By now, many agents and advisors have begun to see the value of multigenerational planning. When done well, working with younger generations of clients can be win-win for everyone involved. It offers advisors an opportunity to grow their businesses in a way that is poised to last for decades to come. By welcoming new, younger clients, advisors create sustainable growth and the chance to develop client relationships from the ground up. When working with young clients, agents and advisors can play an instrumental role in building the client’s insurance and financial habits, goals and plans.
Multigenerational planning also provides established clients with an even more cohesive, comprehensive way to view their financial plans. Including heirs in estate planning conversations reinforces an advisor’s commitment to holistic financial planning and helps clients think seriously about the practical and emotional implications of their plans.
It also creates an environment for younger generations to gain their financial footing and develop good habits before they inherit assets from their parents or grandparents. In my experience, millennials are eager for useable insurance and financial advice. They want the sense of security that comes from insurance product education, financial literacy and foresight. They are looking to build a strong financial foundation even before they accumulate serious assets.
Agents and advisors aiming to work with multiple generations need to be aware of the particularities of millennial investors. Working with them requires additional know-how and open-mindedness, but is worth the investment of your time, energy and money if done properly.
Bringing millennials to your practice
My financial planning practice has been actively engaged in trying to expand our multigenerational planning offerings for clients over the past year. I am currently in the process of hiring a younger planner to bring additional insight on how to best work with millennial clients and to provide a fresh perspective on things. We also reached out to clients and invited them to introduce us to the next generation. We offered clients the chance for us to sit down with their adult children and begin a conversation with them about their finances, from budgeting, to understanding their expenses, to basic investment strategies, insurance product choices and beyond.
For the most part, clients see the value of multigenerational planning for themselves. Estate planning is an emotional process. Clients want to make sure that their children and grandchildren will be taken care of, and they want to feel confident that their heirs have the tools and the knowledge to be responsible beneficiaries.
This past Christmas, my longtime clients gave their adult children a meeting with me as their gift. They knew that the best thing they could do for their children was help them gain confidence and begin to lay the groundwork for their financial future. They also knew that they could retire sooner and with more confidence if they could count on their children to be financially independent earlier in their adulthood.
Now, I encourage all parents with adult children to consider giving the gift of financial planning to their children. In many ways, it’s the gift that keeps on giving for both clients and their millennial children, and it enhances the trust between advisors and clients.
Millennials came of age during a tumultuous financial time, which has affected their goals, fears and instincts. (iStock)
Understanding the millennial’s financial outlook
In the process of working with multiple generations of clients, my team and I have gained quite a bit of insight into millennial investors. Considered to be those individuals born between 1981 and 1997, millennials have grown up during an interesting time financially, and that has had a distinct impact on their financial goals, fears and instincts. These younger investors have lived through two significant bear markets and the largest recession since the 1930s and have come of age in a period of generally low returns.
Despite what many people might guess, I have found millennials tend to be financially conservative. Millennials that come to my practice are concerned about budgeting, keeping a safety net of cash and avoiding debt. They witnessed their parents face hardships in 2008 and the aftermath of the crisis, from losing their homes, to taking on new debt, to tapping into their retirement savings early. As a result, millennials are eager to feel financially secure.
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To help millennials reach that goal of financial confidence, advisors must put some time into financial literacy. For many younger, next generation clients, advisors may need to go back to basics, working with them more on budgeting and understanding the basic tenants of personal finance. Help them work through their fixed and variable costs to build a budget that is realistic and helps them get into the habit of saving. Additionally, make sure they are taking advantage of 401(k) plans, if offered by their employer. Help them to see the importance of saving early and often. Illustrate the power of compounding interest with demonstrations and case studies. From there, you can start a more in-depth conversation about investments and build a foundation that will grow as their income and inherited assets grow.
The next generation of investors wants to learn. They are very interested in building — and preserving — wealth and doing it the right way. They have goals and want to know how to meet them and how to do it on their own terms. They value flexibility and choices and are open to new ideas and strategies. In millennials, financial advisors can find young, eager clients that genuinely want your advice on how to get to where they want to go.
Another implication of millennials’ unique financial upbringing is that they like to keep cash. It worries them to not have a fair amount of money on the sideline. This isn’t so unlike earlier generations, but it is certainly heightened by what they saw their parents experience and by low starting salaries and weak job prospects.
For many, this desire to feel financially protected also means an intense aversion to debt. Many have student loan debt that feels overwhelming and they cannot fathom taking on more debt, even in the form of a credit card. Understanding where these young people are coming from can help advisors better counsel millennial clients on when and how debt might not be such a bad thing. Acknowledging that their hesitancy to take on too much debt and their fear of having overwhelming amounts of debt are good instincts, advisors can still help millennials alleviate their fear of debt and start to feel in control of their finances, even if they may still be working to pay off those student loans.
Even agents and advisors who do not actively work with millennial clients should stay abreast of the trends and aspirations of millennials. (Photo: iStock)
Parents fill in the gaps
Millennials have a unique financial relationship with their baby boomers parents. Even more so than in the past, today’s boomer parents support their adult children financially in one way or another. Whether the college graduates live back at home with their parents or parents cover a cell phone bill or car insurance, millennials struggle to make ends meet, and boomer parents fill in the gaps.
This trend is common, but boomer parents need to use caution. Many boomers dip into their savings and delay their retirement to support adult children (along with, in many cases, aging parents). Even small amounts over an extra few years can add up and make an impact on retirement plans. Parents and adult children must speak candidly with an advisor about realistic expectations for financial support into the adult years. Advisors can work with both generations to help them establish responsibilities, goals and a timeline so that the adult child can get fully on their feet as soon as possible. This may involve parents and advisors talking through job offers with adult children who are entering the workforce. Help them to understand their different benefits, particularly their 401(K) and insurance, if their company offers it. While many millennials feel they are underpaid, there may still be ways for them to begin saving early. Advisors can play a role in helping millennials understand the importance and the value of beginning retirement saving early and in getting millennials to begin the process.
Developing a plan to get adult children on their feet quickly is especially important for those adults who find themselves supporting both their adult children and their aging parents. A report from the U.S. Department of Health & Human Services last year indicated that on average, an American turning 65 today will incur $138,000 in future long-term care costs. While public programs and private insurance will cover a portion of this cost, the report says that families will cover about half of the costs out-of-pocket.
Millennials who rely on their parents for substantial financial support add an additional layer to an already complicated and expensive financial picture for many baby boomers. The sooner that advisors and clients can help millennial children gain financial independence, the better clients’ retirement outlook.
Many boomers are burning the candle at both ends, contributing significant amounts of their savings to care for both their children and their parents. Financial advisors must help these folks better understand the impact that their generosity may be having on their retirement. With respect and understanding for the sensitivity of the relationships involved, advisors should work with the aptly named “sandwich generation” to navigate the demands on their finances.
Agents and advisors aiming to expand their practices need look no further than within their existing book of business. With an understanding of millennial investors, advisors can prospect the children of their clients for a mutually beneficial opportunity. Millennial investors have their unique characteristics, but that does not mean they do not value the offerings of a traditional, comprehensive financial planner.