When used to refer to people, the term millennial is used to define those of us born in and after 1980. And this chunk of the world's population typically tends to display similar traits in their investment behaviour. They are more knowledgeable and much more aware of the concepts of investing and personal finance. There are a variety of investment options available to them Their personal aspirations are equally varied. They enjoy greater disposable income and stable, well paying jobs. But this may also mean that they lack clarity when managing their money. It is a fact that is borne out by the graphic given below.
This naturally means that millennials could use the help of calm, sane and objective voices which would help them get their money matters on the right track. But at the same time, it presents advisors who work with millennials a set of distinct challenges. These must be tackled in order for them to serve millennials effectively. Therefore in today’s post I’m going to show how millennials would benefit from working with competent advisors. I will talk about the challenges advisors would face in this regard. And I will also how they can be handled. This would ensure a satisfactory advisory experience for both parties.
Aligning Advice With Client Interests
The typical millennial is first exposed to financial advice when they start earning. When a millennial opens a salary account, they are likely to be introduced to a relationship manager of a similar age. This would allow for a better wavelength match between the two parties. Naturally, these millennials would approach their relationship managers whenever they need financial advice.
But, most relationship managers would offer advice that serves their pockets. So depending on relationship managers would almost never serve the best interests of millennial client. Given that such is the case, the most viable way for millennials to meet their advisory needs would be to work with a competent, independent and unbiased financial planner. An independent advisor would base all their advice on an in depth understanding of each client’s financial situation. Therefore, clients would receive advice that is highly relevant to them and their financial situations and aspirations. It would would be focused on simplicity and ensuring the client’s financial wellbeing.
Balancing Ambition And Prudence
It is important for advisors working with millennial clients to understand millennials as a client category. Millennials are highly ambitious and aspirational individuals. So advice that is too prudent may not go down too well with them. But prudence cannot be given up altogether. Striking a balance between the two is extremely important. Therefore, advisors must impart advice that allows millennials to achieve their aspirations while also being financially prudent.
Managing Perceptions And Expectations
Advisors must also focus on managing perceptions and return expectations of millennials clients. They must help them develop realistic return expectations from the various asset classes they are invested in. For instance, some millennials may expect long term returns of 15-20% from equity. But in truth the job of equity as an asset class is different. It is simply to match or beat inflation over the long term. A long term post tax return of 9-10% is enough to do this job. And such return expectations would be a lot more realistic.
Enabling client participation in relevant investment opportunities is another challenge. Participation must be well calibrated and scalable. In other words clients may need to start out small and increase allocations over time. Advisors must also help millennials understand which of their financial goals are worth achieving. They can do this by helping millennial clients segregate their financial goals into essential needs, wants and desires.
Delivering Bang For The Buck
Because most millennials are quite young, the right financial advice would ensure their long term financial wellbeing. Therefore, millennials would definitely be well served entering an advisory engagement with the right financial advisors. But, as with any professional relationship, the onus of creating and sustaining a satisfactory advisory experience would be on both parties. Millennials should approach advice they receive with an open mind. They must objectively assess the soundness of the advice before judging its relevance. They must not shy away from paying a reasonable price for sound financial advice. They may choose to manage their own money to save on paying advisory fees. But this may not be a logical thing to do. Fees paid to a competent advisor would protect them from mistakes and guard them against financial peril. And this would be the biggest value add for clients. Therefore, fees must viewed as an investment rather than an avoidable expense.
Advisors must repay their clients' trust by helping them set a roadmap to manage finances and achieve goals. They must constantly coach their clients and help them develop the right financial behaviour. This would ensure that both parties follow a similar philosophy with money. Therefore, any engagement between them would be effective and long lasting.