Millennials and wealth management: Building trust can be key

One of my favorite books is an all-time best seller, How to Win Friends and Influence People, by Dale Carnegie. I would highly recommend it for advisors as it discusses the practice of winning the trust of others by first understanding their needs. Trust is what binds clients and professionals together — but even more than a binding agent, trust can be the largest attractant for developing new client relationships.

This idea was endorsed by a Wharton study that looked at advisor-client relationships and found that many advisors fail to cultivate trust because they fail to communicate the value of their services1. This can be especially important when working to bridge the generational gap with millennials, who generally have lower levels of trust compared to other cohorts. Thus, I believe that those financial advisors who understand the financial priorities of the millennial generation will have an advantage in developing and diversifying their practice.

Understanding what milliennials generally tend to prioritize in their lives — and recognizing what effect these priorities can have on their finances — can require comprehensive thinking on the part of advisors and a willingness to educate clients. Here are three tendencies that demonstrate millennials’ priorities:

  • 1Millennial optimism

Compared with most generations, millennials say they are optimistic about their financial future. They believe they have good financial habits, they can live on less during retirement compared to baby boomers, and more than other cohorts, they believe investing is important2. Yet, this sanguinity may very well be driven by social pressure — consultants in the financial advisor industry have hinted that millennials don’t demonstrate these same levels of confidence when they aren’t participating in social media.

Nonetheless, confidence tends to run high on long-term goals for millennials because they see time as one of their greatest assets. Short-term anxiety begins to grow when they are asked about day-to-day finances and debt. Financial advisors can assuage this concern by educating millennial clients about the combinative power of short-term planning for long-term goals. As with most of our clients, greater success can be achieved when we break down the larger, complex financial goals into short-term, achievable actions.

  • 2Millennial savings

Studies show that millennials with employer-sponsored retirement plans are aggressive savers. The evidence suggests that the effect of defined contribution plans and the Pension Protection Act of 2006 has helped to increase participation rates3 in general, but millennials may see this opportunity for “free money” more clearly than other generations. Nearly 80% of these millennials are content with their employer automatic retirement savings programs4. But they also report that employers should start the employer match at the maximum rate, signaling that they may want to save more and earlier.

More than half of millennials earning more than $70,000 annually are putting aside 20% or more of their income5. This high level of savings is a great signal for financial planning because it shows this generation's commitment to goal attainment. As Greg McBride, chief financial analyst for Bankrate, was recently quoted, “Millennials have a greater inclination toward saving, for both emergencies and retirement, than we’ve seen from previous generations.”6 Where millennials can use help is smart saving. They are putting money toward retirement and emergency funds, but they need to learn to make making tax-savvy investments in the stock market and appropriate insurance products.

  • 3Millennial guidance

More than other generations, millennials believe that financial advisors are worth the fees and that a personal relationship with an advisor is important. Although millennials generally are comfortable using robo-advice programs, more than 80% seek personalized meetings with financial planners7.

However, unlike other generations, millennials tend to be more interested in learning the process of reaching financial goals than being told what to do.

In a 2015 study8, millennials reported that they preferred advisors who discuss the step-by-step process for goal attainment instead of key strategies. If you are willing to coach millennials through a process toward financial independence, there may be a higher probability of long-term relationships. Past generations have sought the advice of experts in transactions that were more “hands off,” but with millennials it’s clear that the focus of the relationship is changing from access to advice. Therefore, including client education is critical.

Gaining trust

Although millennials are financially inexperienced, many are likely to soon receive substantial windfalls. This, plus the increased responsibility they feel for their own retirement savings, has caused millennials to feel an increasing need for professional financial advice. That can give even more credence to the notion that thinking like a millennial and understanding the needs of this generation are important to developing trust with them.

This next generation will likely need help managing their optimistic outlook on the future by learning to break down the daily actions that can lead to long-term financial success. In your initial meetings with your millennial clients, discuss their interests and financial priorities, but consider delaying any detailed financial discussions until the second or third meeting. That can send the message that you’re willing to coach them through the process of reaching financial independence and go a long way to winning their trust.

1Wharton School of the University of Pennsylvania and State Street Global Advisors. (2007). Bridging the Trust Divide: The Financial Advisor-Client Relationship.

2BlackRock. (2015). Global Investor Pulse Survey.

3Brown, J. R., & Weisbenner, S. J. (2014). “Defined Contribution Plans as a Foundation for Retirement Security,” The Journal of Retirement, 1(4), 22–45.

4T. Rowe Price. (2015). Working Millennials: Redefining the Digital Generation.

5Nielsen (2013). Nielsen Global Survey of Saving and Investment Strategies, Q3.

6Fuscaldo,D. (2016). Millennials Increase Their Saving But Financial Security Slips.

7Kobler, D., Felix, H., Ernst, B. (2015). Millennials and wealth management: Trends and challenges of the new clientele.

8 Insured Retirement Institute and the Center for Generational Kinetics (2015). Will Millennials Ever be Able to Retire?

The views expressed are those of Nathan Harness and have been adapted, with his permission, for the use of Macquarie Investment Management and its employees.

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