Millennials are a growth engine for 401(k) advisers

Business owners who are millennials are more likely to offer retirement benefits to their employees

Nov 7, 2018 @ 11:15 am

By Blaine F. Aikin

If only millennials had more money, they would be at the top of every investment adviser's list of target markets. Today, millennials (born from 1982 to 2000 and numbering 83 million in the U.S.) comprise one-quarter of the U.S. population and now outnumber baby boomers (born from 1946 to 1964).

The problem is that millennials control only about 3% of household investible wealth. Over the next decade, their share is expected to more than triple, but it still will be dwarfed by the assets of baby boomers and Gen Xers.

While advisers who focus on the noninstitutional wealth market may wonder whether it's worth it to divert attention to millennials now, retirement-focused advisers have ample reason to devote immediate time and attention to the segment. For those with a mix of wealth and retirement clients, nurturing a pipeline of millennials through the retirement channel in preparation for their ultimate ascendancy to wealth dominance makes perfect sense, as a review of recent research demonstrates.

According to the newly released survey conducted by Edelman Intelligence for Nationwide, millennial business owners are nearly twice as likely as the average owner to offer future retirement benefits to their employees (69% versus 36%). Moreover, by wide margins, they are more likely than boomers and Gen Xers to focus on their own retirement saving and feel it is their responsibility to help employees save for retirement.

Last month, CFA Institute and Finra's Investor Education Foundation released new research that they say "debunks common myths" about millennial investors. Here are four of the more interesting myths debunked:

• While millennials are comfortable with electronic media, 58% prefer working face-to-face with an adviser, identical to Gen Xers (58%) and nearly so to baby boomers (60%).

• Millennials start saving at a very young age compared to earlier generations. Forty-six percent of millennials with investment accounts credit their parents and family members as key factors in making that decision.

• Unlike members of older generations, who have pushed back their retirement dates, millennials expect to retire at age 65.

• Millennials are not overconfident when it comes to investing. In a Finra test on finance fundamentals, millennials scored lower than older generations.

Over the last decade various consumer surveys have consistently ranked the financial services industry as far less trusted than most other sectors. Yet, here again, there are generational differences.

Millennials trust advisers more than baby boomers and Gen Xers. A 2017 survey by the CFA Institute indicates that 55% of millennials trust the financial services industry compared to significantly less than half of Gen Xers and baby boomers. It may be that trust diminishes with age, but perhaps millennials' trust can be solidified through tailored retirement advice and outcome-oriented services.

(More: FOMO, social media driving millennials' investing decisions)

Finally, millennials may be particularly motivated to save for retirement. According to the latest annual Transamerica survey studying retirement issues, eight in 10 millennials are not confident that Social Security will be there when they retire. Instead, millennials expect their primary retirement income will be self-funded.

Achieving retirement security will be daunting for this generation. For one thing, millennials take loans or withdrawals from their 401(k) plans at roughly the same rate (28%) as Gen Xers (34%) and baby boomers (26%). Moreover, nearly one in five millennials (18%) expects to live to age 100 or older. But if millennials retire at age 65 as surveys indicate, they will have a very long decumulation phase to fund retirement.

Advisers also should keep in mind thatmMillennials are more socially conscious and interested in the social responsibility of the companies in which they invest and where they shop. Hence, ESG factors may play a larger part in their portfolios than with today's older clients.

And it is certainly possible that, having lived through the 2008 market correction, millennials may be less prone to taking risks. Like the "silent generation" that survived the Great Depression and enjoyed a series of bull markets, this age cohort may, on average, have relatively fewer aggressive investors.

Millennials have a lot going for them as a target market for retirement advisers: their positive attitude toward the financial services industry, a healthy skepticism over government benefits being there when they retire, the big head start they are getting on saving for retirement and making compound interest work to their advantage, the sheer volume of their numbers, and the rapid rate of growth in their investible assets, which will ultimately be boosted by inherited wealth.

With each new piece of research, we learn more about why and how retirement advisers should engage millennials as a sustainable growth engine for the future.

(More: 6 myths about millennials that could harm adviser businesses)

Blaine F. Aikin is executive chairman of fi360 Inc.


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