Insight & Outlook Special Edition

Welcome

Billy Dietze: Welcome to Insight and Outlook special edition, the audio magazine for financial advisors. My name is Billy Dietz and I'm the host here at Fidelity. As we continue into 2026, we're excited to bring you the second issue filled with the latest insights from Fidelity, all in a quick, convenient, short form audio experience.

In each issue of special edition, we curate insights from some of the leading portfolio managers, investment analysts, and practice management specialists to bring advisors our freshest takes on the market in actionable insights to improve your business.

Think of this as a playlist of our top expertise. You can listen to the articles that grab your attention first or consume this entire issue all the way through. This episode features four articles, a conversation about how direct lending is changing portfolio strategies. Then a look at some intriguing results from a survey we conducted into younger generation's views toward financial advisors. We've also prepared overviews on a few equity sectors to follow over the year. But to start things off, let's tackle the five big questions advisors have for 2026.

Our experts at Fidelity are finding a few reasons for advisors to be optimistic about the markets. As we wade into 2026, the economy is growing at a solid clip. The stock market has maintained its momentum. The Fed has shifted into easing mode and companies are spending more on big projects. That's not to mention we're in the middle of a historic tech transformation driven by artificial intelligence.

Put all these together and our analysts are feeling generally optimistic that companies can boost profit margins and deliver strong earnings growth this year. That said, as always, there are reasons for advisors to be vigilant. Inflation has been stickyand the labor market appears to be coolingadd in policy uncertainty, concerned about elevated stock valuations, record levels of public debt, and it's safe to say that navigating the equity landscape through the rest of this year won't be so straightforward. To help sort all of that out, I'm excited to welcome Jake Weinstein, senior vice president on our asset allocation research team to go deeper on the team's economic and market outlook.

Hi Jake, welcome to Insight and Outlook special edition.

Jake Weinstein: Hi Billy, thanks for having me. I’m very excited here to join you for the issue. So let's dive in and discuss the market outlook.

Billy Dietze: And before we get started, can you tell the listeners a little bit more about the asset allocation research team? A A R T?

Jake Weinstein: Yeah, sure. So, “AART” is a team within Fidelity that conducts fundamental and quantitative research. It helps develop asset allocation recommendations for our portfolio managers and investment teams. A big part of that's keeping an eye on macroeconomic and policy trends and analyzing their potential impact on portfolios. We provide timely updates including our quarterly market update and that helps give a comprehensive overview of what we're seeing.

Billy Dietze: That's a helpful introduction. Alright, let's get into it then. What are you thinking about the relationship between policy uncertainty and market volatility? Historically, more uncertainty generally meant more volatility, and in the first half of 2025 that held true in the second half. We continue to see a lot of policy uncertainty, however, volatility mostly subsided that created one of the widest gaps between policy uncertainty and market volatility in the last 30 years. Do you think this gap is going to continue to grow in 2026?

Jake Weinstein: Yeah, so let's dive right in here and, and my short answer is probably not. It's, possible that this could be a good thing. Maybe uncertainty continues to decline. Maybe markets stay pretty calm, but, but that gap you talked about could just as easily close from the other direction with volatility picking up if some big policy issues don't get resolved and there's a lot on that list.

Back in October, US and China struck a deal covering tariffs, rare earth exports, soybean purchases among other things. But the economic tension between the two economic powers is it's far from settled and we're also keeping an eye on the ongoing negotiations to renew the US-Mexico-Canada agreement on trade ongoing US oil sanctions and other measures to try to end the war in Ukraine amongst some other recent updates we've seen in Venezuela. So any movement on these fronts could drive market volatility as we move further into the year.

Billy Dietze: Alright, and let's explore another trend from last year. The weakening US dollar, the dollar lost ground in 2025 and international stocks outperformed US stocks. That's a big shift, especially considering just how strong the dollar had been over the last decade or so and how much US stocks had outperformed their international peers.

