The Millennial generation is the first to have grown up watching technology take over virtually every industry, from retail to transportation. The financial services sector is no exception given the rise of robo-advisors like Wealthfront and Betterment.
Technology is partly why Millennials have grown so frustrated with traditional financial institutions. In fact, 71% of them, according to research by LinkedIn, would rather see a dentist than listen to what a bank has to say. And 68% of those surveyed believe that money will be accessed in completely different ways than it is now. Nearly half expect and trust that technology start-ups will overhaul the way banks operate, which will help bring them up to the 21st century in terms of convenience and access.
Let's take a look at what financial advisors could learn from these sentiments and how they can embrace technology to appeal to the Millennials. (For related reading, see: How Millennials Use Tech and Social Media to Invest.)
LinkedIn estimates that there are 15.5 million affluent Millennials in the United States alone; they spend $2 trillion each year across a broad range of products and services. In addition to their current wealth, these individuals are on the receiving end of a massive generational wealth transfer of at least $59 trillion over the next several years. These dynamics will make the demographic extremely important to the financial services industry over time.
LinkedIn identified five core values shared by the generation:
- Optimism. They have a progressive and optimistic outlook for the future.
- Control freaks. They want to make decisions to guide their own future.
- Open-minded. They have strong opinions that are loosely held.
- Social-centric. They value social interactions when making life decisions.
- Hungry for education. They try to always make informed decisions.
Where Advisors Fit
Millennials are confident that the financial services industry is going to change dramatically over the near term. According to LinkedIn, nearly a third believes that society is moving to be cash-free and banks will no longer be the primary financial institution. They are increasingly willing to look beyond traditional services to find offerings that better meet their needs for convenience, safety or other goals rather than using a one-size-fits-all approach.
That said, Millennials appear to be much more disciplined than their Generation X predecessors, according to the same research. Nearly three-quarters of those surveyed believe that financial sacrifices now will pay off over the long-term compared to less than 60% of Gen Xers. Millennials also tend to have much more ambitious financial goals, including starting a business, buying a second home or starting a charitable foundation.
Financial advisors are uniquely positioned to capitalize on these trends. With a greater propensity to invest in more complex goals, advisors that embrace new technologies have an opportunity to increase assets under management and provide real value that’s difficult to automate. (For more, see: Money Habits of Millennials and A Financial Advisor's Guide to Millennial Clients.)
Steps to Prepare
Financial advisors can begin taking a number of different steps to prepare for the massive wealth transfer to the affluent millennial generation. The first is obviously embracing technology that helps meet Millennial expectations for convenience and other features. For instance, the generation’s desire for control makes it absolutely necessary for advisors to have online portals that enable easy access. It may even be a good idea to partner with a robo-advisor like Betterment Institutional to reassure clients that their funds are being handled in the most efficient means possible.
The second step is to engage Millennials in new ways using technology. For example, setting up a blog that’s actively maintained with educational content can help meet a Millennial’s desire to constantly learn. Social media—including using LinkedIn—is also a great way to receive referrals rather than relying on traditional advertising that Millennials tend to shun.
And finally, it’s important for financial advisors to talk with Millennials with their personality traits in mind. Rather than glossing over the complexities of finance, these clients may appreciate a more in-depth explanation of what’s happening with their money. It might also be a good idea to give them some choices in the management of their funds rather than expecting them to take a completely hands-off approach.
The Bottom Line
The financial services industry is poised to rapidly change as affluent Millennials experience a $60 trillion generational wealth transfer. Financial advisors have an opportunity to capitalize on these trends now by establishing themselves as progressive and responsive providers of advice designed to help Millennials reach their lofty life goals. (For more, see: How to Help Millennials Learn to Love Stocks.)