, you know, "Paul, I do want to acknowledge where somebody stands. How do I do that?" Consider using the words that are on the page, to your point, Will, and then maybe even more simply, just ask somebody. You know, "I wanted to check in with you," you know, "How are you doing?" "Is there something of concern that we need to flush out?" In other words, don't overthink. Use what's natural to you but don't overthink. The words that you choose to use are critically important in conveying your empathy, and in sharing and educating your perspective, let somebody know. Right? There's a difference between, you know, what you think you know and the perspective that you've gained.

And that phrase really seems to resonate is, you know, "I've gained a lot of perspective, right, through my experience, and I'd like to share with you, you know, what- what I've been through before and how I've helped others." And when it comes to confidence is- is suggesting to folks that, literally that they've been hurt, and saying to somebody, you know, "Let's reconfirm the things that matter to you," and as I've understood them, and let me repeat them back to you, Will. These are the things that you've shared with me matter to you. In priority, these are the things you need, these are the things you want, these are the things that, you know, you hope.

Are those still ... are those still aligned, or should we chat about them? And then, lastly, it's imperative that that action step is- is literal and it's clear. So suggesting that somebody sticks with the plan that was built, suggesting that they potentially look at a- a security or a solution that may be attractive based on market conditions, is really important. So, use the phrase, "I- I want to ... well, I want to give you an action step. I want to share with you something I'd suggest you do."

And I think that, you know, we often maybe think about what we're saying, but I think in this circumstance we want to know what we're going to say before we say it. And that was a phrase that I've used in my entire career. It's very difficult to know what you're going to say if you haven't thought about what you're going to say, and that's really been the success of this tool.

WM: That's great. And, you know, I'm seeing some questions come through for where- where can they get the phrases and so on. So, I think if you connect with your team or look on your capital group website for crucial client conversations, that's where you're going to find this ... this content. And, you know, Paul, I know you sat on the other side of the table. You were ... you were an advisor earlier in your career. Does that experience help you, kind of, bring this to life out in the real world?

PC: Oh, there's no question. I mean, just thinking back to, you know, some of the clients that would sit across the desk or that I would sit across from the kitchen table at their home and, you know, even thinking about mistakes that I've made, right, in my career and not asking the question, right, not thinking possibly about the structure of the conversation, maybe even allowing myself to fall into what I call that trap of, you know, giving folks perspective before I even met them in the middle and kind of put myself in their shoes. And I think once you choose, right, and it's a choice to say, "I really want to understand where somebody's coming from," it may be near impossible to share an opportunity. I mean, these are really foundational steps to consider.

But I think to your point, Will, it does harken back to looking a client in the eye and really seeing either their fear or even maybe their confidence, about an environment or where they're heading. You know, gosh, I wish I had this, you know, in 1992.

WM: (laughs) Yeah, no doubt. Well, that's- that's fantastic. Thank you, Paul. And, more to come on- on- on the tools and resources around crucial client conversation. I think we're going to come back to you, Mike, because some of the interesting research we've also found is around this idea of cross-generational interactions and opportunities. You've got some interesting research there that's come out of some of the same studies you've been working on. And then I think we've got another action idea for the audience on this call that-, that  Paul can help bring to life.

But, Mike, why don't I turn it back to you to talk about what you've learned about cross-generational interactions and expectations?

MV: Great. Thank you, Will. And for cross-generational interactions, we really wanted to dive into this topic, because what we found is every time you talk about generations with an advisor audience, or with a broader audience, they almost always come back immediately with a question about how you can connect across the different generations within a family. And so, we wanted to give some perspective on that.

And a- a good place to start here is with a reminder of what the relationships are between the different generations and the parents' generations and the child generations. As I mentioned before, I'm a Gen Xer. I have three Gen Z children. And then the parent generation for the boomers, is to be parents of the children that are millennials. And so, you see this natural connection just based on the spread of ages between the generations, where you do have two parent generations you can look at, and then you can examine their influences on these two children generations of millennials and Gen Z.

One of the ways we wanted to bring this to life is actually to check in on the lessons that parents wanted to give to their children and whether or not the children had actually received those lessons. And I'd heard repeatedly from financial advisors that they felt that the bridge was broken between the generations. And these data, they contributed to that understanding, that the bridge indeed is broken.

