1 year 8 months ago
This article remined me of the book I started to write 10 years ago but did not finish. The title: "2014--The Year I Learned to Loath Millennials".
Move over Gen X and Baby Boomers, a new report from Cerulli reveals that Millennial wealth is rising faster than that of any other generation over the last five years, providing a key opportunity for advisors.
In the past, Millennials were seen as “too young and not wealthy enough” for full advice relationships, as they were early in their careers and had not met the asset accumulation milestones that would necessitate outside financial help. Increasingly, however, that is no longer the case, as the oldest Millennials are entering their 40s and taking on leadership positions in their careers, according to The Cerulli Edge—U.S. Retail Investor Edition, 3Q 2022 Issue.
They also have expanding retirement account balances, but many have yet to find a trusted advice provider. As such, advisors should begin to look at this demographic seriously as a viable market for portfolio growth, Cerulli emphasizes.
Growing Wealth
Overall, the financial wealth of Millennials has increased since 2016, which has boosted more of this cohort into the “affluent and mass affluent” categories, making them more likely to seek out financial advice. Consider that in 2016, less than 10% of Millennial households had more than $100,000 in total financial assets. Since then, this share has grown to more than 25% of households, thanks to market appreciation and a greater ability to save among Millennials now firmly established in their careers and thinking more about safeguarding their futures, the report explains.
In fact, Cerulli estimates that Millennials had an average net worth of more than $278,000 in 2021—an average yearly increase of 23.1% since 2016, which is the highest growth rate of any generation.
Consequently, this generation is progressively looking for formal financial advice and planning to best manage their affairs, as well as ensure their retirement goals are on track. According to the report, Cerulli and Phoenix Marketing International for the first time performed a multivariate cluster analysis of affluent investors based on their investing behaviors to devise a more distinct understanding of their financial advice relationships. The research finds that nearly 6 in 10 (59%) Millennials identify as advice seekers—those who want more financial advice than they receive currently, are interested in new ideas, and—most importantly—are willing to pay for that advice.
On top of that, Cerulli’s research finds Millennials are the least likely to be purely self-directed (6%) and more actively engaged with their finances. While Millennials historically have had a high rate of direct provider platform use—resulting in substantial targeted marketing from brokerage platforms and digital advice providers—increasingly they are demanding more personalized advice, including comprehensive financial planning.
“Active interest in their finances also means Millennials would be most likely to come to meetings and be open about what they are looking for, potentially enabling development of a strong two-way relationship with their advisors,” says John McKenna, research analyst at Cerulli.
Some Considerations
Even with markets sliding in 2022, Millennials likely will be able to weather the storm thanks to their investment horizons and historical tendencies of markets to rise over longer timeframes, the report further emphasizes. And even though comfortable retirements are increasingly on the minds of Millennials, helped by ownership of 401(k)s, younger people remain focused on growing their wealth, Cerulli notes.
While it may seem counterintuitive, managing risk is a key part of that strategy, Cerulli advises. “With aggressive risk tolerance now extending into interest in areas such as cryptocurrency and other alternative investment vehicles, advisors will need to stay up-to-date with Millennial investing trends and balance aggressive portfolio setups with a mind toward long-term goals and improving cash flow,” the report states.
Moreover, while Millennials’ financial assets may still seem low compared to older generations, having a flexible fee schedule that includes commissions or hourly rates could be attractive to this cohort, while asset-based fees can be worked in as the relationship evolves and more wealth is acquired, the report further suggests.
“Taking care of Millennial clients in their wealth-earning years is a largely untapped market for book-growing advisors. It is also a client base that could be loyal for the next 40 years if an effort is made to bring them into the fold early with the services they need now as well as those they will need as they near retirement,” concludes McKenna.