Jake Weinstein: Yeah, so that's definitely a big question for us this year, Billy something we've been talking amongst the team for quite some, some time, not even just last year, but even before last year in recent history, after the dollar declines by that much it, it would suggest that dollar weakening has unlikely continue because over the past two decades if the dollar has fallen by that much, typically the next year it has bounced back.

But it's really hard to say if that's going to happen this year, it's possible US economic and corporate momentum will give the dollar a boost. But it's also possible foreign investors will decide to hold back a bit and keep more of their money at home.

Billy Dietze: Now that's interesting. Why do you say that?

Jake Weinstein: Well, some investors may be uneasy about the shifts in US trade or foreign policy. Others may be seeing early signs of structural improvements in their own markets that make non-US assets more appealing. So let's look at Asia for an example. For years, US companies had certain vantages over Asian companies, especially when it came to rewarding shareholders through say dividends, share buybacks, things like that. And that's one of the reasons the return on equity historically has run higher in the US than abroad.

But recently more Asian countries have been prioritizing stronger corporate governance with Japan leading the charge, also seeing it in South Korea. And as a result non-US equities, they've been narrowing the gap in total payouts compared with their US counterparts. So if that trend were to continue into 2026, it would make non-US equities attractive on a relative basis even if uncertainty declines from here.

Billy Dietze: Got it. We'll be watching the dollar very closely this year. So let's shift gears and dig into a phenomenon that's been driving US stocks, the AI boom stock pricesof AI focused tech companies have led the capital spending build out and do you see this continuing in 2026?

Jake Weinstein: Yeah, well everybody wants to talk about AI, Billy, and it's for good reason. I mean, if we look back though, at past technological shifts we see a similar pattern and that's what we're trying to focus on here as we think about AI CapEx and the overall boom that we've seen over the past couple of years. 

So the typical pattern is excitement builds investment surges, stock prices rise sharply and eventually things overheat. But that usually leads to a market pullback and also sets the stage though for a big payoff over the longer term. And then innovation becomes more widely adopted and it could help spark longer term productivity gains across the economy, which would then be geared into the economy over the next market cycle.

But when you look at that data now and compare it to those historical episodes, we're really not expecting that big AI driven productivity boost right away. The current surge we've seen in capital spending you're going to get, combine that with lower taxes, stronger corporate cash flow and this could really be more of a near term boost and that could ultimately help support analysts expectations for roughly 13% profit growth this year with a lot of that coming from investment in AI.

But that earnings growth expectation as strong as it is, it's even higher than it was from the 11% earnings growth we got in 2025.

Billy Dietze: Okay. So, these tech stocks really drove the market last year and it created a split of sorts, a strong market, but an economy that many people had concerns about. Let's talk about the stock market's effect on the economy as a whole and how big of a role market performance may have in the economy in the year ahead.

Jake Weinstein: Yeah, so I, I'm anticipating it'll be even a larger impact compared to prior cycles and that's because American consumers, they're more invested in the stock market than ever before. And at the same time, inequality and wealth and income is among the wisest it's been in US history.

When you look at US consumers, so like a majority of the spending that people are making, it's, it's coming from older, wealthier consumers and older consumers, they, they tend to rely more on their accumulated wealth, not just their paychecks to fund their spending. And that means that wealth's playing a bigger role in driving overall economic activity.

So even if wage is still the main source of spending for most households, wealth is becoming a bit more important. So here's where it gets interesting. Stock prices can swing a lot faster than labor income. So if the market were to drop and had probably stay down for a while, that alone could slow economic growth by slowing down consumption even if the job market were to hold up.

So the flip side is also true, you gotta think about though is if a strong stock market, more gains from here could ultimately give consumer spending a lift, even if hiring or wage growth is a bit sluggish.

Billy Dietze: And this possible extra volatility consumer spending might happen in the context of an additional factor, inflation. Can't talk about 2026 without covering your outlook for inflation, Jake.

