In 2019, millennials became the largest generation in the United States, passing baby boomers. According to the Brookings Institution, more than half of all Americans today are millennials or younger.
So it’s not surprising that this generation is gaining ground financially. In 2021, the aggregate assets of Americans under age 40 leapt 25%, from $2.9 trillion to $3.6 trillion, as measured by Cerulli Associates. That was the biggest annual change of any generational group. Millennials (who are defined as those born between 1981 and 1996) are expected to inherit between $30 trillion and $68 trillion over the next decade.
“It’s a great time to start to build out the next-gen aspect of your business,” says Zach Ungerott, a senior wealth advisor at Hightower Wealth Advisors in St. Louis.
But how exactly should advisors serve this population? What misconceptions, outmoded habits, and legacy practices may be hampering your ability to connect with these younger clients?
Advisors under 40 have suggestions.
Dispelling Misconceptions
One primary problem is that there are so many incorrect assumptions about this group. “Advisors think next-gen clients are simplistic,” says Stacey McKinnon, chief operating officer, chief marketing officer and wealth advisor at Morton Wealth, an RIA in Calabasas, Calif.
That couldn’t be farther from the truth, she insists. These clients are no longer twentysomethings thinking only about their student loans. More likely they are “married and in the prime of their careers, buying real estate, growing their families, and making $300,000 or more of joint income,” she says.
Their wealth tends to be “spread out in different ways,” she acknowledges. It’s not all in stocks, bonds or retirement accounts. “It might be in cryptocurrency, real estate or stock options.” Even if they haven’t amassed much wealth yet, many of them have high incomes and “will quickly become wealthy,” she says. “Are we going to wait for that? Or are we going to create a model that can serve them now?”
Next-Gen Clients Don’t All Want Robo-Advisors
Those born after 1980 consider themselves “digital natives,” having grown up with smartphones and the internet. They are comfortable with technology and prefer using it for many transactions. However, McKinnon says, “that only makes their desire for human connection more important.”
So no, they don’t really prefer robo-advisors. In fact, they are wrestling with complex financial decisions requiring human interaction—trying to decide whether to open a 529 college savings account for their kids, for instance, or whether to buy a second property for rental income. “I don’t think robo-advisors are going to cut it when it comes to giving them the advice they want and need,” McKinnon says.
But the firms they work with must have up-to-date high-tech equipment. These clients “want great technology tools and a person who can help them drive decision-making,” says Kyle George, vice president at Johnson Financial Group in Madison, Wis. Anyone can Google “Roth conversions,” he adds, but a planning relationship is about a deeper, more personal understanding. “When I meet these clients, we talk about values and lifestyles,” he says. “We talk about charitable giving and community involvement. Their wealth is an expression of their identity.”
Virtual meetings are usually preferred, too. “No one younger than 40 is excited to get a phone call,” he says. “Texting or email works great for any quickly addressed items.”
No Time To Waste
Indeed, next-gen folks are used to having their questions answered at the speed of the internet. “These clients live in a highly curated world that knows their interests and quickly serves them,” says Curtis Congdon, president of XML Financial Group in Falls Church, Va. “So once you have a younger client’s trust, get to the point. Stop saying the things you want to say, and start listening for ways you can deliver value.”
If you are stuck in your old ways, he cautions, younger clients will find somebody else. Jordan Hanson, a certified financial planner at HCR Wealth Advisors in Los Angeles, puts it this way: “Younger clients want to consume financial advice on their own time and in bite-size increments. They do not want an hours-long presentation or 100-page plan.”
He recommends breaking up financial plans into segments that can be presented at different times, perhaps at critical life events.
Not Just Asset Accumulation
It’s true, Hanson says, that next-gen clients are usually in the “asset-accumulation and family-building phase” of life. But they are also focused on maintaining a steady cash flow and savings rate, negotiating a good salary with company benefits, buying a first home and other priorities.
“Life changes very quickly [for next-gen clients] and often all at once,” says Kevin Brady, a financial planner at Wealthspire Advisors in New York City. “Career path conversations quickly become first-home conversations, followed by raising a family and thinking about funding college for their kids.”
Brady is a millennial, too. He says advisors shouldn’t make the mistake of thinking people under 40 are flighty, even job-hoppers. “We started our careers at a time when transparency was valued, information spread very quickly, and economic conditions were challenging,” Brady explains. Many jobs that attract next-gen candidates are short-term in nature. “A project manager or software engineer in tech is going to switch employers more than someone in accounting,” he says.
Willing To Pay For Value
Another myth is that younger clients aren’t willing to pay for good advice. Michael Durso, the CEO and CIO of ShoreHaven Wealth Partners in Red Bank, N.J., says his younger clients have no problem paying for financial planning, market advice, tax mitigating strategies or other value-added recommendations. But, he warns, “No one wants to pay solely for an asset allocation.”
Unlike their parents, next-gen clients don’t want to delegate their financial decisions. They see an advisor as a partner, a trusted teacher or perhaps a life/behavior coach.
Douglas Boneparth, the president of Bone Fide Wealth in New York City, says, “If you are going to be salesy or sound too much like you’re pitching something, it can be a turnoff.”
Not Naïve
Next-gen clients aren’t naïve either. They know it’s not easy to build wealth. Many came of age during the bursting of the dot-com bubble; the 9-11 attacks; hurricanes Katrina, Rita, Maria and Sandy; a housing collapse that caused many people to lose their homes; and the financial crisis of 2008, or the Great Recession.
