When used to refer to people, the term millennial is used to define those of us who have reached or will reach young adulthood in the early part of the 21st century. This definition effectively categorises all those born in and after 1980 as millennials. And this chunk of the world's population typically tends to display similar traits as far as investment behaviour is concerned. They are highly knowledgeable and much more aware of the concepts of investing and personal finance, and also the various options available to them. But on the other hand the variety of investment options they have available to them, their personal aspirations, coupled with the fact that they enjoy greater disposable income on the back of stable, well paying jobs, may mean that they lack clarity and direction when it comes to 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 wish to work with millennials with a set of distinct and complicated challenges which must be tackled in order for them to serve millennials effectively and live up to their expectations. Therefore in today’s post I’m going to show how millennials would benefit from working with competent advisors, the challenges advisors would face in this regard and how they can be handled effectively to ensure a satisfactory advisory experience for both parties involved in the engagement.
The earliest that the typical millennial is exposed to any form of financial advice today is when they start earning. When any individual opens a salary account with a bank, they are most likely to be introduced to a relationship manager from the concerned bank instantly. These relationship managers are usually in and around the same age as the young individual opening the account. This would allow for a better match between the mental wavelengths of the individual and the relationship manager. Naturally, these young millennials would prefer to approach their relationship managers whenever they may be in need of financial advice. But, most relationship managers would base any advice they impart on what is best for their own pockets and not the clients they deal with. Therefore, they are much more likely to recommend, say, a commission heavy unit linked insurance policy over a traditional term insurance policy to meet the life insurance needs of the client. Switching between the hottest mutual funds every couple of years is likely to be recommended over sticking to say a low cost large cap index fund. And if the client wishes to buy say a car worth 20 lakh while having 35 lakh in the bank, the manager would most likely advise the client against doing so. The most likely course of action that would be suggested is likely to be to keep the bank balance untouched on the pretext of keeping it handy to handle unforseen emergencies and fund the purchase of the car through a loan from the bank at affordable EMIs. Such advice may sound fashionable and attractive, but ultimately does very little to improve the financial wellbeing of the client. This is clearly indicative of the fact that depending on relationship managers for financial advice would almost never serve the best financial interests of millennials. It would only impair the probability of millennials being able to get the best out of their money and create lasting wealth over a period of time.
Given that such is the case, the most viable solution for millennials to meet their needs for financial advice would be to work with a competent, independent and unbiased financial advisor who would serve them in a fiduciary capacity. 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. But adopting such an approach comes with it's own set of challenges for both parties involved. The fact that a millennial would be receiving objective advice from an independent advisor would mean that the advice imparted would be focused on simplicity and making a positive difference to the client’s financial wellbeing rather than sounding fashionable. And this may not sit well with most millennials who tend to believe that the more complex and catchy sounding the advice, the better it is. Millennials also sometimes prefer to manage their money themselves and avoid working with advisors since they would be spared from having to pay the relevant costs involved with working in partnership with an advisor. They may also not be willing to stick with their advisors for long enough to see their advice bear fruit. On the other hand, it is important for advisors working with millennial clients to understand that as a category, millennials are highly ambitious and aspirational individuals. Therefore, advisors must ensure that any advice they impart to millennials enables them to achieve their aspirations while also being financially sound and prudent.
Advisors must also focus on managing perceptions and return expectations of millennials clients and help them develop realistic return expectations from the various products and asset classes that they may have invested in. Enabling client participation in every relevant investment opportunity available to them in a well calibrated, scalable manner is another challenge. Advisors must also help millennials understand which of their financial goals are realistic and worth achieving and which ones have no real value to add to them. They can do this by helping millennial clients segregate their financial goals into essential needs, wants and desires.
Because millennials are likely to be quite young, being equipped with the right quality of financial advice would give them the best chance of ensuring 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 advisory engagement, the onus of creating and sustaining a satisfactory advisory experience between millennials and their advisors would be on both parties involved. Millennials should work on approaching advice they receive with an open mind and give it enough time to work before judging its relevance. They also must not shy away from paying a reasonable price for sound financial advice. They must realise that wanting to manage their money themselves in order to save on paying advisory fees is an illogical thing to do. Advisory fees paid to a competent and conscientious advisor would protect clients from making financial mistakes and guard them against various forms of financial peril. And it is this this aspect of the advisory engagement that would add the greatest amount of value to clients. Therefore, such fees must always be viewed as an investment rather than an avoidable expense. Advisors on their part, must repay their clients' trust by helping them set and follow a clear roadmap to manage their finances and achieve their aspirations and goals. They must constantly coach their clients and help them develop the right financial behaviour rather than centering their focus around investment performance and returns. When millennials and their advisors approach their relationship in this way, it would ensure that both parties follow a similar philosophy to dealing with money. Therefore, any engagement between them would be effective and long lasting, which would be the best possible result for everyone involved.