Jake Weinstein: Yeah, so 2026 probably isn't as exciting about inflation as it was in 2023, 2024, 2025. But people still want to hear it.and I think it's important to hear what our outlook is. And our team expects inflation to hover around and even rise above 3% over the course of the next 12 months. And that is really contingent upon the economy staying strong.

That level of 3%, it's higher than both the market's expectation and the federal reserve's expectations. So, we could perhaps start to see some cooling in areas that have been stubbornly expensive, things like rents and housing, but at the same time goods inflation's been ticking up as companies have been able to pass along tariffs through to the end consumers.

And so if you combine that with everything like the uncertain outlook for commodities, there's a lot of moving factors. You put that together and the Fed may ultimately be easing monetary policy in an environment where financial conditions are already loose and inflation is still running above its target. So, this is constructive for markets in the near term, but it may lead to unintended consequences several years down the road.

And so, I also do want to note that there's a big shift coming by the Fed itself. By May we're probably going to have a new chair at the Fed, different set of voting members and if the fed cuts rates and that conflicts with the inflation data that we're seeing and doesn't line up as neatly as maybe as the administration would be hoping, as it's hoping for lower rates, we could see markets start to question just how independent the fed's decisions really are.

Billy Dietze: That's a lot to keep an eye on for sure. Alright, so before we close this out, we gotta talk bonds. How could all of this affect bond yields for the year?

Jake Weinstein: Yeah, so that's a big question as well. And if you think about long-term bonds, just keep it real simple. The things that influence them are long-term growth expectations, long-term inflation expectations, but also the credibility of monetary and fiscal policy makers, which really hasn't come into question in the several last several decades. Which, in terms of when I've been in the business now, if investors start doubting policymaker's commitment to fighting inflation or pushing fiscal deficits even higher from here, we'd probably see it show up as a steeper yield curve with longer term yields, rising higher above short-term yields or short-term yields falling further below.

Long-term yields are depending on what the Fed does they year, and this is what puts the fed at a tough spot because they won't be able to control interest rates as well as they have been able to over the past couple of decades and they'll have to manage inflation expectations carefully, especially with government debt sitting near record highs.

Billy Dietze: Well, you've given us a lot to look out for in the year ahead, Jake. Let's close out with your big picture outlook for advisors for 2026. Jake Weinstein: Alright, happy to Billy. So for 2026, we think the macroeconomic environment appears solid for the year. Several about macro dynamics, though they could ultimately be shifting with changes in AI driven productivity, presenting potential opportunities for investors. But considering everything going on, we're pretty optimistic heading into the year now. 

At the same time, there's always risk out there and that could challenge market stability. Investors are going to have to deal with uncertainty in things like high equity valuations, geopolitical tensions, stubborn inflation. So we encourage advisors to keep an eye both on cyclical trends and longer term regime transformations such as peaking globalizations, peaking US exceptionalism, and high secular inflation. All these things can influence market leadership on a multi-year basis.

Billy Dietze: That's terrific. Thanks for the wrap up, Jake, and appreciate you taking us through your views of 2026.

Jake Weinstein: My pleasure, Billy. Thanks for having me.

Billy Dietze: If you want to learn more about Fidelity's outlook for 2026, check out the full report, lower down on the webpage. It's also in the description box if you're listing on YouTube.

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Billy Dietze: If you want to understand where the technology market is heading, look at the power behind it. And that power quite literally comes from the utility sector. After decades of sluggish growth, US utilities are seeing genuine momentum thanks to an electricity hungry AI build out and broader electrification trends.

Today we'll unpack how tech and utilities are colliding in ways that could reshape portfolios and we'll connect the dots to financials and healthcare where there are some surprising synergies and risks.
 
Joining me now are two of Fidelity sector experts, Lubna Lundy and Leigh Callahan who are both directors of investment product. Great to have you both.
 
Lubna Lundy: We're happy to be here Billy.
 
Leigh Callahan: Thanks for having us.
 
Billy Dietze: Alright, so Leigh, let's start with utilities. For years they weren't exactly the headline sector, but now it feels like their center stage is AI ramps up. What's changed?
 