“These folks have gone through a lot,” said Cammie Doder, chief marketing officer and a partner at Aspiriant in Los Angeles, during an online discussion with Financial Advisor magazine Editor-in-Chief Evan Simonoff. Consequently, she said, they are big believers in diversification. “They even diversify their revenue stream,” she added. “That’s why we hear so much about the gig economy and people having multiple jobs. It’s not so much about lifestyle as diversification.”
Next-gen clients are “averse to risk,” confirms George at Johnson Financial. Their long investment horizon gives them leeway to have a fairly aggressive portfolio, but “a large share would choose capital preservation over outperformance as an investment objective,” he says.
They also “understand history and appreciate that we can relate certain environments to previous environments,” says Andrew Hambleton, a financial life advisor at Telemus Capital in Chicago, referring primarily to market cyclicality.
Not Spendthrift
Furthermore, next-gen folks are not spendthrift. They are “better savers than their parents, starting earlier in life and putting aside an average of 19% of their earnings,” says Kimberly Foss, founder and president of Empyrion Wealth Management in Roseville, Calif., citing a May 2022 survey by Natixis Investment Managers.
Their financial sophistication can be impressive, too. “You would be surprised how many younger clients understand dollar cost averaging and buying the dip,” ShoreHaven’s Durso says.
Nevertheless, many need help “building the skills that allow them to command a higher wage and have a greater capacity to save, invest and ultimately positively influence the people and causes that are most important to them,” XML’s Congdon says.
A New Business Model
Yet to attract and retain younger clients, firms ought to consider a new business model. “By only looking for clients with a specific amount of AUM, we are missing the opportunity to serve an entire generation,” Morton Wealth’s McKinnon says.
One suggestion is that advisors should consider a subscription fee schedule. “Create a model based on an annual fee, monthly fee or percentage of income,” says Billy Spencer, a wealth planner at Crestwood Advisors in Boston.
Some advisors go so far as to offer an hourly or per-project rate, he says. It’s partly a matter of changing your mindset about the value you bring to the table, McKinnon says. “We have to stop thinking of it as dollar for dollar. And while we generally do help clients grow their net worth, we also help them live better and more fulfilled lives,” she says.
Those are services, she adds, that they will gladly pay for. Next-gen folks also like to feel a sense of purpose about how their money is spent and managed.
“Younger clients want to be as ethical as possible with their investments,” says Marshall Nelson, a wealth advisor at Crewe Advisors in Salt Lake City. But, he notes, “it’s essentially impossible for every publicly traded company to be perfectly squeaky-clean.” So it’s important to be clear about which specific core values next-gen clients treasure most.
ESG And DEI
Some 46% of millennials favor companies that rank highly on environmental, social and corporate governance (ESG) measures, says Foss. But that doesn’t mean they are overly idealistic or impractical. “They believe that, over time, these considerations will lead to better returns,” she says.
Equally important are diversity, equity and inclusion (DEI). According to the Census Bureau, racial or ethnic minorities make up nearly half of Gen Z—those born between 1997 and 2012. They are the most diverse generation in U.S. history, and they expect equal representation from the businesses they patronize, including their advisors.
Avoid Gender Bias
Another key factor is gender equity. “Younger married women are twice as likely as their moms to say they earn more than their husbands,” says Foss, noting that roughly 75% of her female clients under age 45 manage their own finances.
“Make sure each spouse is a player in the conversation and not just a spectator,” Crewe Advisors’ Nelson says. “Failure to do this is a great way to lose business.”
Lauryn Williams, founder of Dallas-based Worth Winning, says that many of her young clients are in nontraditional relationships. “There are same-sex couples, polyamorous couples, groups of three—things like that,” she says. “I have clients who are getting ready to have twins and they’re using two surrogates from another country.”
What’s more, her clients are often the first in their family to earn a six-figure salary, she says; they feel financially responsible for their less fortunate loved ones. “Telling them they can’t afford to help support someone else is just not a good answer,” Williams says.
Not All Trust-Fund Babies
Undeniably, many younger clients are the children or grandchildren of a current client. They do not, however, just want to coast on their legacies.
“A misconception I often run across is that [next-gen clients] are just expecting an inheritance to build their wealth,” says Amber Knips, a wealth advisor at Sweet Financial Partners in Fairmont and Jackson, Minn. Rather, she says, “they have the desire to create their own wealth and their own path for success.”
An advisor’s demeanor can possibly put off next-gen clients. They sometimes need to be educated, of course, and younger clients may be farther behind the learning curve than others. But the way older advisors express themselves can make or break the relationship.
It’s important that an advisor never acts superior and avoids jargon. “It can be intimidating [for clients] to ask someone to explain what a term or phrase means,” says Morgan Veth, a vice president and financial advisor at Bogart Wealth in McLean, Va.
Hambleton at Telemus Capital says financial language “does not resonate with many younger clients.” They’re also less formal and don’t like an uptight environment, says Nate Johnson, vice president at Cyndeo Wealth Partners in Los Angeles. One of his clients “decided to work with our group because of how I came dressed to our first meeting,” he says. “Who would have thought that jeans and a T-shirt would get the job done?”
Williams at Worth Winning says she hears “the F bomb” all the time.
Next-Gen Clients Aren’t ‘Training Wheels’
Ultimately, the success of the relationship may come down to relatability. Some firms have gone so far as to hire younger advisors to attract and retain younger clients, but that might backfire.
Next-gen clients may prefer advisors who are “younger than their parents,” says McKinnon, but “the key is not to be biased on age.” Pairing them with younger advisors “as training wheels for team members” is a mistake. “They deserve much more sophisticated advice, given all of the moving pieces in their lives,” she says.