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How Advisors Can Profitably Serve Millennials


How Advisors Can Profitably Serve Millennials

In December 2016, the SEI Advisor Network surveyed over 600 millennial investors, aged 21-35, with minimum investable assets of $10,000, to find out how the financial services industry should perceive and plan for this next generation of investors. While there are many other studies out there with conflicting data and conclusions about millennials – What sets SEI’s research apart is that we’re combining our own quantitative data with my own qualitative, millennial opinion to bring you more authentic and meaningful conclusions about what it all truly means. Today is part 4 of our 4-part blog series on the key findings.

Part 1: Segmenting the Millennial Market Is Key for Advisor Opportunity
Part 2: Capturing the Attention of Millennials: Be Relevant and Digital
Part 3: What Should You Charge Millennials?

Advisors commonly struggle with service models for mass affluent clients, because the tendency is to apply your standard service model and over-service them. While this obviously isn’t great for your profit margins, it’s also not a great experience for your clients. Millennials will not want the same planning process and level of service that you provide your more traditional HNW clients; it will feel overwhelming and excessive. Comprehensive planning, a paper-based, thick financial plan, and multi-hour annual review meetings at the office are not going to play out well for you or the client.

I go back to our millennial friends Marg, Chip and Drew and their preferences, because there’s so much to consider (what technology to use, how to structure your planning services, ways to approach investments, etc.). In some ways, they have similar preferences, in terms of how they want to receive financial advice (in-person or virtually). However, when it comes to investments, the three definitely differ. Another key factor here is fees, because (obviously) fees and service model go hand-in-hand. You want to find a service model that complements the fee model you chose for that segment.

Service model for Marg

Marg’s preferences when it comes to investments substantiate my recommendation (earlier in this series) that we don’t actually want to actively pursue Marg as a client until she has financially matured. You want to wait until she sees the value and is willing to pay for professional advice.

For instance, the fact that Marg will only invest if she ends up paying the least amount possible is a clear indication that she’s likely not a good prospective client. Some might argue that she’d likely go to a robo-advisor before going to you, but I’m not entirely sure about that. Among the more than 600 millennials surveyed in our research, a mere 3% currently use robo-advisors today. Moreover, 20% said they still had no clue what a robo-advisor was (even after we provided the definition in our survey question). Nearly 20% said they’d never consider using a robo-advisor and nearly 30% said they’d only use a robo-advisor if it came with a human advisor. All of these statistics indicate to me that there remains a real a lack of awareness and adoption of robo-advisors among millennials. So for now, I’d recommend continuing to indirectly serve Marg through “free” online advice and content.

Service model for Chip

One data point that stuck out to me (and probably you, too) was that Marg, Chip and Drew all cited in-person meetings as their most preferred way to receive financial advice. Even these so-called “digital natives” prefer to meet in person for sensitive and personal discussions about their finances. However, when you consider that Chip’s second most preferred way to receive advice is completely virtual (working with an advisor entirely through technology and web-conferencing), it makes you wonder – how could someone want both?

I think it’s because you need an in-person interaction up front for the first few meetings, in order to work through sensitive financial issues and develop a trusted client-planner relationship. Afterwards though, technology is definitely the way to go. Remember, Chip is career-focused and going through some major life events, like marriage and having his first kid. So while Chip might be more open to receiving advice than Marg, he’s still very busy. Having an advisor he can work with virtually is ideal. In fact, it’s almost a necessity, since millennials are known to change jobs and potentially locations more often than other generations. So you’d have to develop the capability to service Chip virtually for when that happens.

Additionally, because of Chip’s fast-paced lifestyle (he can only give so much time and attention), my recommendation would be to implement modular planning. Modular planning means unbundling your planning services into modules that you complete one-by-one. In taking this approach, you can:

  • Present all planning modules early on, to demonstrate how you’ll continue to add value over time
  • Start with modules that meet short-term priorities, like budgeting and debt management
  • Move on to modules that are important to you both, like investing and retirement planning
  • Discuss modules that meet long-term priorities, like saving for his kid’s college education

This approach pairs quite nicely with your recurring monthly retainer fee model. You’ll want to find a way to demonstrate your value on an ongoing basis and keep Chip engaged, as his attention is constantly diverted to other priorities in his life. And though modules might sound like more work because you’ll be meeting more frequently, remember that this can all be done virtually. Also, because the meetings are hyper-focused on one specific financial topic, they can be much shorter. So maybe that’s 4 half-hour meetings via web conference with a list of to-dos for Chip coming out of each meeting. This is a model that’s consumable to Chip and still reasonable for you.

