Avocado Toast or Not, Millennials Are About to Get Rich
But regardless of how much they may be spending on avocado toast, it’s undeniable that the age of millennial wealth is coming. In the next 30 to 40 years, more than $30 trillion in financial and non-financial assets will transfer from baby boomers to their children — and that’s just in North America. Financial advisors will not only have to adapt their products and services to millennials’ unique spending and investing patterns, but also consider how future innovation in financial services will affect their business.
In other words, it’s time for financial advisors to ask themselves the question on every industry’s mind: What do millennials want? Here’s what they need to consider when tailoring their offerings to an influx of millennial wealth.
Encourage responsible, future-focused spending
Millennials are often criticized for their short-term approach to spending, but financial advisors need to take these spending preferences into account as millennials accumulate wealth.
The Great Recession of 2008 still hangs over millennials’ financial decisions, and stagnating wages have made them reluctant to invest in large purchases like homes or cars. They prefer renting and leasing, spending their available resources on experiences instead.
But when considered another way, millennials’ cautious attitude toward major spending actually makes them better financial planners than their parents. They have less credit card and consumer debt than boomers — though they also don’t use credit cards as frequently. Advisors may need to show millennials how the behaviors they perceive as risky — like using credit and buying property — will benefit them in the longer term when handled responsibly.
Help them make smart investments
When it comes to investing, millennials present an interesting dichotomy. Only a third of millennials have money invested in the stock market, though that number should increase as the generation ages. Those who don’t invest cite a lack of understanding about investing or fear that they’ll lose their principal.
But the data shows that millennials who do invest start earlier than their parents, rely heavily on research, and care about the impact of their investments. Since many early investors are likely to come from more affluent backgrounds, we can anticipate that as they come into wealth from their parents, they’ll seek out smart and sustainable ways to manage that money. Firms should plan to diversify their offerings to fall in line with millennial preferences, which include structured products, private equity, and venture capital over individual stocks. They would also do well to introduce portfolios for impact investing, which is likely to continue gaining in popularity.
Build relationships with millennial clients
Aside from investing and spending styles, advisors also need to consider the impact of technology on financial services and alter their styles accordingly. Millennials rely heavily on technology to help them with tasks that have traditionally required paying a third party – and that extends to investing. They’re used to fintech services that give them 24/7 access and visibility into their investment choices.
While it’s essential for all firms to offer cutting-edge digital solutions, advisors must also demonstrate the importance of a face-to-face relationship for millennials who may not immediately recognize its value. Firms should expect to cultivate relationships with their clients’ children early and offer to demonstrate the value of face-to-face advising.
Speaking of tech, financial advisors will also need to adapt to millennials’ preference for digital tools and interfaces. Offering consulting sessions via Skype or other videoconferencing platforms can let advisors reach a global pool of millennial clients on a medium with which they’re comfortable. In general, firms are heading in the right direction, having increased their technology spending by up to 30% in the last four years.
And while millennials may not invest in alternatives like Bitcoin, advisors need to be able to explain new alternatives as they are perceived to be an increasingly appealing option for investors.
As millennials get wealthier, their need for and interest in financial planning and investment will grow. Financial advisors can prepare by adapting to the technologies, investment products, and relationship styles millennials prefer.
When millennial clients step into new wealth, make sure you’re the advisor who’s been there from the beginning.