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Ignore Millennial Prospects at Your Own Peril

By Murray Coleman February 20, 2018

Ignoring the next generation of investors just because they’ve yet to accumulate wealth might be a bigger lost opportunity in the future than many advisors now realize.

That’s a key takeaway from new research that finds millennials are building savings at a faster rate than any other generational demographic in the U.S.

And although the offspring of boomer parents are starting with smaller nest eggs, such well-honed behavioral traits make American "echo-boomers" ideal clients in many ways, say advisors who are opening their practices to a wide swath of young professionals.

"We absolutely believe it’s crucial to put more effort into fostering relationships with young professionals in this generation -- and not just as a favor to their wealthier parents or grandparents," says Guy Michael Riccardi, an advisor at United Asset Strategies in Garden City, N.Y., which manages more than $900 million.

A study by Allianz rejects the common view of millennials as "financially irresponsible." Researchers at the insurance giant surveyed more than 3,000 U.S. adults with at least $30,000 of household income. It found that 41% of millennials are saving money on a monthly basis. By comparison the next most active group was Gen Xers at 36%, according to the study.

Meanwhile 58% of millennials polled see retirement savings as a "basic necessity," survey results show. Of those millennials with a 401(k) plan at work, 48% said they contribute 10% or more each month. That compares to 36% of Gen Xers and 44% of boomers with employer sponsored retirement accounts.

At United Asset Strategies, Riccardi isn’t surprised by such results. He points out that millennials have grown up through at least two major market downturns -- the early 2000s when technology stocks cratered and 2008 as global credit markets slid. Also, he says many recount to him memories of their parents’ plights during rough times over their lifetimes.

Generally, prospects in their mid-twenties and early thirties come to him with cash savings exceeding a year or more in living expenses. Perhaps more importantly, Riccardi notes, most younger families he talks to have some sort of plan in place to keep building their disposable incomes. "That’s a very consistent factor we find in sitting down with young professionals -- they’re very conscious of the dangers of holding too much debt and the need to build a nest egg," he says.

Instead of looking at sizes of bank accounts, Riccardi keys into a millennial couple’s aptitude to deal with money. A recent college graduate with just four months of work experience recently became a new client, the veteran advisor says, "largely because he showed a real interest in aggressively starting an investment program and managing his own personal finances."

Keith Hier, an independent advisor affiliated with HighTower in Omaha, Neb., is also focusing on signing younger investors. "Many of these types of people came out of school and endured long periods of unemployment or underemployment," he says. "So it’s ingrained in their lifestyles to pinch pennies and save for the future."

Hier and his partner, Thomas Foley -- who together manage about $500 million -- are busy adding features to attract more millennials. "The key is offering timely education through technology," he says. In the next few months the RIA plans to unveil a redesigned website with videos about recent investment issues and research tools as well as reports.

"We’re trying to give them more resources and reasons to come back to check out our site and build trust," Hier says. For qualified prospects, the advisor is considering offering features included in popular client-reporting software such as eMoney for account aggregation and to more easily track household debt.

At least half of Hier’s clients are younger professionals with less than $1 million in savings, he estimates. Such a demographic also represents the biggest growth area in his practice -- both in terms of raw numbers as well as wealth accumulation.

"People who are committed to our planning process are the types of clients we want," Hier says. "For those types of investors, we don’t believe in setting account minimums."

Phoebe Venable

Younger prospects also present opportunities to teach sound investment strategies and steer them away from poor financial behavior, says Phoebe Venable, president at CapWealth Advisors near Nashville, Tenn., which manages more than $900 million.

A recent survey conducted by BlackRock that she likes to cite found that young investors hold on average 65% of their portfolios in cash. In another study put out last year, Legg Mason estimates millennials hold just 15% of their investments in equities, according to Venable.

"While millennials are aggressively saving, they’re overly conservative in how they invest," Venable says. "There’s a real sense of distrust of the financial services industry."

Her independent RIA has developed a list of answers to commonly asked questions by millennials. Those include responding to queries such as how much to allocate to loans and student debt. Other "hot" topics Venable addresses are how much to save for down payments on a first home and how to split savings between 401(k) plans and individual retirement accounts.

"We do screen young professionals -- some people are better suited to banks and self-trading platforms," Venable says. "But we really don’t want to turn somebody away just because they haven’t saved enough money yet."