Why Millennials Need Financial Advice — Now

Today's note is a little more industry oriented than normal. Still, I thought you would be interested because it touches on my philosophies regarding Financial Planning:

Recently I got into a Twitter conversation (yes, I tweet. You can follow me at the bottom of the note) regarding an article claiming that most millennials shouldn’t be bothered with financial planning. One advisor responded that most people under the age of 50 don’t even need financial advice. Just “save as much as you can in your 401(k) and Roth,” this advisor wrote.

I completely disagree. This line of thinking is a peeve of mine. In fact, it’s more than a peeve — I set up my firm specifically to help these types of clients and work with them over the entire course of their financial lives.

A little history
Early in my career, I recognized that the financial industry was not geared toward helping clients build wealth over time. Instead, it focused on gathering as many assets as it could manage. That's in part because the financial planning industry has its roots in the brokerage industry.

The predecessors to financial advisors were stockbrokers (some advisors are still brokers). Brokers’ compensation and career incentives were much more aligned with accumulating assets to manage than with providing excellent long-term advice to clients. As a result of this, many firms and advisors still focus on getting the most assets under management, and in turn collecting the most fees possible.

It is true, of course, that older workers generally have more assets and therefore generate more revenue for a firm. But this in no way means younger clients don’t need financial advice. In fact, they need it more than anyone.
 
Millennial challenges

Younger workers face many hurdles that their older counterparts either never had to contend with or never experienced on as large a scale. Those challenges include:

• Debt. This generation is saddled with an enormous amount of student loan debt. Having a college degree has become the price of admission for a decent job rather than just one way to get a leg up, as it was in previous generations.
• Market turmoil. Younger investors have come of age during terrible market conditions. Two extreme market drops since 2000 have not left them with much confidence or a desire to save. Many have stayed out of the market or been overly risk averse, despite the fact that time is their best asset.
• Retirement planning. With traditional pensions disappearing, they will be required to fund more of their retirement through 401(k)s and other retirement plans than any generation before them.
• “Sandwich Generation” stresses. They are caught between the financial responsibilities they have for their aging parents (who are living longer and longer) and those that come with starting their own families.

I could go on. If you think people have simpler lives just because they don’t have an AARP card, you are living in the past.

Younger investors need help

It’s great to help pre-retirees, but they aren’t the only ones who need financial guidance. The idea that investors should just muddle along on their own until they have enough money to be interesting to advisors is bad for younger investors — and for the advisory profession.

And millennials do need help. Schools still don’t deliver any significant personal finance education, and despite the abundance of information available online, people are no more informed about basic finances than in the past. If you don’t understand the difference between a stock and a bond, how are you supposed to figure out how to invest your all-important 401(k) money, never mind less commonly discussed concepts like the time value of money or sequence of return risk?

When I was young and starting out in my saving and investing career, I encountered all sorts of shady characters and scams designed to separate me from my money. One bit of questionable advice I encountered was to stop contributing to a 401(k) and buy whole life insurance instead. Fortunately, I’ve always been interested in personal finance, so I avoided the worst of the advice, and I still made plenty of mistakes. But not everyone will be so lucky. 

Getting sound advice early on is critical to building wealth over time. That means millennial investors need financial advice now, not just once they have finally accumulated that wealth.

Take care,

Brian McCann, CFP®

This article was also published on Nerdwallet.com, Nasdaq and The Christian Science Monitor