Millennials and wealth

Get ready for a $750 billion wealth transfer

July 28, 2017

Okay, I admit it. I’m interested in the millennial market. Why? Simple. Because a $750 billion windfall is going to land in the laps of this group of Canadians (Born: 1977-1994) and I’m gearing up to help them out.

As part of that initiative, I started to re-read that all-time bestseller How to Win Friends and Influence People, by Dale Carnegie. If I had to use a single word to describe the central message of that remarkable book, that word would be trust.

Now trust is a concept that is absolutely central to the wealth advisor/client relationship. Without trust my advice lacks credibility and, as a result, those I advise will be reluctant to follow it. But to win client trust any wealth advisor – and no one believes this more strongly than I do – has to demonstrate an understanding of client needs.

In the case of millennials, most older-generation wealth advisors need to do some research to get a handle on this unique group. Financial writer Nathan Harness, who recently analyzed some millennial-related research published in a Wharton study (Wharton School of the University of Pennsylvania and State Street Global Advisors. Bridging the Trust Divide: The Financial Advisor-Client Relationship), gave me a helping hand.

This study, looking at advisor-client relationships, found that many advisors fail to cultivate trust because they fail to communicate the value of their services. This can be especially important when working to bridge the generational gap with millennials, who generally have lower levels of trust compared to other cohorts. Here are three tendencies that demonstrate millennials’ priorities:

1. Millennial optimism

Compared with most generations, millennials say they are optimistic about their financial future. They believe they have good financial habits, they can live on less during retirement compared to baby boomers, and more than other generations, they believe investing is important.

Confidence tends to run high on long-term goals for millennials because they see time as one of their greatest assets. Short-term anxiety begins to grow when they are asked about day-to-day finances and debt. Financial advisors can assuage this concern by educating millennial clients about the combinative power of short-term planning for long-term goals. As with most of our clients, greater success can be achieved when we break down the larger, complex financial goals into short-term, achievable actions.

2. Millennial savings

Studies show that millennials with employer-sponsored retirement plans are aggressive savers. More than half of millennials earning more than $70,000 annually are putting aside 20% or more of their income. This high level of savings is a great signal for financial planning because it shows this generation’s commitment to goal attainment.
As Greg McBride, chief financial analyst for Bankrate, was recently quoted as saying: ‘Millennials have a greater inclination toward saving, for both emergencies and retirement, than we’ve seen from previous generations.’

Where millennials can use help is smart saving. They are putting money toward retirement and emergency funds, but they need to learn to make tax-savvy investments in the stock market and appropriate insurance products.

3. Millennial guidance

More than other generations, millennials believe that financial advisors are worth the fees they charge and that a personal relationship with an advisor is important. Although millennials generally are comfortable using robo-advice programs, more than 80% seek personalized meetings with financial planners.

However, unlike other generations, millennials tend to be more interested in learning the process of reaching financial goals than being told what to do. Millennials prefer to work with advisors who discuss the step-by-step process for goal attainment instead of key strategies.

As a wealth advisor, I’m exceptionally open to the idea of coaching millennials – as I am with all my clients – through a process toward financial independence and wealth accumulation.

Here’s the kicker, and it’s from Canada

Recently, RBC Wealth published a document called Wealth Transfer Report 2017, a survey covering 3,105 individuals in Canada, the UK and the US. Respondents were worth, on average, US$4.5 million and included professionals, entrepreneurs, business owners and retirees.

To quote directly from the report: ‘What we found was a remarkable gap between intention and action, resulting in a general lack of preparedness. Our research shows that individuals have every intention of transferring their knowledge to the next generation. However, it turns out that many families are repeating the cycle of inadequate financial guidance, delivering too little too late. We found that on average, structured financial education is only beginning at age 27.’

Put another way: Millennials are disturbingly unprepared to successfully manage the wealth they stand to inherit. Remember the famous Chinese proverb: ‘Fu bu guo san dai’ (Wealth never survives three generations). When it comes to wealth, many families spend a lot of time and energy building it, but far less focus on how it will be passed to the next generation. You can expect more from me about this going forward.

Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604-535-4721.