Rumors abound about millennials rejecting financial advisors. According to these accounts, millennials are increasingly self-directed, aided by the rise in digital investing platforms, financial apps and chatter on social media.
These younger investors are also less risk-averse than previous generations since many of them have never experienced a prolonged market downturn firsthand. As such, they want to invest in riskier assets such as cryptocurrencies that most financial advisors would likely advise against.
But at the same time, many millennials feel underprepared for retirement and attribute this lack of preparedness to not having adequate financial guidance, according to a recent survey of millennials by the National Association of Personal Financial Advisors (NAPFA).
To say millennials are “rejecting” financial advisors does both millennials and advisors a disservice, experts say. It lets an industry that doesn’t like to change its tactics dismiss an entire segment of the population as do-it-yourself investors when, in fact, these investors may be both looking for, and in need of, financial guidance.
What’s Really Going On Between Millennials and Financial Advisors?
There may be some truth to a rise in DIY investing among millennials, but to say they are “rejecting” financial advisors is a stretch and glosses over the truth. It’d be more accurate to say millennials are rejecting the traditional role financial advisors played in previous generations, says Brian Stivers, investment advisor and founder of Stivers Financial Services.
“Few advisors have adapted the strategies and processes preferred by millennials,” he says. Instead, they are trying to advise millennials in the same manner as their parents.
“Investment strategies have evolved over the past several decades, therefore the process employed by advisors should evolve as well,” Stivers says. “This may be as simple as meeting virtually instead of in person, developing effective e-tools for daily service and monitoring, and paperless systems to establish and maintain accounts.”
The larger issue is a misunderstanding of what exactly a financial advisor can do for you. “If the perception is that financial professionals only provide investment and financial planning advice, many (millennials) may question why they can’t use tools and resources available online,” says Bill McManus, managing director of Applied Insights at Hartford Funds. There’s an app for that type of guidance and it’s a lot cheaper than working with a human being.
“If financial professionals can clearly articulate the wide array of services they actually provide, such as tax planning, budgeting, debt guidance, home buying assistance and a network of resources that can meet the needs of younger generations of investors, then they could be more likely to capture these prospective clients,” McManus says.
It’s also important to remember many of these younger investors don’t know what a real market crash feels like. “So, it is difficult for them to justify paying an advisor to prepare for the downside,” Stivers says. But downside planning is where many advisors can show their true value over a digital investing app.
Millennials’ Changing Perspectives
NAPFA’s survey found nearly an even split between the percentage of millennials who feel they can handle their investments on their own and those who don’t feel so DIY-confident. Nearly two-thirds say they feel “secure” after working with a financial professional and more than one-third said they walked away from the experience feeling “empowered.”
At the same time, nearly three-quarters of millennials already say they wish they could have a financial “do-over.”
Michael Lane, head of iShares U.S. Wealth Advisory at BlackRock, says he worries about what will happen if millennials are left to their own devices. “An individual’s first experience with investing can shape their perspective for decades,” he says. A great first experience can lead to an overly aggressive approach later on, which could put their retirement or other savings goals at risk.
“Similarly, understanding the effect of volatility in a portfolio can be vastly different depending on an investor’s past experience,” he says. “An early investor in high-risk, speculative securities may have a completely different understanding of volatility, compared to a disciplined investor who benefited from a well-trained financial advisor who balances risk with objectives and goals.”
Left to their own devices – and the lure of meme stocks and get-rich-quick schemes – millennials are likely to have a much more volatile investing experience, and as a result, be less likely to stick with it.
When asked why they aren’t working with a financial advisor, millennials told NAPFA the biggest element holding them back is not knowing how to pick an advisor or where to begin looking for one.
Perhaps the answer isn’t to change millennials’ attitudes about advisors, but for advisors to change their approach to millennials.
How Advisors Can Connect With Millennials
“Millennials love investing in tech and we’re seeing high-octane tech stocks down 15% to 20%,” says Judi Leahy, a senior wealth advisor at Citi Global Wealth. “Where will they get their advice – their parents, friends, colleagues, the internet?”
She says millennials are an “incredibly undertapped market,” and “given all they have coming at them, financial advice can offer them a strategy to juggle their many financial priorities,” from paying down debt to retirement planning and caring for aging parents.
To reach millennials, however, the financial industry is going to need to rethink its approach. “The bigger issue at hand is that financial advisors often have minimums that make it difficult to serve millennials at the tail-end of the age bracket – those born between 1990 (and) 1996 – because they typically have not accumulated enough money to meet the minimum requirement needed to work with fee-based advisors,” Lane says.
NAPFA’s survey results agree: Around 56% of millennials said they feel they don’t have enough money for a financial advisor.
“Financial advisors should seek ways to create differentiated service models for folks this age to help provide value and the necessary guidance and diversification required to accumulate wealth long-term,” Lane says.
Many millennials are focused on impact. They want to know their money is doing good for them and the world at large – and they’re not just looking at their investments to have this impact.
“The first step to communicating with millennials and other younger generations is to take a good look at your advisory business and the demographics of your advisors,” Lane says. “What impression are you giving clients based on the diversity of your firm beyond ethnicity and gender, but also age?”
Remember, too, that millennials are busy people who love technology. “We have found that younger generations prefer ‘bytes over breakfast,’ meaning that this audience would rather receive quick, relevant information, such as a short video, than sit down face-to-face for an hour or so,” McManus says. “Financial professionals can even consider other digital offerings, like online educational portals, podcasts and virtual office hours.”
That’s not to say in-person events are a thing of the past (COVID allowing). “I think in-person events would be a good strategy now that we are getting back to normal,” Leahy says. You could host a wine tasting event or trip to a museum or exhibit, even a niche conversation.
“Millennials love experiences and they want to feel important and even courted,” she says, adding that concierge-style experiences could be worth exploring.
Millennials are also savvy when it comes to fees. “Being very direct and clear as to the fee structure of the financial advisor versus the millennial’s current portfolio is essential,” Stivers says. “Many millennials are willing to pay an advisor’s fee if they understand how it will improve their situation and/or the services they will be receiving.”