Impacting the Next Generation

(First published Feb 2016)  Without a doubt we, the millennial Generation, believe that we can change the world. There is a “change agent” in each and every one of us. How do I know? Well, because we are different. Huge economic, cultural, and social shifts have changed our view on the world, and as a generation, we have demonstrated a desire to leave the world a better place than it was when we entered. Although I may not realistically change the entire world, I can change a part of it. This is essentially why I stepped boldly into the world of personal finance without looking in any other direction — to be a change agent.

When I think back to my first money memory it was in fact not my own, but my nana’s. She worked well into the years in which the neighbors around us had retired, and I did not understand why she couldn’t retire too. I suspected that perhaps it had something to do with lack of retirement preparation. Conversations in my adult years led to the understanding that my nana did not have the financial knowledge or access to someone who could help her prepare effectively for retirement. Unfortunately, my nana worked until she was forced to retire due to illness and the “golden years” was not a chapter that played out in her book of life. Recognizing that my nana could have built a stronger financial foundation earlier in life is what drives me to consider how to best serve my peers today.

Who Are the Next Generation of Clients?

millennials, currently people between 18 and 35, are more than 75 million strong and now represent the largest living cohort in history. Over the next 20 to 30 years, a massive $30 trillion dollars will be transferred from the estates of Baby Boomers to the millennial Generation. Today, there is a general misperception that millennials do not have assets or an income to support the need of a financial planner. Check out these statistics from Nielsen, BankRate, and T Rowe Price:

• millennials make up 14.7 percent of those with assets over $2 million
• 2.5 million millennial households bring in more than $100K income
• One in five have saved enough in non-retirement accounts to last three to five months
• On average, millennials are saving 8 percent to retirement plans
• Six out of 10 expect to be financially better off than their parents

 

The stats above are proof that millennials are in need of working with a trusted financial planner to establish a strong financial foundation in their impressionable years, but trust will not come easy. millennials who have been in the workforce for more than six years entered into Corporate America when the financial markets hit the lowest point in over a decade. A college degree did not guarantee a job as in previous years. Although millennials should be contributing to their savings and taking a more aggressive stance in the market, they are not, partly due to a general lack of trust in the financial sector. They saw their parents and grandparents retirement accounts take a major hit. But millennials have time to recoup the market losses. Time is on our side, which means compounding interest is our best friend. Right now is the best time for us to start investing and engaging with financial planners. The landscape of financial planning services is tilting in our favor.

Changing Landscape of Financial Planning

Technology

It should be no surprise that technology is a part of millennials’ DNA. They grew up with the Internet, experienced first-hand the evolution of cell phones and MP3 players like iPods, and are constantly thinking of ways to make their lives more efficient by leveraging technology. It is becoming imperative that we have both human touch and digital touch as we combat the digitization of financial advice. Robo-advisers are the new shiny toy on the market, but they are no threat to our profession as the human conversation about life events cannot be duplicated by a computer. However, it is up to us to communicate to clients and prospective clients the value we bring to the table in addition to asset management. Many millennials have stated that although it’s great to have automated investing available at their fingertips, they still want to talk to a financial planner.

Alternative Fee Structures

millennials are approaching a level in their career where they need financial advice. They are indeed becoming HENRY’S – High Earners Not Rich Yet. Millennials have not yet amassed a large nest egg, but are well on their way. It is a no brainer that the Asset Under Management (AUM) fee structure will not make business sense for firm owners if they want to take on millennials as clients. However, there are alternative fee models such as monthly retainers or charging a percentage of their net worth that could make sense. These alternative fee structures will allow the traditional financial planning firms to start building trust with millennial clients while they are accumulating wealth. Although there may be some truth about millennials skipping from job to job, they do have a strong sense of brand loyalty. Firms that can adapt and offer quality services at reasonable prices to millennials now will have them as clients well into the future.

Alternative Investing

Prior to attending the 26th Annual SRI Conference on Sustainable, Responsible Impact Investing held in November 2015, I had very little knowledge about Impact/ESG/SRI investing. I consider myself a very well versed advisor and take pride in being a comprehensive planner. However, if I did not know about the Impact/ESG/SRI movement (which has been around for more than three decades), how would my clients?

I do believe millennials are motivated by aligning their financial decisions and their values, but maybe not in the way we may think. The vast majority of conversations I’ve had with millennial clients are around how to make an impact with their time via volunteering and money via charitable giving, not necessarily their investments. A few have opted to take a lesser paying position in their careers because they feel they can make more of an impact personally — it’s not all about the money.

You don’t know what you don’t know. If we want to help the millennial Generation make an impact via their investments, it starts with educating the advisors. The clients are looking to us for guidance and the more we know about impact investing the more we can share with our clients. I would encourage Impact/ESG/SRI focused firms to reach out to the “outsiders,” like me, to help educate us on the best kept secret in the investment world. Although I felt very included at the SRI conference, I left the conference with a long list of terms to look up because the presentations and conversations were very jargon heavy. For the very first time, the tables were turned and I felt what it was like from the client’s perspective, the conversations were in a second language. However it was a language I was eager to learn! If we want to gain the traction of millennial clients, we have to break down the Impact/ESG/SRI conversation to the mere basics and spend time educating them (and the outside advisors). Yes, it will be a significant investment of time, but it will be worth it.

I wonder, is the Impact/ESG/SRI world missing an opportunity to engage the millennials at an impressionable stage in their lives? With the inevitable wealth transfer, now is the right time to encourage heirs to be good stewards of their impending wealth. According to the Institute for Preparing Heirs, 90 percent of inherited money is gone by the third generation. This is the moment to help millennials understand the true meaning of wealth and help them align their values with their money.

 

Article by Rianka R. Dorsainvil, CFP®, Founder and President of Your Greatest Contribution (YGC) (www.yourgreatestcontribution.com), a virtual fee-only comprehensive financial planning firm dedicated to serving the busy professional in their 20’s, 30’s and 40’s. As a Certified Financial Planner™, Rianka approaches financial planning with a strong emphasis on financial education and provides business owners, individuals and families with the tools to make informed financial decisions.

Rianka earned a B.S. degree in Agriculture and Applied Economics with a concentration in Financial Planning at Virginia Tech. With over six years of experience in the financial planning profession, she gained valuable knowledge at wealth management firms. She advised clients in the areas of retirement planning, estate planning, education planning and strategic tax planning.

A strong advocate for young professionals, she serves as 2016 President of Financial Planning Association’s NexGen community, where she focuses on the cultivation of the next generation of financial planners, actively participates in pro bono opportunities, volunteers annually with the IRS Volunteer Income Tax Assistance (VITA) program, and co-founded a mentorship program for women in financial planning at her alma mater, Virginia Tech. Through her leadership, contribution, and volunteerism within the financial service industry, Rianka was recognized by Investment News in their 2015 list of top “40 Under 40” financial services professionals. Additionally, Rianka was published in the Journal of Financial Planning where she shared her research around cultural and wealth patterns of the millennial generation.