Millennials to financial advisers: You’re missing the mark

Financial advisers look to change their business models and practices to gain ground with the new generation.
Dated cost-structures, investment approaches, and archaic means of communication that may have worked for the baby boomer geneation may not work for millennials. This younger generation has a distinct set of experiences and expectations when it comes to money management.
In order to win business from millennials, financial advisers must make efforts to better understand the generations’ concerns and values. This generation is currently in its 20’s and early 30s, so advisers must consider these key points:

  • College graduates are facing high debt due to student loans.

The average 2014 graduate owes $33,000—the most of any generation to date. With a larger student body, there’s a greater number of students financing their college education. About 70% of bachelor’s degrees for last year’s graduating class were financed with student loans. Priorities for the educated millennial include paying off student debt and meeting other current financial responsibilities (rent, car payments, etc). This means that persuading them to delay short-term gratification for future gains is an extremely arduous task.

  • Millennials are more entrepreneurial than prior generations.

The success of startups launched by millennials has inspired this generation to find and take risks. The millennial generation is more interested in investing in their own talents and themselves than outside of wherever their talents lie. Financial advisers need to sell the merits of investing outside of oneself, not an easy sale at all.

  • Millennials are wary of capital markets.

After witnessing their parents, relatives, friend’s parents, and even friends lose tons of money, this generation has been turned off by the greed of money managers that have contributed to crisis at expense of their clients. The ensuing recession ensured a difficult labor market for fresh college graduates and this generation was mostly in the early stages of their careers—tarnishing the image of Wall Street in general.
Yes, this generation is wary of traditional paths and they haven’t quite started thinking about retirement yet. But all is not lost! Here are 5 ways that financial advisers can gain ground with this lucrative generation.
1) Education: While baby boomers enjoyed long periods of bull markets in the 80s and 90s, millennials are used to seeing more volatility from the dot-com bubble bursting in 2000 and financial crisis in 2008. As a result, they need more assurance from financial advisers during market downturns. This requires education on diversification to help them mitigate behavioral biases and withstand market volatility. In this way, financial advisers can help millennials stay invested and focus on long-term growth, rather than bailing at cycle lows and hurting their chances of achieving another stream of income.
Financial Advisers should first focus on millennials’ current needs, like learning how to budget and pay off student loans. Then they can offer the prospect of achieving other future hopes, such as saving for a vacation or one day a house. Millennials need something positive to work toward and a guide to tell them how much they should start investing or saving for retirement, for example, but first they need to get out of debt.
2) Transparency: The dot-com bubble and the 2008 financial crisis made millennials timid about investing in the capital markets and skeptical of financial advisers. Big banks and money managers have garnered a stigma of trying to sell complex products, some of which ultimately proved faulty. At the same time, millennials know they need to save for the future, especially to protect themselves from another crisis or recession.
Millennials are the most transparent generation ever due to technology, and similar levels of transparency from financial advisers about their business model and investment products would help build trust. Respecting millennials’ intelligence by conducting honest conversations about suitable investment vehicles that are in our best interest will go a long way.
3) Convenience: A smart phone or mobile device makes almost everything accessible in real time from information to entertainment to communication. Want a date? Swipe right. Want to order food? We have an app for that. Want to know what a short sale is? Just type “what is a”… No, really, just those three words. Google will autofill the rest (it’s the fourth one down). Similar to these services, a financial adviser should foster relationships with millennials that are as convenient as possible. Unlike previous generations, millennials are used to on-demand service. Connect with them through our modes of communication, i.e., online or through social media. Also package material and advice in digestible bites with fun, yet informative visuals. Create a friendly website and useful app so we always have access to all our information.
4) Technology: Financial advisers‘ adoption of new technology signals to millennials they aren’t complacent and demonstrates their efforts to reach out to the generation on their turf. Most individuals from this generation don’t want to meet advisers in their offices — it may be intimidating, too structured and require too much time and energy. Advisers can reach out to millennials on social media platforms like Facebook, Twitter and LinkedIn. Blogging is an efficient way to educate the age group since they are used to that format — have you heard of BuzzFeed? Millennials refer to it as their generation’s New York Times. And using Skype/FaceTime/screen sharing tools for appointments also helps us avoid an experience similar to going to a dentist or doctor’s appointment.
5) Fee-based: Millennials are strapped with student debt. It’s difficult enough for them to pay our bills, let alone pay for someone to manage the little money they may hold in a bank account — the opportunity cost is rent. Now, millennials can purchase cheap ETFs and access free investment information online, so paying steep costs for a financial adviser is simply not on the agenda. Therefore, financial advisers may find success by charging millennials on an hourly basis for investment advice, and a low percentage on assets under management.
In sum, here is the pitch: financial advisers are trustworthy and convenient guides to money management; they just need to change their gameplan a bit to cater to millennials. This generation wants advisers who can adapt to the needs and constraints that exist at each stage of their lives. It’s as much the adviser’s job to develop suitable cash flow planning and portfolio models as it is to manage the generation’s behavioral tendencies. Both require clear explanations and technology.