To Compete, RIAs Must Now Be ‘Cradle-to-Grave’ Financial Parents

Drowning in student loan debt and living with parents, millennials are increasingly seeking holistic planning and different pricing.

(RIA Intel Illustration; Bigstock)

(RIA Intel Illustration; Bigstock)

Millennials are more likely to carry student debt, live in their parents’ basement, and research social policies of brands they use. But like older generations, they need financial guidance. And though the economy is still chugging along, younger Americans are staring down $1.5 trillion in student loan debt as they establish careers, start families, and plan their futures.

To achieve financial independence, millennials, those born between 1981 and 1996, need more than investment advice, they need financial parenting. To meet their needs, savvy financial planners are stepping up with holistic “cradle-to-grave” services to smooth the path to adulthood. They’ll advise on everything from budgeting, insurance, retirement savings, college funds, housing support, student loan debt and, yes, investment advice, too.

Four in ten millennials aren’t working with any financial professionals, according to a study by Nationwide Advisory Solutions. Millennials are more likely than Generation Z and Baby Boomers to have student debt, making repaying debt their second biggest concern (only taxes ranked higher). Their remaining concerns when selecting an advisor represent a cross-section of general priorities: historical performance (19%), increased use of mobile technology (18%), increased use of social media (17%), and robust cyber security procedures (17%), the report said.

That’s a lot to tackle alone, and young Americans have more choices than ever for financial services and support. Some still rely on their parents’ professionals, while others pay for robo-advisors, widely available online or by phone from giants like Fidelity or Schwab. Some well-known banks are getting in the game, such as Goldman Sachs using its new Goldman Sachs Personal Finance Management as an onramp to its wider wealth management services.

Facing stiff competition, RIAs tout their customized support with life planning, not just investments. They offer fee-based services and spotlight their independence to buy products and services from any provider. Expansive menus might include detailed budgeting analysis, life insurance, and disability policies, employer benefits, retirement savings, estate planning, student loan management, and more. Advisors review spending habits and savings, including if the client has an emergency fund in case they lose their jobs or get sick. Where they can’t service a task, say drafting a will or filing tax returns, they refer clients to outside professionals.

“At a large firm, they might get a different rep every time they call and have to start over every time. With me, you get customization and continuity,” said Matt Elliott, a CFP with Pulse Financial Management in Rochester, Minn.

To help, financial advisors are adapting to a younger generations’ peculiarities. With student debt soaring to $1.5 trillion and housing costs rising, they face intense financial pressure. And, as they approach their 30s, millennials are considering retirement savings, liquidity, and home ownership. Unlike older Americans, millennials are more likely to switch jobs and relocate multiple times. They’re concerned with social issues and sustainability.

“I bring the team approach to people who were typically never offered that by big banks and probably never will until they hit the $10 or $20 million threshold,” said James Comblo, chief compliance officer for FSC Wealth Management. “We offer legal, insurance, taxes, investments, and wrap into one holistic plan.”

This buffet demands wearing multiple hats. One client might need help deciphering their new employers’ benefits package, while another may be befuddled by the financial documents required to rent an apartment. To help his clients navigate student loans, Elliot is working towards his Certified Student Loan Professional designation. Many of his young clients are health care professionals, which may qualify them for loan forgiveness programs.

“I want to be comfortable giving them the best advice. Student loans are complex, and it can have such a huge impact on their finances, like a six-figure difference,” Elliot said.

They help educate young clients, Certified Financial Planner Stephen Gunter, an associate advisor at Bridgeworth, starts with basics, like savings accounts, interest rates, and credit cards.

“They might have some extra money and want to buy Tesla stock, but they only have $400 in the bank. We have to build a financial foundation first, like an emergency fund,” said Gunter, himself a millennial. “The work is cultivating and building our relationship.”

At the other extreme, the financial crisis of 2008 left some millennials financially wary. During the recession, some recent college grads struggled to find a job just as their student loan payments kicked in, while other young professionals lost their jobs. Some also watched their parents struggle with layoffs, lost savings, and foreclosures.

Those experiences left many of his clients and friends skittish, placing a premium on financial security, said Jason Alderson, a millennial-aged wealth manager, CFP and CFDA at Elbert Capital in Denver. For instance, one client carries large credit card balances yet still contributes the maximum to her 401(k) but. She lost her job in 2008 and lived off her 401(k) savings, so that particular safety net remains her top priority despite the debt. Other clients worry about buying homes and losing their property if they can’t keep up with mortgage payments or if home values plummet, he says.

When working with young professionals for low monthly or annual fees, financial planners are banking that clients will accumulate wealth as they advance professionally and later inherit money from their parents. They might not have significant assets to manage yet, but if they have a solid income and demonstrate the potential for future earnings, advisors said they’ll start with financial planning fees and move into AUM fees down the road.

“This allows us to work with them and help them while they are young, rather than telling them to come back when they have $500,000 that they can invest with us,” Gunter said. “By doing it this way, it keeps us from having to draw a hard line in the sand on account minimums.”

“Our belief is that by serving younger clients, which at times can be unprofitable, we can make said clients profitable over the long run and we will have solidified our relationships when and if these clients do come into wealth,” Alderson said.

The XY Planning Network, an organization of fee-only advisors that is focused on younger clients, advocates for this “subscription model” to accommodate to millennials’ student debts and cost concerns. The organization reports that only 30% of financial advisors are looking for clients under 40. It contends that the traditional AUM model is untenable for most “early-adult households,” which deprives them of financial planning advice and services. In contrast, if advisors offer a fixed-fee plan with affordable fees, young professionals can sign on to start.

At Pulse Financial, Elliott’s fee structure is the same no matter a client’s age. For financial planning, he charges a one-time $999 fee and $199 per month for households. He treats AUM as an added service and the first $50,000 is included for financial planning clients. From there, his fees rise to 0.75% annually for up to $500,000 and 0.5% for more than $500,000.

Other firms are taking a similar tact, such as Stearns Financial, which offers a program called Emerging Affluent. The firm typically requires a $1 million investment minimum but developed this new category on-ramp for young professionals and provides both financial planning and, eventually, asset management.

While monthly fees from millennials might not a big moneymaker today, advisors are playing a long game. The RIA pitch to clients is like a courtship: meet young, build a life together, then reap the financial rewards. As these clients age, they could accumulate wealth, making it a smart move to build relationships now.

Sometimes, that involves hard conversations. Gunter said he’s honed communication skills that he couldn’t learn in college or financial trainings, like when a 30-year old client announced his intent to retire in five years but lacked sufficient resources.

“I have had to learn to say, ‘I’m not telling you not to chase your dreams, but you have to think about if you can do it and how to pay for it,” he said. “Nothing in my training prepared me for trying to act like a financial father.”

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