The following is an edited transcript of the InvestmentNews webcast, “How to work with Millennials and the next generation of investors,” held Sept. 24. It was moderated by deputy editor Greg Crawford.
InvestmentNews: I'm very excited to have this discussion. We've got three folks who are financial planners working with the Millennial generation, so they know what they're talking about. What they have to say is extremely valuable.
We've got Sophia Bera, a fee-only certified financial planner who has been in the industry since 2007.
Sophia is the founder of Gen Y Planning, which delivers comprehensive financial planning to people in their 20s and 30s across the country. In addition, she's an active member of the Financial Planning Association of Minnesota, where she serves as chairwoman of the Financial Education Committee.
We're also joined by Kate Holmes, also a CFP. She's the founder of Belmore Financial, a location-independent practice, which we'll have to talk to her about.
Kate works with professionals in their 20s to 40s who are ready to challenge the status quo and go after their happiest life.
And, finally, we have Ted Jenkin. Ted is a CFP and has a bunch of other credentials. He is the co-founder and co-CEO of oXYGen Financial.
Again, as the name of his firm indicates, Ted works with -Millennials.
We're going to be discussing a lot of things and trying to answer some key questions, particularly as folks think about wealth transfer and what that means for the financial planning business.
We'll be talking about who Millennial investors are and what makes them different from baby boomers, how advisers can market to Millennials — should they even market to them — and whether they should worry about all the online advice methods popping up.
BNY Mellon Corp. and the University of Oxford recently issued a study on the reaons financial services providers are not adequately connecting with the Millennial generation.
It contained some interesting information, including such key facts as 59% of Millennials believe they haven't seen financial services or investment products targeted to people like them. They want products that demonstrate they are being rewarded for tying up their money.
And, perhaps surprisingly, when they're asked how their contact with financial services providers could be improved, less than 1% said they want providers to connect with them through social media.
Kate, what do you see as some of the things that distinguish Millennials from other generations?
Ms. Holmes: We've all observed in the media almost an attack on Millennials — about how so many of them are entitled and want everything without working hard for it.
But that misses the point. Many of us see what has happened to boomers. They've worked for decades, then had the Great Recession and got stuck on the fence between pensions and savings and 401(k) plans. It hasn't worked out that well for a lot of them.
Now that we have technology, the world is smaller and things are so much more accessible. Younger people are saying, “Hey, we don't have to work for 40 years and wait to enjoy our life.”
Traveling is easy. Many businesses, like mine, are location-independent.
Younger people have the attitude that they don't necessarily have to be loyal to a company for decades because — as we saw in the Great Recession — companies aren't necessarily loyal to employees. Millennials have a lot more options, and many more people are taking advantage of them.
InvestmentNews: Sophia, I wanted to get your perspective on Millennials and what you think sets them apart from everyone else.
Ms. Bera: When I started my firm just over a year ago, so many financial planners thought I was crazy to want to work with Millennials because they don't have any money.
But the reason I wanted to start my own business is that people in their 20s and 30s have great questions right now about financial planning: Should I buy a home or rent? Should I contribute to a 401(k) or a Roth IRA?
They also want to learn more about their money and what they ought to be doing: Should I put more money toward paying down my student loan debt or toward emergency savings?
There weren't a lot of people they could reach out to about these things.
SHIFT IN FOCUS
With Millennials, there has been a shift in focus from traditional retirement planning and investment management. You no longer need to have that $500,000 or $1 million portfolio for a financial planner to be interested in working with you.
More planners, like Kate and myself, are starting to work with clients on a monthly retainer model — to address the life questions coming up for our clients, who have to deal not only with money but with their situation, which is very different from their parents' situation.
For example, people in their 50s and 60s are trying to figure out whether they [should] retire when they're 62 versus 66.
For a lot of my clients in their 20s or 30s, we have to figure out how to address emergency savings. Then we decide how we're going to get them started toward accumulating [retirement] assets, whether in a 401(k) — and making sure we get that full company match — or in a Roth IRA.
And how do we deal with other issues, such as whether to buy or rent, what to do about student loans, and how to enjoy life now while saving toward future goals. How do we create financial independence and security, with less of an emphasis on retirement.