Leigh Callahan: Two things really, Billy, a turnaround in demand coupled with a multi-year road to build the supply to meet it. We're seeing a real structural shift in US power demand fueled by data centers, electrification and some onshoring of manufacturing utilities outperform the broader US equity market in 2025 and have clearer multi-year contracts with hyperscalers to deliver the power needed for data centers. That long-term earnings visibility is powerful.
 
Billy Dietze: So the quote “picks and shovels” of AI aren't just GPUs and high bandwidth memory, they're megawatts.
 
Leigh Callahan: Exactly. The AI build out is driving growth across many sectors from industrials to energy, and of course utilities and tech AI requires a massive amount of power. A single generative AI query uses 10 times more computing power than a basic search. That's why the sector is seeing outsized interest. The grid will need generation, transmission and distribution upgrades for years to meet this load.
 
Billy Dietze: And when utilities sign long dated power agreements with hyperscalers, how does that ripple into financials, Lubna? How is the financial sector impacting the AI build out story?
 
Lubna Lundy: Well, guess what, Billy AI doesn't just run on chip's code and power, it also runs on capital. And that capital, it has to be priced, structured, and scaled before a single data center or power plant is built. So the financial sector has quietly become another very important part of the AI build outs.
 
Billy Dietze: And as you've referenced, the utility companies are planning these massive CapEx cycles, right?
 
Lubna Lundy: That's right. They need billions of dollars upfront to build generation and grid capacity AI data centers. They're also a massive capital intensive asset and that means debt issuance, structured financing and potential syndicated deals across the street banks with strong deposit franchises and risk management. They can and have participated in some of this financing, but let's be clear, that has been at a much smaller scale.
 
It's the alternative asset managers that can fund infrastructure through private vehicles where cashflow visibility helps to underwrite returns. So while the AI story often feels like a tech and power story with global AI spending forecasted to top 2 trillion in the future, the financial sector
capital markets both public and private is another engine underneath it all helping to turn the long-term AI demand into reality by providing the critical financing and funding for it.
 
Billy Dietze: Leigh, what's your read on AI spending in 2026?
 
Leigh Callahan: We think the spending strength on AI will continue this year, Billy. Hyperscalers and enterprises are investing in the infrastructure layer, think GPUs, memory, networking and data centers. That's because AI keeps evolving at an even faster pace than we initially expected.
 
To support this innovation, companies need to continue spending on new chips and hardware because each generation of AI model requires new infrastructure that anchors demand for semis and the physical footprint for years to come.
 
Billy Dietze: And what about the semiconductor leaders?
 
Leigh Callahan: Well, the companies you're sick of hearing us talk about for years continue to be well positioned with leadership concentrated among the top players, but I'm also really excited about parts of the industry that haven't been included in the AI basket.
 
Think the companies that create the chips that go into things like our phones and cars, even our ovens, that part of the industry has largely been left behind as we move through a massive COVID inventory cycle. Many companies have finally worked through that excess inventory, which could create some green shoots for the year ahead.
 
Billy Dietze: So Lubna, how does the financial sector banks asset managers digest that AI CapEx tilt?
 
Lubna Lundy: Well, we know that AI spending, it's huge. It's upfront and what's been interesting is we are seeing new models for tech financing emerge for the AI build out big hyperscalers. They're working with alternative asset managers to shift significant capital expenditures.
 
We're talking billions of dollars off of their balance sheets. There's a flexibility that
comes with financing these type of projects with alternative asset managers that can scale capital beyond what banks alone can do. Banks as we know, they'll often support shorter duration deals versus longer duration AI deals.
 
And they're looking for companies with predictable cash flows that shapes credit cycles and then banks they'll often tend to lend more when the money looks secure and where AI linked revenues are visible.
 
Billy Dietze: Let's pivot to healthcare Leigh. What's the 2026 picture?
 