So what we asked is whether or not as, a parent ... so for boomers and Gen Xers, whether they had given lessons to their children about the financial basics, which is having a rainy-day savings, budgeting, earning money, managing spending, whether they had taught about the investing basics and whether they had touched on the topics of wealth transfer. And then we asked the children, the millennials and Gen Z, that would be children of those two generations, we asked whether they had received those lessons from their parents. And with very few exceptions, what we saw is a complete disconnect where parents thought they had taught the financial basics, the children said, "Nope. I- I didn't feel my parents taught me that." The parents thought they hadn't really taught, effectively, the investing basics. The children said, "Yeah. That I gleaned some of that from my parents." And then for wealth transfer, again, there was a disconnect as far as those topics.

So the key thing that came out of these data was the reinforcement of something we're already hearing, which is that the bridge is broken between the generations. And the fact is, this is a really tough topic to talk, as a parent to children. Again, I have the three Gen Z children. One of the ways that I tried to teach them about investing is we have a UTMA for each of our three kids. And what we do is, once a year on their birthday, I make a contribution to it. And the way I (laughs) frame it for them is, I say, "I'm giving you money. The only thing you have to give me back is some time to explain how we're making that investment and how it works."

And I can tell you, it feels ... to me, it feels like a really good equation. I'm paying them to listen to me. But as I go through some of the things I'm trying to teach them, I can look over and I just see the eyes glaze. It's a difficult topic, as a parent, to get across to the children. And the fact is, there's a broken bridge between the generations in terms of the way information is flowing back and forth. And this creates both a challenge and an opportunity for financial advisors, because they can help create this bridge between the generations.

WM: That's great. And I- I think this is going to be another one of those slides that just captures so much, Mike. I mean, what you were saying about your conversations with your kids really rang true to me (laughs), and I've had similar eye-glazing conversations with mine. But- but this one really captures that idea of- of kind of that generation gap or that communication disconnect that you've brought to light here.

You want me to plow ahead into the next slide?

MV: Yeah, if you could ... if you could do that. Because I want to point out here that there is a connection that can be a bit more positive, and we'll see that in the next couple slides. The- the next question we asked is the percent of each, of the generations, whether or not they had a financial advisor. And here you see a rhythm between the parent and child generations as well. A little bit more than a third of boomers have a financial advisor that they work with regularly. And if you look at the children of boomers, the millennials, they are pretty close to that same number. And it's probably a lot due to their parents' influence.

The Gen Xer, the skeptical generation that we described before, they have advisors, only about a quarter of them. So, a lower rate within the Gen Xers. And this emerging generation, the Gen Z, you see, they're following the course of their parents. And so for the millennials, they're seeing the benefits, from their parents. The parents are passing on those lessons. There's a tougher path with the Gen X generation that it seems to be influencing this Gen Z generation that's now moving into adulthood.

WM: Right.

MV: So that was how many have a financial advisor. Then the next question was, would you work with your parents' financial advisor? And, again, you see Gen Xers, this skeptical generation, they kind of sit on an island by themselves, saying no, they don't want to work with their parents' financial advisor. They ... they're skeptical. They want to be independent. They're fierce in protecting their- their own independence. But millennials, you see a- a large amount of openness. They're working with their parents' financial advisors. Same thing for Gen Z. They have more openness, but they're not as high as the millennials, probably because of the influence of the boomer generation on their millennial children.

So, there is an opportunity to connect through the parents into these children generations and have them express openness to working with a financial advisor that's established in a relationship with the parent generation.

WM: Yep.

MV: The key within that, though, is you have to be working against the priorities of the millennials and Gen Z as you're engaging with them.

WM: Yep.

MV: They're at a different life stage. They have different financial goals. And as a financial advisor, connecting to those goals specifically is what makes this generation want to work with you.

WM: That's awesome. And I think we're going to translate this into an action idea around having a family wealth briefing and what that can look like.

Paul, I want to bring you back in.

PC: Sure.

WM: Before we get to the family wealth briefing idea, we got a great question from the audience, and I think it's right up your alley, which is this: “What do we do when clients don't listen to our recommendations and wish to invest their way against our better judgment?”

