Planning for the millennial market disruption

If you somehow haven't heard, millennials (generally defined as those born from the 1980s to 2000s) have begun to dominate every part of American life, including our culture, our politics and our economy. This trend should soon accelerate, as millennials will represent the largest segment of the adult population in the U.S. by the end of the decade. While this dramatic shift in demographics will continue to disrupt industries, many financial advisers dismiss or disregard these coming risks. Compared with previous generations, millennials have vastly different views about money, social responsibility and what it means to be successful. Yet planning practices continue to reflect the ideologies, needs and preferences of an older generation. Smart advisers will seize the opportunity to cut ties with routine, cater to a new audience and build younger, more sustainable books of business. CULTURE OF CONTINUATION Firms that most resist change have cracks in their walls, the results of haggard business practices that became obsolete a decade ago. The changes brought on by younger generations won't just expand the cracks, but could level the building. At an average age of 51 and with retiree clients, many high-net-worth financial advisers have built businesses based on old realities while willfully disregarding new-age influences. Unfortunately, that age bias and addiction to the status quo could shape the future success of the industry. A Brookings Governance study, "How Millennials Could Upend Wall Street and Corporate America," explains this culture of continuation among firms: "The stronger those cultures are, the more likely the organization will reject any attempt to change 'how we do things around here' … Instead, the insiders discredit new information from the outside as coming from sources that don't understand the importance of the existing culture in assuring the firm's success." Today, younger people can become CEOs or sell businesses for millions of dollars before hitting their 35th birthday. In developed countries, 54% of millennials have started or plan to start their own businesses. In addition, just 47% of millionaires ages 18 to 34 currently use advisory services. This significant wealth and assets-under-management opportunity will continue to expand over time with the population. MATTER OF TRUST Advisers willing to serve a broader market must adapt effectively to evolving needs and preferences. In particular, millennials greatly differ from older generations in the way they develop trust, especially in financial matters, ranking them as the least trusting of any generation. Modern young adults witnessed one of the greatest financial collapses in U.S. history just as they were entering the workforce. They watched their parents lose homes and struggle to find employment as retirement funds vanished, all while the government offered bailouts to big banks. Millennials care more about social responsibility and the well-being of communities, a pragmatism vastly at odds with the culture of Wall Street, big banks and baby boomer partisanship. Younger generations demand more transparency from an industry historically filled with convolutions. Fee transparency and fairness — already debated issues in the marketplace — will become increasingly important as younger clients push for prices that reflect successful management, not institutionalized norms. Millennials also require price clarity, meaning that costs are clear and accessible on a regular basis, not buried in the fine print once every quarter. TECH IN DEMAND Exponential growth in technology already has begun to disrupt the financial planning industry, and millennials will only accelerate that trend. Millennials, 90% of whom check their smartphone within 15 minutes of waking, require user-friendly online platforms and apps that provide a clear and simple financial picture. Indeed, almost all (88%) of millennials currently bank online. Tedious processes like account openings, which older generations accept, must give way to more paper-friendly methods of onboarding, planning and presenting. However, millennials also value personal interaction with an adviser. In fact, 82% of millennials would prefer more one-on-one meetings, a welcome statistic for the most robo-wary firms. INTERNET OF THINGS In tandem with technology, advisers should leverage a robust online presence to appeal to a broader audience. Prospects young and old now seek advisers online and instinctively research advisers on Google following any introduction or recommendation. To millennials, and now most generations, Google search results can shape the perception of an adviser's competency. To a millennial, the more search results that appear highest on the results page, the better-equipped an adviser to deal with modern financial needs. Through mobile-friendly websites and social media platforms, advisers can deliver content that's unique, interesting and in touch with the audience. This means engaging the community in a way that doesn't blend with the noise of the corporate financial planning world. VALUE OF EDUCATION Millennials are extremely conservative investors who on average hold 52% of their savings in cash (compared with 23% for other age groups,) which reflects mistrust as well as a general lack of financial knowledge. It's therefore important to educate younger clients about common investment and planning strategies that align with their specific goals. While many millennials continue to build wealth on their own, others may soon receive significant wealth from parents. Many advisers are not prepared for such transfers, even for families that are already clients. FATE OF THE REST In the meantime, millennials and other younger generations will continue on their path of disruption through every facet of society. Advisers who choose to adapt will tap into a massive opportunity and avoid impending risks. For the unwilling, their fate remains uncertain, as Brookings explains: "All organizational cultures that lose touch with the changes that are taking place in society pose a clear danger to the future of those organizations." Quite simply, firms that stick with the current business model could face extinction.

The Millennial Disruption Index

Michael Conway, CEO of Conway Wealth Group at Summit Financial Resources Inc.