Generation Next: Tailoring Financial Advice For Millennials And Beyond

The original article was published on Forbes here: https://www.forbes.com/sites/forbesfinancecouncil/2019/04/17/generation-next-tailoring-financial-advice-for-millennials-and-beyond/#78003b022e1e

For each generation and the one preceding it, the notion that “this time it’s different” is a deadly, yet often used, sentiment. Nevertheless, the more things change, the more they stay the same. This isn’t about idioms; it’s about proper perspective.

Let’s take the Silent Generation (born 1928 to 1946), the generation before baby boomers (1946-1964). Members of the Silent Generation experienced World War II, the Cold War and the aftereffects of difficult bear markets, high inflation and immense volatility. Just as well, baby boomers dealt with stronger bull market cycles, as well as successfully being the first generation to bring about great socioeconomic change after WWII. As baby boomers matured, they saw the 1973 oil crisis, the 1979 energy crisis and the market crash of 1987. Today, millennials — one of the most educated generations and also projected to overtake baby boomers this year as the largest — are reshaping business and politics.

Unfortunately for millennials, many are accustomed to an ever-rising bull market (the longest in history) with little volatility, have received limited education of alternative investments, and were largely sheltered from firsthand experience of a major bear market, such as the one in 2007-2009. All these factors create a generation of market participants prone to lower risk tolerances and economic volatilitythan prior generations and an expectation of strong continuous returns.

As I touch on some financial advice for the millennial generation (and even the subsequent Generation Z), it is important to break down what makes up the financial advice category and measure what’s valuable to younger generations.

The Makeup Of Financial Advice And Planning

Historically, financial advice has been broken into two segments: investment returns and budget management. During the past five years, I’ve seen greater appreciation for a true wealth management approach (fiduciaries) and various forms of developing/delivering financial plans. Here is a breakdown of what traditionally composes financial advice, from my experience. These traditional value categories are out of a total of 100 points:

• Developing a financial plan (25 points)

• Net wealth tracking and projections (15 points)

• Cash management (20 points)

• Balanced portfolio management and modeled portfolios (20 points)

• Asset and liability risk management (20 points)

Here might be a different perspective to take with millennials and Generation Z. I chose these following value categories to reflect behavioral tendencies for younger generations, such as their desire to have immediate feedback from their service providers, high preference for mobile-based experiences and inherent desire to learn. 

• Real-time financial planning (15 points)

• Financial literacy and collaboration (20 points)

• Mobile accessibility and active feedback (20 points)

• Cash and liability management (10 points)

• Net wealth forecasting and decision management (20 points)

• Portfolio management and alternative investment management (15 points)

Next Generational Focus: What Matters And Why? 

Wealth management is more than having financial planning software and a comprehensive proposal. Younger generations will need something more than a financial proposal regarding their future. According to a recent Deloitte report, 57% of millennials surveyed would change their bank relationship if another offered a better technology platform. Ironically, at the same time, the report showed that 84% of millennials seek financial advice (and knowledge).

Clearly there is a need/demand, yet somehow there’s distance between advisors and this generation. Accordingly, the survey also found that millennials tend to revert to their peers regarding investment choices even while valuing more face-to-face meetings. Simply put, financial advisors who fail to appreciate a different process of communicating value and connecting with millennials will be at risk of losing future assets-under-management growth and existing assets once the transfer of inheritance to this generation begins.

It isn’t such a bold statement when you consider how technology has changed communication, making it more collaborative, and the value millennials place on quick response times, accessibility and service. In fact, according to the Pew Research Center, more than 9 in 10 millennials own smartphones, and 85% use social media, compared to 57% of baby boomers (who make up over 40% percent of the country’s financial advisors).

Moreover, educating and engaging younger generations is valuable. According to a 2015 PwC study, out of a population of 5,500 respondents aged 23-35, only 24% showed basic financial knowledge. Nearly 30% of millennials were overdrawing their checking accounts, and despite a lack of financial knowledge, only 27% sought professional advice. These insights are both alarming and an opportunity to consider how advisors work with that generation.

Generational Game Plan: Ideas For Creating Advice Across Generations

Staying ahead of the massive wealth transfer to change hands from baby boomers, here are some ideas for financial advisors to consider when reaching out to the next generation.

1. Help your baby boomer and Generation Xer clients with adult children spark conversations regarding financial well-being and financial literacy with their children. Here are some considerate approaches that advisors can take today. Engage with your client and ask, candidly, whether they’ve had honest conversations with their child(ren) on financial and career matters. Likely, it’s a topic that’s never been truly broached. Be the friendly broker to spark conversations along (usually in a neutral social environment). Alternatively, advisors ought to consider creating financial education seminars for parents to bring their kids and engage in active learning together. Either of these considerations would transform the image of the financial advisor into a generational confidant.

2. Don’t just stick your clients into a turnkey model. Expand your investment model and educate the inheriting generation about the various ways to grow net wealth (such as, for example, incorporating direct investments and secondary market funds).

3. Create an integrated plan and bring other advisors (such as trusts and estates, accountants, etc.) into the conversation. This will help create a total picture for the family and the inheriting generation.

4. Leverage technology to dramatically change your methods of communication and your customer service model. In-person meetings are valuable, but for the younger generations, it also can be helpful to have your service available via a mobile app experience.