Leigh Callahan: I think we're in for another busy year ahead in the healthcare sector, Billy. Election years tend to create a lot of volatility in the sector and we're expecting the policy environment to continue to evolve. That being said, innovation sprints ahead and should continue to drive growth in parts of the sector.
 
I expect that we'll continue to see more clinical readouts and a to refill pipelines and an active IPO market. We're also hopeful about early recovery signs and bioprocessing, which are the companies that create the tools needed to make complex therapies and vaccines after years of destocking. So another COVID inventory cycle, Billy,
 
Billy Dietze: So do you think biotech is going to have a strong year ahead?
 
Leigh Callahan: I do. Coming into 2025, sentiment for the industry was at all-time lows, but we saw some great clinical data readouts over the year in addition to strong M&A and capital markets activity.
 
I think we could see another recovery year ahead in biotech as large biopharma companies look to backfill pipelines ahead of some significant patent expirations across the industry expected over the next couple years. In addition to that, we're seeing really innovative therapies continue to be developed targeting terrible diseases.
 
Billy Dietze: So thus far you've both painted a fairly bullish flywheel. AI spending drives semis and data centers, utilities build capacity, and there's plenty of healthcare innovation. What do you think could break the cycle?
 
Leigh Callahan: We seek three key risks to watch in utilities. One is overbuilding or creating stranded assets if demand forecast overshoot. Two is affordability, retail rate pressure can trigger political pushback on CapEx. And three is cost allocation. Ensuring large industrial and AI customers pay their fair share.
 
Lubna Lundy: Add credit quality and consumer health for financials. We saw isolated bankruptcies in 2025 and that reminded investors the credit cycle isn't dead. Credit risks still exists if risk premia jump and consumer confidence waivers, banks tighten and private deals get pricier.
 
That said, in many instances we're talking about projects that are long duration projects for the AI build out alternative asset managers. They're already set up with long-term liability structures, so that can be helpful and position them to navigate and even find value when sentiment overshoots.
 
Billy Dietze: Anything else either of you would add or want to highlight for advisors as they build their 2026 portfolios?
 
Leigh Callahan: I think there are a lot of opportunities for advisors building and maintaining portfolios for the long haul. AI represents such a disruptive shift among tech stocks and the technology keeps advancing. There are absolutely stocks out there with stretch valuations, so this sector may lend itself to a more active approach, but you're hard pressed not to continue riding the wave.
 
Similarly, while many utility stocks ran up in 2025, I think the shift in power demand is more likely to be a multi-year trend rather than a one-off event. And then you have healthcare, which is kind of the opposite. Lower stock valuations in a period of multi-year underperformance may offer a compelling entry point.
 
The US population continues to age and those medical needs are not going away anytime soon and the innovation continues to grow.
 
Lubna Lundy: For 2026 specifically, there's a really encouraging setup for the financial sector due to a few factors. One, attractive valuations compared to other sectors. There's also a potential for interest rates to fall. There's also a potential for accelerating loan growth, a steepening yield curve, and then regulatory pressures are easing, which can also promote more M&A activity.
 
All of this could offer attractive opportunities for stock picking in 2026.
 
Billy Dietze: Thank you. Great discussion Lubna and Leigh. I really appreciate you sharing your insights.
 
Lubna Lundy: Thank you so much for having us, Billy.
 
Leigh Callahan: We really enjoyed it.
 
Billy Dietze: Check out Fidelity's 11 equity sector outlooks in the link below or in the description box if you're listening on YouTube.
 
We're halfway through this special edition of Insight & Outlook and I hope you're enjoying these audio articles. Before we hit the next topic, a quick announcement:
 
Fidelity revamped its Insight & Outlook program by adding a weekly market commentary written for advisors. We've also launched a new biweekly webinar series. These both come directly from the capital market strategy group within Fidelity Institutional.
 
We've tailored this new market commentary and webinar series specifically for RIA, broker-dealer and wirehouse advisors to give you the information you need to serve your clients.
 