InvestmentNews: That's a great framework.
Ted, as Sophia mentioned, there seems to be an attitude that Millennials don't have the asset base and are not worth an adviser's time.
How do you answer that?
Mr. Jenkin: We started going after the Generation X and Generation Y market in 2008. As happened with Sophia, a lot of people thought we were insane. They were, like, “With the golden age of the baby boomers coming, why in the world would you want to work with people who have no money? “
DOESN'T JUST HAPPEN
When most advisers look at their very best clients, it didn't happen because they gave you a $1 million rollover. They probably started with $100,000 or $200,000. You cultivated a relationship, and over many years they became a profitable client.
Some members of Gen X and Gen Y do have money. Some of them have fantastic jobs and excellent disposable income. And some — especially those involved in sectors like technology — are building and selling companies at an early age. And some at large public companies have a lot more money than baby boomers.
You can't just [generalize] that they all don't have money; we have younger tech clients in Atlanta who are selling companies and doing extremely well.
You still have to think about this as a long haul, though. It's going to be a slower build than taking a $1 million rollover from a baby boomer, but it can be a great business.
A massive amount of money is going to [accrue] to these folks eventually, and you're either going to be in that mix to get those assets or you're not.
If you don't cultivate the relationships and figure out how to work with those people, it probably is not going to happen in the future.
InvestmentNews: Speaking of that, I wanted to turn back to Sophia.
Part of it has to do with how Millennials think. You pointed out that retirement is this far-off event, and they have [more immediate] concerns: buying or renting a house, paying off college debt, getting married, having children.
That seems to lend itself to a different service model — which the three of you have come up with. When we talked about this about a week ago, you mentioned that it can't be a standardized service.
Could you tell us how you cater to this generation, whose goals and needs are so different than [those of] their parents?
Ms. Bera: So often when I see or hear about established firms trying to work with Millennial clients, their idea is, “If we can just give them the Happy Meal version of our financial plans, everything will be great, right?”
So, instead of providing clients with 50 pages of charts and graphs that don't mean anything to them, firms will give Millennials 20 pages of charts and graphs that mean even less.
Bringing technology into the discussion, the problem with some of the traditional financial planning software programs, like MoneyGuidePro or NaviPlan — those products are designed to run a retirement projection and a scenario for baby boomers.
When you're projecting things 30 or 40 years out, you get into these ridiculous numbers, like, “You'll have $30 million when you retire if you keep doing what you're doing right now.”
What I try to do is break away from using the more traditional financial planning software. I break things down by writing a to-do list and organizing groups and steps — insurance, tax planning, etc. — and making recommendations in plain English.
A lot of financial planners know very little about student loans. I've taken a lot of time to research repayment programs because it affects this generation. That's something my clients ask me questions about.
We [offer comprehensive advice] on student loan repayment options, cash-flow planning, tax planning — being the facilitator of these different elements and ensuring that clients have access to your network and can connect with great people like a certified public accountant or insurance [agent].
People do that with their baby boomer clients, but we forget that those things are also important for the Millennial generation.
I then do six-month check-in meetings with all my clients, because I've found their lives change on that time frame, that cycle. In their late 20s to early 40s, people are getting engaged, getting married, having kids, buying homes, switching jobs — all these major life moves in a short time.
It's important to check in every six months, to have that time to reconnect and update the financial planning recommendations.
In terms of how we charge, that's something we need to re-examine as this profession grows and changes.
THE RETAINER DISCUSSION
As Ted said, a lot of Millennials are making good money. They might have six-figure jobs and can afford financial planning on a monthly retainer model, but they haven't got those assets accumulated yet.
At the same time, they might be paying $150 a month for a gym membership and another $150 for the cable bill. A lot of these clients are willing to pay a couple of hundred dollars a month to work with a financial planner on an ongoing basis.
InvestmentNews: Kate, you also have a different approach to the business model.
Ms. Holmes: Yes. Sophia and I run similar practices and are good friends, so we bounce a lot of ideas off each other.
My background is in working with 401(k) employees. I kept seeing that people make all the biggest life decisions when they're 40 and under.
I was working on the investment side, but people were always asking about how to save for their children's college, how to deal with student loan and credit card debt, how to best handle travel rewards.
