How Financial Advisors Are Courting Millennials
Let's be clear: Garrett Prom isn't a wealth manager.
The Austin, Texas, fee-based financial advisor is investing in clients who are in their 20s, 30s and early 40s, with the expectation that providing holistic financial planning now will result in loyalty as their portfolios grow. In a way, millennials are annuities for his relatively new advisory practice.
In November, Prom met with a couple in their mid-20s. They'd saved $50,000 -- not enough for a wealth advisor to sneeze at, but a sizable sum for two young people. They needed to figure out how much to shift into a retirement account (Prom recommended a Roth IRA), how much to devote to a new car and how much to seed the down payment for the house they'd like to buy within a couple of years.
Prom spent four hours helping them map out earning, saving and spending goals keyed to near-term life milestones. He opened his conversation by telling them upfront how his fee structure works. And he expects that they, like other clients, will enthusiastically refer him in the analog version of social networking: word-of-mouth.
Prom's approach hits on many of the cylinders experts say are key to winning millennial clients. Meanwhile, traditional financial marketing is missing the mark, researchers and marketing experts say. This matters because millennials have been handed a daunting set of financial circumstances: underemployment or unemployment, high student debt, a slow-growth economy and fewer chances for traditional career advancement. Having witnessed the financial meltdown of 2008 and the devastation of many older family members' retirement, home equity and hopes, millennials are wary.
Catherine Collinson, president of Transamerica InstituteSM and Transamerica Center for Retirement Studies, says millennials realize they're also facing an unsteady Social Security system that might force them to help aging parents and might not be there for millennials at all.
Millennials aren't easy to communicate with, she adds. They are young in terms of ambition and social attitude, but they're wary and weary when it comes to investing. Transamerica Institute research finds that about 62 percent of millennials invest in some sort of professionally managed retirement account, but only 40 percent hand-select the asset allocation, according to its survey released in July 2014, "Millennial Workers: An Emerging Generation of Super Savers. And of those who specify their asset mix, 36 percent balance evenly between stocks and bonds -- less than one would expect, given the traditional advice that young investors concentrate on growth stocks.
They'd also be glad to learn more, with 75 percent of respondents in the Transamerica survey looking for more information about investing. However, most financial advisors and investment companies address millennials as if that generation is "still at the kids' table," says April Rudin, founder of Fort Lee, New Jersey-based The Rudin Group LLC, a financial marketing firm.
Most financial advisors come across like someone's grandfather, and that's because they usually are, she says. "Financial advisors are ... very process-oriented and procedural. They're conservative, and that's reflected in everything they do," Rudin says. "They're a lagging industry."
One reason advisors aren't rushing to millennials is that those born between 1979 and 1990 don't have much to invest yet. However, just because they're starting out, like generations before them, doesn't mean they aren't investing in their own futures. They're just getting there in their own way.
In mid-2014, Chelsea Fagan founded The Financial Diet, a blog that discusses money the way 20-something women discuss sex, she says. Brooklyn-based Fagan, 25, is on the brink of quitting her day job as a staff writer for a major website to develop The Financial Diet full time. The site already has about 10,000 followers.
"I found that when you become smarter about money, everything gets better," Fagan says.
Why does traditional financial advice feel so taxing to millennials?
"Our generation is strapped with a lot of debt. Having $1,200 a month in student loans on top of rent makes you think you'll never own a house, nevermind invest," Fagan says. "Plus, our generation, in terms of relationship to money, is really different from our parents, and they're the ones talking to us about money."
Spreadsheets and projections aren't the way to go, Fagan says. She integrates essential financial planning strategies with sassy lifestyle content. "Money talk can be received in a more human way when it's a person talking about their own life, so I have a lot of personal confessions and testimonials," she explains. That approach results in posts such as, "7 Unexpected Expenses of Adulthood That Ruin Your Bank Account," which laments the ruinous freedom of shopping for your own groceries.
Advisors need to wrap their minds around the financial realities of young adults or they won't find many takers when they offer to manage millennials' hard-won wealth, Fagan says. "You can't just say, 'Time to start investing or you're of no use to me,'" she says.
New research is starting to inform some tactics that can help advisors and investment firms connect with millennials without embarrassing themselves, says Paul Traynor, head of international insurance for BNY Mellon.
Survey results recently released by BNY Mellon found that 40 percent of American millennials expect their retirement income will come from income outside their formal retirement savings. If so, they are motivated to cultivate multiple streams of income and are open to new ways of investing, Traynor says.
Making it financially worthwhile today to do the right thing for yourself tomorrow is also important. Traynor predicts policymakers will pay more attention to tax incentives for retirement saving and investing. "There has to be some kind of reward for tying up money for a long time. Tax efficiencies are a dull way of saying it is good and right to save for retirement," he says. "It's all about deferred gratification."
More From US News & World Report