Click the links below to read our latest market commentary, subscribe to the newsletter, and register for our next Insight & Outlook webinar.

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Billy Dietze: Up next, we're pulling back the curtain on direct lending, a segment of private credit that's quietly reshaping portfolios. Direct lending is a strategy where lenders provide loans directly to companies bypassing traditional banks. So why is the direct lending space growing so fast and what does it mean for investors looking for resilience and returns in the year ahead?

Joining me to break it all down is David Selbovitz, Director of Investment Analysis-Alternatives at Fidelity. Welcome David, and thanks for joining us.

David Selbovitz: Thanks for having me, Billy. I'm excited to talk about this because credit and especially direct lending is an often overlooked tool in portfolio construction, yet it can play a really powerful role for advisors.

Billy Dietze: Alright, and let's start there. You said it's underutilized. Why should advisors pay more attention to it when building their clients’ portfolios?

David Selbovitz: Great question. Credit can provide three things in my mind that matter across market cycles. The first being attractive income, the second being potential downside protection, especially relative to other risk assets. And the third being total return. Historically, investors lean heavily on stocks and bonds as we know in traditional portfolios. But credit, especially private credit, which is driven by contractual income, offers a unique risk return profile that can help smooth out volatility.

Billy Dietze: So, it’s not just about chasing yield then?

David Selbovitz: Exactly. It's about building more resilient portfolios, being able to participate in risk seeking markets while protecting in down markets. And with private credit, you can enhance return, consistency, income, durability, and even compounding potential.

You have public credit, which gives you liquidity and transparency. Since these bonds are sold on the open market, they're driven by duration, they have interest rate sensitivity while private credit, like direct lending adds structural advantages and higher spreads.

As I mentioned, the loan element is driven by contractual income. When you put that together, they complement each other rather than compete.

Billy Dietze: So let's dig into direct lending, which is getting a lot of attention lately. Can you get specific on those structural advantages that make it so compelling?

David Selbovitz: Absolutely. Direct lending has grown dramatically over the past two decades. Today people don't realize, but it rivals the size of the high yield and leveraged loan markets. It's a significant component of the funding markets.

This growth stems from really a market shift. You've had traditional banks consolidate and pull back from leveraged lending, and that's left to financing gap and private lenders have stepped in to fill the need.

The US middle market, which we define as roughly 200,000 businesses with 10 million to a billion dollars in revenue. That is the opportunity set at play. These companies drive about one third of us, GDP direct lenders can also offer tailored solutions, faster execution and a partnership mindset that banks often struggle to match characteristics that these middle market companies find extremely attractive.

Billy Dietze: Wow, that is a large market. How does Fidelity think about finding the best opportunities among everything that's offered?

David Selbovtiz: Well, if you break that opportunity set that we just discussed down a little bit further, there's a structural bifurcation in the direct lending market. You have companies currently with EBITDA of under around let's say $150 million that provide traditional middle market execution that is higher spreads, stronger covenants, and lower leverage.

Conversely, at the upper end of that earning segment, competition with the broadly syndicated loan market has really eroded loan terms and protections and these characteristics matter. These factors matter.

Leverage, for instance, is the single biggest predictor of loan defaults. Lower leverage and tighter covenants mean better downside protection and more predictable returns. It's higher quality. For example, just to put into context, financial covenants appear in about 97% of loans under 350 million compared to just 38% of loans over a billion.

Billy Dietze: That's a huge difference. So stronger protections, less leverage. It almost sounds like you think you can find better risk adjusted deals in that lower middle market space. Is that what I'm hearing?

David Selbovitz: It is. You know, spreads compensate you for relative illiquidity. Smaller loans often provide both 50% higher compensation per unit of leverage compared to larger deals. That is the segment of the middle market that credit selection can make a big impact.

Billy Dietze: Appreciate that insight. So let's jump to the why now piece of this. so attractive in today's moment?