All those things are important financial decisions, but the conversation started to change over the years — especially with Millennials, who started to inquire about saving for a down payment for their first home.
There was an interesting tonal shift, and I realized that many were doing it because their parents said they should.
In diving into the conversation a bit more, they were actually thinking — hey, I don't really know that I want to stay here. I might want to move; I might want to travel more.
I focus on having conversations about when people are truly happiest and what their happiest life looks like.
We're seeing people getting married later or not at all, having kids later or not at all. Even though these things are happening, they're not talked about that often. There's a big shift happening in terms of what people are doing and the decisions they're making.
Even as I was going through CFP education years ago, I debated a couple of times — is this really what I want to do? From the consumer perspective, a lot of times it's people selling things.
To me, financial planning means deep, honest conversations. It's diving into what you really want.
That's one reason I'm fascinated that there aren't more women in the industry, because the heart of financial planning is talking, and it's often emotional and tough. It's digging into honesty.
MONEY AND VALUES
Ms. Bera: If I could piggyback on what Kate is saying, it's about focusing on using your money to match your values. We need to have conversations with clients about what's most important to them, what makes them happiest, and then figure out how to tie the numbers to those goals.
If they want to take six months off and travel around the world, what would that cost? Instead of their just saying, “Oh yeah, I'd love to travel around the world someday,” we help them break it down.
Where do you want to go? Here's a bunch of travel bloggers who have done that. Let's look at the budgets they put online and figure out what they're paying. How can we put together a tangible goal to work toward once we know how important this is to a client?
Ms. Holmes: You originally asked about my business model.
Because things continually come up — whether it's the auto insurance premium that's due or you're looking at the iPhone 6, maybe you want to change credit cards — I check in with my clients pretty regularly. I've developed a friendship with them because we're talking about everything.
That's something I like about the monthly retainer model. The psychology behind — hey, if people see what they're paying, there's that pain. It's actually good, because they see the line item on the budget every month and think, “What am I paying Kate for?”
Every time those things come up I want you to have me top of mind, to call me and know that I'm also going to check in with you.
InvestmentNews: That's a great point.
We read a lot about the movement toward goal-based planning and behavioral finance, and if this is in fact happening, it's probably largely because of the demographics. The clients you work with may very well be driving that change, and that's likely to continue.
Ted, maybe you could take the first stab at a question from one of our audience members: Of the six or seven disciplines of financial planning — investments, insurance, estate planning, retirement, tax benefits, budgeting — which are most likely going to be a need for Millennials?
You've already discussed that retirement is not a pressing issue for this generational group, so what comes up most often when you're working with them?
Mr. Jenkin: When these generations come in and meet with us, budgeting often comes to the forefront. A lot of people think budgeting comes about because people have debt problems or don't know how to manage their money, but I'll give you a different take.
One of the things that technology has done to the Millennials — which has actually disadvantaged them — is that they have never had to press a stamp on a checkbook or a passport savings account.
In general, when people get things like online bill pay, they hardly ever look at their bills. And if they don't examine their bills, they don't get a great idea of what's happening with their money.
Even though some people will use account aggregation software, most of these folks are extremely busy. So budgeting is about getting a handle on cash flow and outlining what they should be doing financially.
You need to be thinking about the initial, short-term planning as opposed to long term, because many in this group might work at a job for two years and then decide, “I just want to be a freelancer.” Or, “I'm going to launch a business and do that for a few years.”
But there is not the grounded plan that you might have seen in the baby boomers, the “I'm going to work my way up the corporate ladder for the next 30 years.”
Budgeting is a discipline: cash flow, managing debt structure. Getting the game plan in place is a discipline we see the most need for.
In terms of fees, we've been doing a monthly model within these generations since 2008, and we have more than 1,000 people paying us a monthly fee. It absolutely works. That's going to alter everyone's thinking.
HOW TO BILL
InvestmentNews: An audience member asks, How are you collecting the monthly retainer? Is your firm sending a bill asking for a check? Is it by [Automated Clearing House]?
Ms. Holmes: I [and Ms. Bera] do automatic payments every month, ideally by electronic ACH.