PC: The first thing I might do is suggest that you hold up that quadrant or that crucial client conversation framework and just double-check your expectations and just make sure that we have nailed what I call the acknowledge piece. I chatted with somebody two weeks ago who actually called a client back who didn't heed advice, and reframed the conversation grounded in an emotional connection and, subsequently, the advice was followed. So I'm not suggesting that will happen every time, but I might maybe volley back and just suggest that maybe the recommendation made, maybe, needs to be either aligned more closely to the goals at hand and/or minimally ensuring that we've deeply connected through the acknowledge step.

WM: That's great.

PC: So, I might turn back and just make sure that we're covering...

WM: Yeah. I threw that slide back on the screen. And, Paul, do you find that the acknowledge step is the one that's most often kind of missed in this ... in this framework?

PC: Yeah. Most often it's the second and the fourth step that is provided in the order of first and second, and acknowledging confidence or kind of either hanging around or maybe even not touched upon. But again, remembering the science behind the success rooted in behavioral finance, it's kind of hard to fight science, Will. So I would really stick to a process that looks like the one you shared on that screen.

WM: That's perfect. And, jumping back, you know, Mike set up these interesting differences between the sort of perceptions around what was learned (laughs) by the- the younger generation and what was taught by the older generation. Basically, this bridge is broken. How do we rebuild it? And- and you've teed up an idea here: the family wealth briefing. Why- why don't you talk about this, the benefits, and- and maybe walk us through this idea?

PC: Yeah. Well, I've mentioned my folks so I'll kind of round out the family discussion and then leave you with an idea. And, you know, as the youngest of three, one sibling, who's my sister, is the only one geographically close to my aging parents. The realities of care have set in, you know. Being in the industry, I've reached out, you know, not only to my siblings to my parents and we started conversations. They're not easy. Right? Sometimes they're awkward. Sometimes they're even heated. But they're focused on shared responsibilities, both physically, me traveling to see them, making sure that my brother takes the time, and also financially,  to ensure that their needs and desires are met.

You know, the challenge with doing that, Will ... and I'm going to leave you with a solution, is- is really- really ensuring that we understand and appreciate, you know, where they're coming from, where my folks are, you know, where they're influenced. And I’ve got to tell you, it's a little bit surprising when you hear something like, "Geez, you know, does Fenway Park allow ashes to be spread?" I mean, whoa. You know, that caught my mother by surprise. Not all of these conversations are easy, but the vision for their wealth transfer seems to be a little bit of the easier part.

The more difficult part is really thinking about how they want to transfer their values, either how was wealth attained or where they would expect wealth to be distributed. And the concept here is a family wealth briefing. Right? It's the opportunity to have a facilitative conversation about responsibility and wealth planning and the wealth transfer. And I think the hardest part about that is to really recognize that the successful transition begins, again, with this concept of it's not only the valuables that matter to people, it's the values and either how, again, wealth was accumulated or how somebody wants wealth to be transferred.

And the family meeting is one of the most important actions we think a family can take towards seeing that that family wealth is used wisely and productively, you know, by their heirs. It's often common, right, and I think we've all been in this position where some may not be willing or able to communicate, right, all of their visions and their plans. And that's really where this idea, you know, stems from. It's a lack of communication requiring or necessitating the need to have a conversation. And there's a couple key takeaways in a family wealth briefing, which is, again, to facilitate a conversation amongst generations to ensure that not only valuables are talked about but, again, values, and it's to be transparent about intentions.

You know, what is the wealth intended for? How was it accumulated? What was the meaning behind it? And I'm going to share one with you right now that  has definitely been challenging for us to overcome. And the concept is, what's fair, you know, and be really honest amongst a family and- and recognizing each of the siblings' needs. It's to really work through that conversation, so, gosh forbid, something happens. Everybody feels as though ... most importantly, in this case, you know, the folks who are going to leave an inheritance, they feel really good about meeting the real needs of- of their three children.

And then lastly is the practical side. You know, what does all this mean to somebody who may be... you know, one of my siblings working in the tech space who doesn't spend a lot of time on finance? What's this mean, practically, to her if something were to happen? What's her responsibility in really understanding her level of accountability when it comes to managing or, you know, transferring wealth? So I would suggest, strongly, that a family wealth briefing, using it like the structure we talked about earlier as a ... an opportunity to facilitate conversations is one that we would strongly suggest  implementing and,  seeing really ... seeing an end, I guess, to the vision and the need that folks really need to chat about when it comes to wealth.

WM: That's great.