David Selbovitz: A few things have converged. First, we've got improved credit quality, meaning lower base rates have enhanced interest coverage. Second attractive yields, even with tighter spreads and lower base rates, absolute yields remain very compelling. And lastly, there's a persistent financing gap.

Private equity is record dry powder, which means demand for financing isn't gonna be going away. When you combine all of that with elevated public debt levels and interest rate volatility, higher stock and bond correlations credit, especially direct lending, looks like a smart way to diversify and seek stability.

Billy Dietze: So for advisors listening, what's your main takeaway?

David Selbovitz: I leave advisors with a couple key points. First, credit shouldn't be an afterthought. It's a strategic allocation that can help balance, risk and return. And within credit direct lending, particularly focusing on traditional middle market execution offers structural advantages that can enhance portfolio resilience.

Billy Dietze: Makes a ton of sense to me. David. Thanks for breaking this down for us.

David Selbovitz: My pleasure, Billy. Thanks for a great discussion.

Billy Dietze: If you want to learn more about how direct lending could strengthen your clients’ portfolios, check out the full white paper, the link below. It's also in the description box on YouTube.

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Billy Dietze: Investors aged 61 and older currently hold more than $50 trillion in wealth. That's almost double what's held by all younger generations combined. If you've been cruising along with your older clients, get ready for a change because the next wave of high net worth investors might be looking for a different kind of financial advice.

Fidelity recently surveyed investors with at least $1 million in investible assets beyond their home and retirement accounts. We uncovered some pretty big differences between boomers and the younger generations who are poised to benefit from the coming wealth transfer.
 
I'm happy to be joined by Gina Gubitosa, Head of Client Intelligence at Fidelity to talk about this next generation of investors comprised of Gen X, Y, and Z. Welcome, Gina. This survey uncovered some pretty fascinating insights. Why do you think these findings are so important right now?
 
Gina Gubitosa: Thanks for having me, Billy. The headline here is that we are in the middle of the largest generational wealth transfer and history.
 
Over the next decade, hundreds of billions of dollars annually will shift from boomers to their children and grandchildren. Before we discuss what's different with these younger investors, we should chat through what isn't changing.
 
The advisor relationship is built on trust, reliability and empathy. Customer experience is important as is optionality.
 
Billy Dietze: Absolutely. The more things change, the more they stay the same. But that said, where do you see signals that indicate shifting demand and our advisors prepared to offer the advice and services these clients expect
 
Gina Gubitosa: High level, these wealthy next generation investors aren't likely to be satisfied with the same kind of financial advice their parents and grandparents got. They want high touch holistic connections with advisors who deliver much more than investment in money management.
 
Billy Dietze: Great. Let's dig into what you found.
 
Gina Gubitosa: For starters, we found that wealthy next generation investors want advisors who are able to act as life advisors rather than pure number crunchers. They want advisors who can help them understand new investment products, how to navigate supporting parents and children at the same time, and even how to plan career and lifestyle moves.
 
Specifically, almost half of these households want more than investment advice alone. By contrast, only one in three wealthy boomer and older investors are looking for this more holistic advisor relationship.
 
Billy Dietze: Why do you think these expectations have shifted so dramatically?
 
Gina Gubitosa: These younger investors bring a broader set of many different life experiences to the table. This starts with some notable demographics. They're more likely to be female and more ethnically diverse and they're also no surprise, more likely to have children.
 
A significant portion of these investors are financially supporting family members in some way, and many also expect to continue to support family into retirement. And of course, Gen Y and Gen Z have grown up with financial information available with the swipe of their phone. So naturally they have different outlooks and expectations.
 
Billy Dietze: That's a good point. I guess it seems fair to say that every generation has its own relationship to money, which might be influenced by parental examples, but but also shaped by personal experience. So what kinds of advice are younger, wealthy clients looking for? Could you give us some examples?
 
Gina Gubitosa: I’m happy to. So I mentioned how many younger investors have grown up in a more digital world. One result is that they're more plugged into financial trends like crypto. 20% of these wealthy, younger investors own cryptocurrency, compared to just 3% of boomers.
 