Service model for Drew

Surprisingly enough, you might not have to change your approach all that much for someone like Drew. Of course, technology is still an important aspect of servicing Drew, as he clearly still wants the ability to meet virtually from time to time. However, the only real change I’d make to your planning and service model is to take a more co-planning-oriented approach.

Co-planning isn’t a complete overhaul of your current process; it just means you make a concerted effort to actively educate and involve the client in the planning process. This is important for two reasons. For one, even though Drew appears to be a qualified prospect for financial planning and open to outsourcing his investments to you, he still wants to understand what you’re doing and why you’re doing it. Secondly, co-planning can help streamline the planning and decision-making process, and having an efficient process can help address your profitability concerns around serving mass affluent clients like Drew. Take your client review meeting, for example; here’s how that could play out with a co-planning approach:

  1. You notify the client to update his information in your planning tool before the meeting
  2. You do a little analysis of the information before the meeting to determine how it affects his plan and come up with a few options to update and improve the financial plan
  3. During the meeting, you test the different alternatives in the planning tool
  4. As you review each option, you educate him on each option and its effect on the plan
  5. You might even give him control of the planning tool, to further test out the options
  6. Together, you and the client make a decision about the best alternative

Not only will co-planning enable Drew to feel more involved in the decision-making process, but you’ve also likely streamlined your planning approach quite a bit. Because you do the fact-finding entirely online, you’ve now streamlined that step and your process for analyzing that information that’s already loaded into your financial planning tool. Because you’re involving the client in the planning process, he is bought in and more likely to make a decision on the spot at the meeting (rather than go home to think about it and inevitably forget to follow-up). And because the client is engaged, it’s more likely he will be diligent in performing his to-dos in order to implement what was discussed as a part of his overall plan.

Above all else, keep things flexible and easy

Overall, my biggest piece of advice when tailoring your business model to best serve any millennial (whether it’s Marg, Chip or Drew) – be flexible. You have to make it easy for millennials to engage with your firm, or they’ll likely disengage. This is where technology comes into play. Things like online account opening, client portals, payment tools and scheduling tools are the types of technologies that enable ease and flexibility.

You want to eliminate all barriers to entry and make it straightforward for them to work with you. Take online scheduling tools – with this technology, you can provide your clients with a link to view your calendar and schedule a call with you. Most clients will not abuse this access, but it will make them feel better knowing they can reach out if and when they need it. Bottom line is that if you make it difficult for millennials to work with you, you risk them looking for other solutions that fit their needs.

I know many advisors are probably sick of all this millennial talk by now, but many of the trends we’re seeing among Gen Y are likely to apply to other generations, like Gen X and Boomers. So even while modular planning, web-conferencing and co-planning might sound like foreign concepts to you now, don’t be surprised if you hear your Boomer clients asking for a virtual meeting next year. Better for you to be prepared for when that moment comes.

Series takeaways

Millennials have become everyone’s favorite buzzword for all the wrong reasons. We shouldn’t focus on this group just because they’re the largest generation or because they’re the most digitally savvy (or needy or narcissistic). We should focus on this group because many (not all, but many) are what we consider to be the next generation of emerging wealth. And this group is challenging us with the opportunity to build a better business model that’s both competitive and sustainable for generations to come.

Our study has taken our investigation a step further by going beyond your standard financial metrics, like assets and income, which we typically use to classify millennials like the HENRYs (High Earning Not Rich Yet). Because of this, we’ve been able to identify 3 very specific and distinct segments. If we are serious about wanting to engage and capture this emerging wealth, we can’t generalize them as one homogenous group. We need to acknowledge that Marg is not the same is Chip, who is not the same as Drew. They have different financial maturities, career stages, life events and preferences. We need to play to these differences and develop a business model that meets both their needs as investors, as well as your business needs as advisors. We need to recognize when it doesn’t make sense to actively pursue certain millennials, like Marg, and how to identify our emerging wealth, like Chip and Drew, through a finely-tuned lead generation and marketing process.

So our parting words are this – This series is truly not just about the millennials, it’s about all emerging wealth across all age generations. Our industry has historically focused on the top tier of wealth of HNW investors, but we cannot forget that at some point in their lives, many of those HNW clients were emerging wealth. While traditional advisors continue to saturate the mere 6.8 million households that make up the HNW space, others have moved on to the open opportunity among the 14.1 million households within the emerging wealth space, including robo-advisors and forward-thinking financial planners.

So if advisors want to build sustainable businesses that will still be here over the next 10-20 years, you’ll need to develop a model that successfully engages and serves the emerging wealth. If you wait until they develop into HNW clients, it will already be too late for you to enter the picture, because they have already been served.

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