Personally, though, I love paying for things on my credit card — to get those travel rewards — so that's something I talk with people about. I don't like paying the credit card fees, but I will let that go with some clients. An invoice is also sent automatically.
I currently use QuickBooks Online. It's all set up and is recurring. I'm looking at moving to a company called Pay Simple but haven't implemented that.
InvestmentNews: Clients will be able to use Apple Pay, right?
Ms. Holmes: Yes, absolutely. We'll keep an eye on that.
InvestmentNews: Sophia, can you tell us about your billing process?
Ms. Bera: I do things a bit differently. I use QuickBooks Online for my initial planning fee, and then send a bill clients pay via regular check.
I then like to set up PayPal monthly recurring payments. All clients have to do is click: I send them a link, they click it one time, they enter their credit card or banking information, and it charges them automatically on the 1st of 15th of each month, whichever day they set it up for. That way, they don't have to go in and click Pay Bill each time.
I'm also considering Pay Simple, because once you've built up your client base, it makes more sense to look into the other options out there.
When you're first starting with monthly retainers, QuickBooks or PayPal are good solutions. But more companies are coming out with solutions for these functions, so that's one of the things that will continue to evolve and change over the next few years.
InvestmentNews: We're getting more questions from the audience about the retainer model.
A couple of people are asking about what clients get for that monthly retainer — how much “active management” in a portfolio, for instance? Does somebody get a broad financial plan?
Ms. Holmes: It's interesting that you mention active management of a portfolio.
I don't actually manage assets. Having come from a background where I was a principal at an investment adviser firm, and a certified financial planner, I kept trying to dive deeper with those clients, but they were so investment focused.
The industry puts a lot more focus on investment than is necessary. It was hindering a lot of my conversations, because people knew that's how I got paid.
I could tell they were almost waiting for that pitch at the end. When I launched my own firm last year, I decided I didn't want that. I wanted the conversation to be about the life they are trying to create and the actions they need to take to achieve that.
It goes back to that conversation. — checking in regularly and making sure they know they can reach out. It's having that checklist, the little nudges here and there.
For instance, maybe it's the time of year when their employee benefit enrollment is open and we need to talk about that, or it's getting near tax season.
There are a lot of reasons to check in throughout the year, in addition to regular discussions. Then they know they can reach out whenever they need anything.
But as in everything else in life, there are times when it might feel like a ton of stuff is happening within a two-week period, and they need a lot of attention, and then six months when nothing happens.
Ms. Bera: This question comes up a lot with financial planners, but it rarely comes up with clients.
Sometimes financial planners assume that because we charge a monthly fee, we have to be doing something every month for that client or actively reaching out. That's really not the case.
I tell my clients that I charge a monthly retainer so they don't have to bring a check to every meeting. They don't have to make a payment every time we talk.
I normally charge $200 an hour. With the retainer, we don't have to keep track of hourly billing. And it gives them unlimited e-mail support and access to me at any time.
Sometimes you'll be exchanging a lot of e-mails. I have a couple of clients who are in the process of purchasing a home, and I'm communicating a lot with them.
At the same time, I have other clients who haven't been in contact for a few months. I just reach out to them to say, hey, wanted to touch base on these things from our last meeting.
InvestmentNews: I wanted to talk about how to market to this generation.
Ted, could you share some marketing strategies or ways your firm is attracting Millennial clients?
Mr. Jenkin: What advisers want to keep in mind is that a lot of the conversation that may go on between a prospective customer and your firm is going to happen on the computer.
NO HEAVY READING
When you think about your website for the future — and you can certainly look at ours — you've got to make it easy to navigate. You've got to make it easy to get to the information they want to get at. Remember there's not going to be much heavy reading, especially in this generation, so focus on point and click.
Your website should be designed to generate leads. Even something as simple as a list of services — we have floating balls on our website; people can click around and have a kinesthetic relationship with the computer.
I know Kate and Sophia are heavy social media users. We're also heavy on social media, but the idea behind it is to produce content.
This group definitely likes to have a higher level of transparency, but that doesn't mean you can't sell products. If you're not a fee-only planner, you can sell products. You can manage money. We do all of that.
