Three roadblocks to overcome to reach millennials

ING DIRECT’s Head of Third Party Distribution, Mark Woolnough explains.

The millennials, those born between 1981 and 2000, are rapidly approaching their peak earning years.

Millennial households control $150 billion in liquid assets in Australia and are on track to control $500 billion by 2020.

With the top end of that generation now in their early 30s, they’re an increasingly lucrative but mostly untapped market for financial advisers.

In the US it’s estimated that only 30 per cent of advisers actively seek clients under age 40^ with the majority focused solely on baby boomers and, anecdotally, in Australia we’re seeing a similar trend.

However, advisers with a continued focus on the rapidly ageing boomers, at the expense of other segments, may be placing themselves in a dangerous position.

The boomers, which represent 25 per cent of Australia’s population, may account for 55 per cent of the nation’s private wealth today, but by 2020^^ the majority will be retired and living off their savings. And that’s only four years away.

The millennials present an enormous opportunity to review and refresh their advice proposition, diversify their revenue sources, and structure their practices for the long-term, sustainable growth.

By 2020, millennials will represent 42 per cent of the workforce^^. (Gen X is projected to represent 27 per cent of the workforce by 2025.)

As they hit their peak earning years and recognise their increasing need for professional advice, they’ll surpass baby boomers as the ideal advice client.

Staying relevant

Many advisers will need a new advice proposition and marketing strategy if they hope to win over these wealthy, technology-driven, younger generations. They’re not like previous generations.

For starters, they have a markedly different attitude towards money.

Millennials aren’t hung up on ownership, which explains why fewer own cars and other big ticket items. They place greater value on wellness, travel and lifestyle over material items, which is an important distinction for advisers.

Traditional advice propositions that focus on accumulating and growing wealth may not appeal to millennials, although the rise of goals-based advice, and the industry’s newfound focus on budgeting and cashflow management, is a step in the right direction.

When it comes to millennials, advisers need to gain a clear understanding of how they interact and engage with product and service providers, and the way they want to receive advice.

Three roadblocks to overcome

Millennials may be increasingly affluent and addicted to technology but they’re also very cynical about investing and they dislike fees.

Yet investing is a key plank in the advice process. Quality, compliant and comprehensive advice isn’t cheap to provide, and the advice industry isn’t exactly at the forefront of innovation and technology.

Advisers will need to address these three key roadblocks.

1. 1. Fees

No one enjoys paying fees but most people accept that fees are a commercial reality. Not millennials.

They want their news, media, music, entertainment and phone calls for free, and when it comes to financial services, they’re demanding low fee or fee free bank accounts, credit cards and even superannuation and investment accounts.

While ING DIRECT’s research report ‘The Truth about Gen X and Gen Y’ shows there is still a huge appetite among younger generations for face-to-face advice interaction, the advice industry will need to find new and creative ways to bring the cost of advice down by leveraging technology to streamline advice processes and boost practice efficiency.

2. 2. Mistrust

There’s heightened mistrust for large corporations among younger people. Start-ups and small businesses have been a key beneficiary.

Younger people are increasingly turning to recommendations from family and friends. They’re also often among the first to support new companies and adopt new technology.

The good news is that companies can achieve a lot by spending a relatively small amount building their digital footprint and social media presence.

This brings us neatly to our third roadblock – a lack of digital strategy.

3. 3. Lack of digital strategy

Many advisers still rely heavily on physical documents and word-of-mouth referrals from existing clients and influencers such as accountants, brokers and lawyers. Few encourage or invite people to talk about them online on sites like Facebook, Twitter or LinkedIn, or push electronic communications out to customers.

There’s no question that a glowing word-of-mouth referral from an existing client is still, and will always be, extremely valuable and powerful, but advisers must also focus on growing their digital referral network to capture new clients.

In order to appeal to millennials, earn their trust and keep them coming back year-after-year, companies need a strong digital presence to complement their traditional, face-to-face service; a functional, fast and secure website; the ability to respond to queries and comments quickly; and a relevant, dynamic and well-executed proposition.

A secure website indicates a company that cares about their clients’ money. A functional website indicates a company that cares about the customer’s experience and their needs.

Now’s the time

When millennials inevitably decide to seek professional help, they will speak to their parents and friends for recommendations, but they also will do their homework online.

Most advisers concede that they need to spend more time looking for new clients to prop up and diversify falling or stagnant revenue. The challenge, however, is to determine exactly how much time to spend trying to win lucrative baby boomers versus delving into new segments like the millennials or Gen X.

Applying the 80:20 rule may be a good place to start. For most advisers, it’s important to stay true to the foundation of their practices while also devoting some time to explore new opportunities and growth areas.

Millennials, like other consumers, will pay if they can see value, but they’re also highly transactional and likely to move on quickly when they’re not satisfied. With that in mind, advisers must make sure they deliver on their value proposition, and the client experience, to gain and keep the loyalty of millennials.

If they do, they’ll be rewarded for many years to come.

^ http://fortune.com/2015/12/16/millennial-money-wall-street/

^^http://mccrindle.com.au/ResearchSummaries/Australia-in-2020-A-Snapshot-of-the-Future.pdf

^^^ http://www.theguardian.com/business/grogonomics/2014/dec/11/generation-y-have-every-right-to-be-angry-at-baby-boomers-share-of-wealth

Advisers who want a slice of the multi-billion dollar millennial pie will need to learn how to speak a new language and leverage technology to reinvent advice.