They're also more interested in products like ETFs that utilize active management and wealthy younger investors are more than twice as likely as their boomer and older peers to be interested in exposure to alternative investments.
 
So while advisors may not be used to discussing these products or asset classes with their older clients, leveraging younger investors interest in these strategies could be an effective way to spark engagement.
 
Billy Dietze: Do you have any other ideas for advisors to consider?
 
Gina Gubitosa: Another idea to consider is how you are communicating to younger investors. Think about how popular short form video content is nowadays. In other studies we've done, we found that nearly one in four of these wealthy younger investors prefer to learn about financial products through watching YouTube shorts or TikToks.
 
Not only being aware of how your client is gathering financial information, but leaning into that engagement model could also help advisors attract younger investors. Your role as an advisor should be to influence your clients after all.
 
Billy Dietze: That would be an interesting angle to use. So what else are these younger generations looking for in an advisor?
 
Gina Gubitosa: Well, they want what I would call life advice, and that speaks to not only their life stage, but also their unique perspective on work, career and financial independence. This is a broad category, so let me break it down.

One example I mentioned briefly would be navigating support for both parents and children. Here we're talking about this so-called sandwich generation. They're saving for their own kids' college, but also need to care for aging parents.
 
Three-fourths of our wealthy next-gen investors have living parents, and by contrast, naturally enough, only about one fifth of wealthy boomers still have living parents. So younger investors want advice on how to allocate resources across all of their family members while still protecting their own eventual retirement.
 
Billy Dietze: Wow. That really speaks to the combined importance of demographics and life stage. What else is driving this change?
 
Gina Gubitosa: These younger investors really want to share more personal information with their own kids, and that's probably more than they got from their boomer and older parents who are perhaps a bit more uncomfortable talking about money. This is an area where they want guidance from an advisor.
 
Another category is about how these clients want to spend their time. You might not think this falls into the wheelhouse of a financial advisor, but I would argue that it does. 30% of young investors say one of their financial goals is to be able to pursue what they're passionate about, even if it means making less money.
 
And only 18% of Boomer and older respondents said the exact same thing. Another interesting stat is around the fire movement, and that tends to come in and out of the news. Almost half of our Gen X Gen Y, Gen Z respondents said they are saving or investing specifically so they can retire early or achieve financial independence.
 
So while wealthy next Gen-ers might love their work, they might also be looking forward to no work, and well before the age of 67. They want advisors who can help them plan for an early retirement with enough resources to enjoy experiences rather than owning a lot of stuff.
 
Billy Dietze: Those are some great insights, Gina. Thank you. Let's wrap up by looking at how advisors can respond to these findings and position themselves to deliver for these younger investors. What tips do you have?
 
Gina Gubitosa: A few things. First, keep in mind that this type of holistic connection is based on trust, and our study showed that one gateway to trust is fee transparency by a wide margin. NextGen investors who are currently unadvised today say they'd be more likely to work with an advisor if the fees were lower or at least more understandable.
 
Next advisors can lean into these investors' interest in new product options in emerging asset classes. These investors have lower allocations to equity when compared to their older counterparts, and they are looking for returns across the wider mix of asset classes.
 
By building your comfort and not only talking about these more innovative areas, but assessing portfolio fit, you can position yourself as a guide beyond traditional equities, but above all, be prepared to deliver beyond portfolio management.
 
Fidelity's advice value stack speaks to this. Of course, your first responsibility as a financial advisor is managing the money, but being able to dig deep into the personal life of your client allows you to provide so much more value to your client's lives.
 
Billy Dietze: Terrific. Gina, thanks for a great conversation.
 
Gina Gubitosa: You bet. I hope these findings will help advisors understand what these younger investors want so they can retain family wealth in their firms across generations.
 
Billy Dietze: Check out our full investor insight study for more on how to connect with this next wave of wealthy investors. The link is near the bottom of this webpage, or if you're on YouTube, it's in the description box.

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