It's about getting to greater transparency on how it works and trying to educate clients. We try to offer a lot of content. We've put out more than 1,200 blogs. It wouldn't be hard to find us.
Don't be surprised that over the next 10 years you can hustle to find these clients, but more often than not, they're going to find you.
InvestmentNews: Sophia, how do you get out there and find new folks to work with?
Ms. Bera: What Ted suggested — creating educational content — is extremely helpful and will attract people to your website.
Also, clients or prospects might read an article I'm quoted in, click on my website, sign up for my newsletter, start following me on Twitter.
A few months later, they may decide to set up a prospect call with me, and we'll have a free, 30-minute strategy session.
InvestmentNews: We've had webcasts and stories in InvestmentNews about the compliance aspect of social media. A lot of folks seem to get hung up on that. They've got compliance departments telling them what they can and can't do.
How do you work around that? You need to be careful out there.
Ms. Holmes: There's a lot of scare tactics. I often laugh watching the nightly news. It's like today coffee is good for you and chocolate is bad for you, and tomorrow chocolate is good for you and coffee isn't.
We're all smart people. We're all adults. You're probably not going to tweet anything that's giving a specific recommendation on an investment fund, or saying, “I guarantee you're going to make X dollars if you work with me.”
The first month I spent on Twitter, I just listened and didn't tweet anything. I was trying to figure out what everybody was saying and how it worked. It's a lot of sharing and talking, being funny. It shows your personality, which is exactly what prospects, media, and other advisers want to see.
Mr. Jenkin: I may be the only one [of us] with a broker-dealer, and there are a couple of things to consider, including whether your broker-dealer can keep up with what's happening in social media.
That may cause some of you to stay where you are, and it may cause some to go to an independent broker-dealer. It may cause some of you to become a registered investment adviser only, a hybrid, or something in between.
But compliance people aren't social media people. So even though you might be afraid, you need to take the time to explain to your compliance officer what you want to do, because often you're going to think that they're going to say no.
GETTING IT DONE
The more you educate them about what you're trying to do, the more you'll find that they'll probably be able to tell you how to get it done.
Stay away from dangerous stuff and keep to generic subjects, which is what people want to hear about anyway. They want Seinfeld topics. They don't want to hear your analysis of nonqualified stock options.
That said, one of the parts of putting out good content is creating good conversation. And that means sometimes you'll need to draw a line in the sand and pick a side.
I had an article the other day in the Wall Street Journal talking about why parents shouldn't take over-the-top vacations. Half the people loved me; half the people hated me. You have to be OK having those conversations, not worried that no everyone is going to be a client, because they aren't anyway.
The people who love your voice and personality are going to want to do business with you.
InvestmentNews: Ted, how should you pitch a social media strategy to compliance offices when their No. 1 fear is that their job will now be proofreading and approving every single tweet?
Mr. Jenkin: The platform that I'm the strongest in is LinkedIn. I think it's what most people are on. I've figured out how to use LinkedIn to create leads. People may not realize that you can move your LinkedIn summary around. It looks like it's one page, but a number of pages make up your LinkedIn profile. One of the things you can add is “publications.”
When people see that word, they may think they have to be published somewhere. But your company approves the compliance publications it uses, let's say insurance brochures. You can incorporate them into your LinkedIn profile. If you do it right, when people click on one of those publications, it will move them back to the splash page your company set up for you.
Let's say you work for a huge organization. You all have splash pages and pitch books and things your broker-dealer has approved already. Ask your compliance officer if you can put what's approved on your profile so when somebody clicks, it goes back to your webpage. You might be able to capture that person as a lead.
InvestmentNews: The average age of a financial adviser is mid-to-late 50s. Their clients are probably in that same age cohort. Any tips for older advisers looking at this opportunity and thinking it could help them in their succession plan? Are there also ways to market to the Millennial generation of advisers?
Ms. Bera: One thing older advisers can do is hire younger staff who can connect with clients in their 20s and 30s. Studies have shown that people want to work with a financial planner who is within 10 years of their own age.
Letting younger associates work on financial plans and lead client meetings is a great way to do it. There's a fear of letting younger advisers take the lead in client relationships, but this is one of the areas that can be a huge asset to the firm.