PC: So I hope that helps.

WM: Yeah. That's awesome. And I love that phrase, "It's ... " you know, "It's- it's not just about valuables, it's about values." ... really powerful, guys. And I think ... I think, you know, for our audience. Expect more to come from us around all these topics, and please do reach out to your Capital Group Team. There are a number of questions coming in, and where can I get that, you know, the, the more depth on that four-box conversation or the slides here from Mike. Excellent stuff, guys. I know we're kind of coming up on time. What I'd like to do is try to summarize a little bit of the few key takeaways that we got from this. And then also remind all of you, for those of you wanting to get CE credit, go ahead and make sure you have the quiz pulled up and the slides so that you can complete that. Guys, great stuff. Here's what I took away, Mike, you started us off talking about and the notes I had here scroll down.

You know, the difference between, we all have a fingerprint, but we also all have an imprint in terms of how we've been colored by our investment experience, and what that means in terms of predicting our behavior in the future. Really powerful idea in that one chart that really showed the experience that we've all had there. You know, Paul, that, that four-box framework, the idea of having a structured conversation, and I found what was insightful for me as you went through that is this idea of, and I know I'm guilty of this sometimes, forgetting that acknowledged box and starting with that meeting people where they are in terms of empathy and understanding and knowing they probably have some questions and concerns on their mind and connecting with them there before you pivot into facts and figures and perspective and opportunity, which I know is, is my own tendency.

And then we talked about some of the learning around cross-generations and really, kind of, almost amusing gap there between what the different audiences say about their learning and what they've been taught or what they've taught to different, different groups, and your phrase,  Mike, the bridge, the bridge is broken, and, you know, advisors and professionals can help rebuild that, and one of those ways to do that is through a family wealth briefing. You know, we did get the question coming through, Paul, and maybe, maybe a final question for you, briefly to, to tackle, you know: How open and willing are the generations to speak to each other about money and inheritance and, you know, how do you help bridge some of that reluctance? I mean, I know you talked about doing it with your, with your parents but, you know, what has your experience been and talking to a bunch of advisors and about that topic?

PC: Sure. Well, I think to your point, Will, if I can get a Bostonian couple who is set in their ways and also happens to be my parents to do this, I think it's largely attributable to disarming them and actually sharing with them what the objective of the conversation was. I didn't call it a meeting, I called it a conversation, and I actually use the word “facilitate” where I suggested being an, you know, an industry insider that there'd be a real benefit for me facilitating for them, really kind of taking me out of the equation, if you will. But I think those two things I've seen in the marketplace really work is disarming through making it crystal clear what the objective of the conversation is and then additionally also suggesting if appropriate that your role may be to just facilitate, not quote, share opinion. And, and I, I've seen that work effectively.

WM: That's great and, and, and great way to end. And, you know, I think for the audience, you know, this, today's webinar has been a little different from the ones that came before it in the series, and I might characterize this one as a little more kind of practice management-oriented, and expect to see more of this from, from us and from capital group as we go down the path and certainly reach out to your team as I've already mentioned, to take advantage of the resources we already have out there today.

So folks, that's all the time we have today. I want to thank you guys, Mike and Paul, absolutely dynamite, fascinating discussion. Hope you and the audience found this helpful. Don't forget to take advantage of your additional resources attached to the event, and thanks again, and enjoy the rest of your day.

Standard & Poor’s 500 Composite Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. Standard & Poor’s 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2020 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

American Funds Distributors, Inc., member FINRA.

For Canada: American Funds are intended only for persons eligible to purchase U.S.-registered mutual funds. The Capital Ideas website is not intended for use outside the U.S. In Canada, please visit capitalgroup.com/ca for Capital Group insights.

This document and its contents are confidential and designed for the exclusive use of registered dealers and their representatives. Canadian securities legislation, including National Instrument 81-102, prohibits its distribution to investors, potential investors or the general public. It is not intended to be a sales communication, as defined in the Instrument, and has not been designed to comply with its requirements relating to sales communications. Unless otherwise indicated, the investment professionals featured do not manage Capital Group's Canadian mutual funds.

Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein. We encourage you to consider these and other factors carefully before making any investment decisions, and we urge you to avoid placing undue reliance on forward-looking statements.

Capital Group funds and Capital International Asset Management (Canada), Inc. are part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931.