The financial planning industry is facing a generational disconnect. Numerous factors are at war with the current model of advising and are driving a wedge between young people and financial planners. At the heart of the divide is an image issue, one that paints advisors as antiquated men in suits. But in reality, there several reasons millennials and the generations that follow them are uninterested in traditional financial planning services.
The following are five trends that are driving the way millennials approach financial advice:
1. Reduced attention span.
Nothing takes a whole hour. Whether that is true or not, millennials operate that way. A report by Goldman Sachs shows that more than 30 percent of millennials would only commit to a single 15-minute session with a financial advisor.
It is easy to see this behavior as ignorant or stubborn, but before making judgments, consider why young people might think in this way. An advisor is going to educate you about financial products, how savings and interest works, and how to approach paying down debt. All of that information can easily be found in a single page of Google search results and it can be learned without the embarrassment of disclosing how much student loan debt you have to a stranger. The logic may not be perfect, but it makes sense to millennials and it is a perception the financial planning industry needs to overcome.
2. Lack of faith in the stock market.
Millennials lived through the recession just like older generations did, but they emerged from it uniquely transformed by the ordeal. Whereas older generations experienced the market as a safe and reliable place to invest money for years before the downturn, the first impressions many millennials have of the stock market is a disastrous recession.
Andrew Canter, Founder and CEO of Canter Companies, an Integrated Asset Management firm, notes that young people are wary of being advised to invest in stocks. “It makes sense for a young person to raise an eyebrow at being told the best thing they can do with their money is put it in stocks when they saw their parents lose everything doing just that,” says Canter.
Interestingly, it is parents, not professional advisors, that millennials turn to for financial guidance.
3. Desire for personal advice.
A Harvard study showed that only 11 percent of millennials trust Wall Street and when it comes to seeking financial advice, are more than twice as likely to ask their parents as they are professional advisors.
Popular descriptions of millennials are in keeping with this data, but it should not be treated so casually. Yes, many young people still live at home, are struggling to find gainful employment, and are known for their lack of conformity to traditional business norms. But much of that will change and already has. The financial planning industry needs to take the preferences of young people very seriously, because in the coming years and decades, those will be the consumers that they need to reach.
4. Prefer customizable online options.
Millennials are all, or almost all, “digital natives”, meaning that they have been raised in homes that had computers, the internet, and cell phones. To a very high degree, this upbringing influences how they prefer to make decisions, receive information, and interact with people. So it is no surprise that financial planning companies that have rolled out robo-advisor platforms have been popular with millennials.
Robo-advisors are cheaper, often do not require minimum investments, and perhaps most importantly, do not require working with an old guy in a suit. While this runs in the face of everything that older generations want, namely a personal touch, the remote, digital nature of robo advisors suits millennials just fine.
5. Gravitating towards flexible investments.
In keeping with the preference for digital interfaces, millennials are also gravitating towards non-traditional investments that can be made online. Crowd-sourced real estate investing is one new avenue that has gained traction with younger generations.
“For starters, real estate is a more attractive investment option for young people who are not interested in Wall Street,” says Canter. “Additionally, many companies now offer non-traditional investment options, allowing people to own small pieces of much larger investments. For a young investor who is eager to learn the ropes with a small amount of capital, it’s a great place to start.”
Traditional financial planners and investment advisors have been slow to incorporate newer options like crowd-sourced real estate into their portfolios. But younger firms like Canter Companies are tying their brand to newer options that have broader appeal.
Financial planners are facing a fork in the road. The left fork is hoping that millennials will “grow up” and start approaching their finances the way previous generations have. The right fork is accepting the new normal and rapidly adapting to changing consumer preferences.