Large banks have done a good job of capturing the investments of young banking clients, but they haven’t had the same success with their older—and wealthier—customers, according to a new report from Aite Group. 

The study found that half of Gen Y customers of large banks consider their retail banks to be their primary investment providers. Less than one in four Baby Boomers said the same. Instead, Boomers are much more likely to place their investments with an online brokerage firm, such as Fidelity, Schwab or E*Trade, than are younger Gen X and Gen Y bank customers, according to the report.

The findings surprised even the researchers at Aite. “I would have thought the [online] audience would have been younger,” says Sophie Schmitt, senior analyst with Aite Group and author of the report.

The report attributed the generational differences to the time during which Gen Xers, Gen Yers and Boomers came of age. Baby Boomers started their investing years during the Glass-Steagall era when banks were not permitted to offer investment advice. Their initial investment provider was likely to have been one of the large brokerage firms or discount brokerage firms, according to Aite Group.

Gen Xers and Gen Yers, in contrast, started their investment years when several of the nation’s largest banks were busy gobbling up investment banks. These young investors were accustomed to seeing banks providing investment services. In addition, due to the financial crisis and the market’s volatility, these investors — Gen Y especially — are risk-averse and “not as interested in investing as a way to build wealth as Boomers were in their younger years,” the report says. 

Even without Baby Boomers as primary investment customers, large banks still did well in managing clients’ wealth management needs. The study found that that the top five U.S. banks — Bank of America, JPMorgan Chase, Citibank, U.S. Bank and Wells Fargo — achieved a primary investment relationship with approximately 40% of customers.  Community banks and credit unions, in contrast, developed primary investment relationships with less than 10% of their customers.

“The success of the top five U.S. banks shows that investing in online capabilities can help capture the investments of young, tech-savvy customers,” Schmitt said in a statement.

Small banks should focus their energies on younger investors, the up-and-coming professionals rising in affluence, and not Baby Boomers whose established relationships with online brokerage firms will be difficult to change, Schmitt said in an interview. 

“They should try to enhance their offer with more online capability,” she said, as “young folks seem to want to work with an advisor plus invest online.” 

The report is based on an online survey of 1,009 U.S. investors with at least $25,000 in investable assets. The survey was conducted in December 2011.  


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