Clients in their 20s, who are just starting out in their working lives, have financial needs that differ materially from those of the rest of the population. To that end, advisors and brokers must be aware of what makes these clients tick and must recognize the fact that the advice and services targeted toward this younger crowd might not be rewarded with a commission.

In this article, we'll address some of the needs that young people have, and provide suggestions for how advisors/brokers can address those needs.

Immediate Liquidity Needs
Most advisors recommend that their clients sock away cash in a formal retirement plan in the early years in the hope that the accumulated savings will grow into a big nest egg when the client reaches retirement age. This is considered sound advice. However, these same advisors must also be aware that not all clients can save money in their early years. In addition, younger clients often need to maintain a certain level of liquidity so that they can purchase items such as a car, or place a down payment on a home.

SEE: Retirement Savings Tips For 18- 24-Year-Olds and Competing Priorities: Too Many Choices, Too Few Dollars

This means that sometimes the best advice that an investment professional can give, is for the client to keep his or her funds in a money market account, or some other short-term investment vehicle that won't lose value. By definition, this may also mean that the advisor or broker might not draw a commission. However, this is OK, because over the long haul, as the client accumulates assets, the honesty and thoughtfulness the advisor has shown will more often than not be rewarded through increased investment.

SEE: Get A Short-Term Advantage In The Money Market

Assessing Risk Tolerance
As registered representatives, we are taught that the younger a client is, the more aggressive we should be with their investments. Unfortunately, many advisors seem to apply this school of thought to all of their clients' portfolios without further consideration or analysis.

Despite this commonly held view, some clients aren't aggressive investors by nature. They simply don't have a high risk tolerance, even if they have a higher net worth, and can afford to lose more than their peers. Therefore, advisors need to realize that their first objective is to make sure their clients' needs and desires are being met. This may mean forgoing the strategies you have learned in school or on the job. It may also mean (by investing in less risky asset classes) drawing a smaller commission.

Providing for Aging Parents/Grandparents
Because of an aging population, and the rising cost of insurance, many young people are being forced to provide (food, clothing, shelter, healthcare) for their parents or grandparents. This means that they may need to maintain a portion of their assets in short-term notes or certificates of deposit. Alternatively, they may need or prefer to allocate a large portion of their investments to bonds in order to obtain a steady stream of income and to satisfy ongoing living arrangements for their elders.

This may lead to additional work - and less income - for the advisor. As an advisor, you must be keenly aware of clients' ever changing needs, and make adjustments to their holdings accordingly. For this reason all advisors/brokers must consistently review the financial needs of their younger clients in order to make sure that their assets are being invested in a sensible manner, as well as to determine whether any other needs must be provided for.

Insurance Needs
Younger investors typically overlook their need for insurance. They also overlook the fact that the best time to buy insurance is when they are young, when the premiums are relatively inexpensive.

SEE: How Much Life Insurance Should You Carry? and Understand Your Insurance Contract

In any case, advisors/brokers should definitely broach the subject of life and disability insurance with their younger clients, and recommend that they review their insurance needs with a licensed agent. Unfortunately, many investment professionals are reluctant to do this because it means that fewer funds will be available for investment (commissions).

That said, if these same registered reps simply obtain insurance licenses, they will be able to meet their clients' needs, which is their first duty and simultaneously be able to generate a commission. This would be a win-win scenario for all parties involved.

The Discipline Factor
As mentioned above, not all young investors are able to put away money each month for retirement. However, it is vital that advisors/brokers instill some sense of urgency in their clients and train them to save at least some portion of their monthly pay, and then to put that savings into a retirement account such as a Roth IRA.

SEE: Retirement Savings Tips For 25- To 34-Year-Olds and Boomerangs: Why Some Kids Never Leave The Nest

Far too often, advisors are focused on their larger clients, and fail to look for the $100 check their younger clients send in on a monthly basis to be added to their accounts. However, that needs to change. Advisors/brokers need to instill a sense of discipline in their clients and make certain that their clients follow through and consistently add to their savings. This can be easily achieved by recommending that they set up an automatic payment system, in which the funds are automatically added to their saving/investing accounts each month.

The Bottom Line
The assumption that all younger investors should be aggressive with their investments, or should automatically fund their retirement plans to the maximum isn't always correct. Younger clients have many needs and goals that must be properly evaluated. With that in mind, advisors must also accept that higher fees and/or commissions aren't always part of that equation.

Related Articles
  1. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  2. Retirement

    This Is How You Could Live in Costa Rica for $1,000 a Month

    Explore the cost of living in Costa Rica, and learn how you could sustain a nice middle-class lifestyle for yourself on about $1,000 a month.
  3. Professionals

    How to Break the Ice with New Clients

    Conducting an effective, initial client–advisor interview is an essential part of any advisor’s job. Here are a few tips on how to get started.
  4. Professionals

    Why Women Are Underprepared for a Spouse’s Death

    Women are typically less prepared for the death of a spouse than men. An advisor can help mitigate some of the financial burdens widows may end up facing.
  5. Professionals

    How Advisors Can Carve Out a Social Media Niche

    Social media is a great way for financial advisors to build a brand and potentially generate leads if it’s properly used. Here are some tips.
  6. Professionals

    3 Benefits of Working Longer (and Retiring Later)

    There are many reasons why folks in their 60s may want to keep working until at least age 70. Here are three.
  7. Professionals

    How Advisors Can Thwart the Robo-Advisor Threat

    Here's how financial advisors can take a number of steps to mimic some of the more successful aspects of a robo-advisor business.
  8. Professionals

    How to Get Free Social Security Spousal Benefits

    Married couples should thoroughly examine whether they are eligible to collect free spousal benefits on their Social Security income.
  9. Professionals

    Career Advice: Financial Planner Vs. Wealth Manager

    Understand the differences between a career in financial planning and wealth management, and identify which is better for you based on your goals and talents.
  10. Retirement

    What Does It Cost to Retire in Costa Rica?

    Tally up the costs associated with taking your retirement in Costa Rica, and determine whether you have what it takes to live in paradise.
  1. Do financial advisors work only in banks?

    While the majority of financial advisors work for financial institutions such as banks, a large proportion of them are self-employed ... Read Full Answer >>
  2. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  3. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  4. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  5. How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and ... Read Full Answer >>
  6. How do I get started with a career in asset management?

    The asset management industry has a variety of different career paths. Depending on what asset management area you would ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!