Updated on: November 6, 2023

For financial professionals, the millennial generation matters now. A recent study from Fidelity showed that 57 percent of advisors’ clients are Baby Boomers, with 61 percent nearing retirement or actively drawing down assets.¹

Millennials, on the other hand, are projected to comprise 75 percent of the global workforce by 2025², and the oldest part of this generation is nearing their peak earning years. They are still widely underserved with financial advice, which represents an enormous opportunity for those who can effectively engage this generation of investors.

Connecting with Millennials, however, requires a whole new playbook for engagement. Financial professionals hoping to provide financial services for millennials must use the latest financial wellness technology, align themselves with trusted sources of advice, commit to an educational experience for prospects and clients, redesign the way they price and deliver planning services, and create transparency throughout the entire financial planning process.

It may seem like a tall order at first. To help you understand and overcome the most common barriers to engaging Millennials, this is the first blog in a three-part series on how financial professionals must adapt for the millennial investor.

Evolving to Serve the Underserved

The assets under management (AUM) model is far and away the most popular method of financial planning pricing. Charging clients a percentage of AUM is a highly scalable way to draw a profit from planning, which is probably why it’s endured for so long. However, it is limiting in who it allows financial professionals to serve.

Only about seven percent of U.S. households have enough liquid assets to invest in an account to be transferred to an advisor.¹ For those who don’t have $100,000 or more to invest—particularly the millennial generation that has yet to reach the peak earning stage of their financial lifecycle—the AUM model doesn’t work well.

Currently, this population is drastically underserved in the financial services industry, and yet, they already comprise the largest segment of the U.S. workforce. Additionally, as more young professionals begin gaining traction in their careers, the net worth of the millennial generation is projected to increase to $20 trillion by 2030.² To engage Millennials and the opportunity they represent, firms still using the AUM model have to come up with new and transparent models of financial planning pricing.

Tying Financial Planning Value to Financial Planning Fees

A recent study from EY showed that nearly half of wealth management clients are dissatisfied with the fees they pay and do not trust that they’re being charged fairly.³ Millennials, who comprise the future of every advisory firm’s clientele, are the most dissatisfied segment of clients.

The study showed this dissatisfaction stemmed primarily from uncertainty around what they were paying for and how they were paying for it. The root of the problem is a disconnect between the perceived value of advice and the cost of that advice. If people don’t understand what it is they’re paying for, they’re unlikely to think they’re paying a reasonable price for it.

While it may be a common issue in our industry, there are many different ways to introduce transparency into the planning process. There is a great opportunity for firms to intervene and affect change by clearly communicating the services they’re providing, introducing more sensible approaches to pricing, and demonstrating the value they’re delivering.

When the benefits of financial planning are clear, and the associated fees are understood, it’s easy for clients to compare the value they’re getting with the price they’re paying.

Starting with Simpler, More Accessible Pricing Structures

Simplicity is one of the best policies when it comes to pricing for financial planning, and it’s quickly taking hold in the industry for those attempting to connect with millennial clients. There are many different fee models that are working for firms today.

Some firms are implementing planning services with a flat-fee or tiered structure, at a price point that’s accessible for almost anyone. Others are charging a percentage of income, as opposed to a percentage of assets, to make advice more affordable for those without a large amount of investable assets—even those with all their assets tied up in a 401(k). And another approach is a packaging model which breaks down services into different packages to highlight the different value of services from investment management to financial planning. And others are implementing a financial planning subscription model or annual retainer for advice.

Millennials are accustomed to simple and predictable pricing in everything, and wealth management is no different. Tying price to income, or anything other than assets, offers a simplified approach to advice.

For firms that want to engage the 93 percent of households that can’t afford the traditional AUM model, this is a great way to start. But simply making pricing less complicated is not enough in itself to win over millennial clients.

What Else Can Firms Do to Cultivate Trust and Loyalty?

The regulatory environment in the advisory industry is increasingly calling for higher levels of disclosure to address this issue. The SEC’s Regulation Best Interest, for example, requires transparency into compensation and disciplinary issues. The CFP Board’s Code of Ethics and Standards of Conduct requires disclosure on conflicts of interest, and their seven-step financial planning process encourages transparency in all planning interactions.

But beyond disclosing compensation or conflicts of interest, firms can go further to earn the trust and loyalty of millennial clients. Firms should have set processes for creating transparency in pricing models, transparency in the planning process, and demonstrating value to clients. All of this will help clients tie the value they’re receiving to the price that they’re paying.

Clearly Communicate Pricing

Simplifying your pricing structure doesn’t provide transparency in and of itself. Pricing structures, fees, disclosures, and advisor compensation can all be presented in a digestible format for prospective and existing clients to improve the transparency of your pricing.

It’s important to take the time to explain how much you’re charging for advice, all of the services this cost covers, and how this may change over time as the client accumulates wealth. This gives clients a clear picture of your pricing, which gives them a basis to compare the value you’re delivering.

Bring Clients into the Planning Process

To fully understand and accept the fees they’re paying, clients have to be aware of all the planning work that’s being done.

One of the best ways to do this is to make the financial planning process interactive. Give clients their own portal and 24/7 access to the most up-to-date information. Have frank discussions around goals and let clients do their own scenario planning. Bringing them into the process in this way gets them more engaged with their plan, in turn, highlighting all the ways in which you’re addressing their personal finance concerns and planning for their financial future.

This is particularly important for millennial clients who anticipate a sense of connectedness, relevance, empowerment, and engagement. Cater to the millennial preference for having as much information at their fingertips as possible, accessible on any device at any time. Looping them into the planning process is a great way to offer transparency, as well as the seamless digital experience they’ve come to expect.

Demonstrate Your Value

Once clients know exactly what they’re paying and the services they’re paying for, it’s essential to also communicate the value they’re receiving.

Clients want to understand their investment performance, but more than anything, they want to know that their most important goals are on track. The most direct way to demonstrate value is to provide clients a full view of their financial picture, then create a long-term cash flow view of their progress towards those goals. If you can show that your advice helps them retire on time while maintaining their existing lifestyle, put their children through school, or whatever their goal may be, you are proving that your advice is highly valuable.

Similarly, you could use Monte Carlo methods to show clients their plan’s probability of success to demonstrate value. You can output a probability based on their current financial track, then explain how your recommendations can get them to a higher probability that’s in line with their individual risk tolerance.

Once clients can see the incredible value you’re providing, they’ll be far more likely to accept the fees you’re charging.

Financial Planning Technology Facilitates New Pricing Structures for the Underserved

Financial professionals using traditional pricing methods must find an alternative to the AUM model to serve the underserved millennial generation. There is widespread dissatisfaction with pricing based on AUM and it inherently excludes the majority of the population from receiving much-needed financial advice.

New, transparent pricing structures work well for reaching new client segments, but they may come with additional back office leg work. Because of this, creating efficiencies and establishing workflows with financial planning technology is essential to minimize operating expenses and deliver planning in a scalable way.

Pricing is important, but there are other ways financial professionals can connect with Millennials and those who traditionally can’t be served under the AUM model. This blog is the first in my three-part series on serving the underserved. To keep learning, read the next post in this blog series: Earning Millennial Trust By Meeting Expectations for a Seamless Digital Experience.

Sources:

1. 2019 Fidelity Financial Advisor Community (FAC) Background Survey, Preparing for Next-Gen Advisors and Investors, October 2019, n=907

2. “How Advisors Can Attract and Profitably Serve Millennial Clients.” XY Planning Network, 2019. August 29. https://blog.xyplanningnetwork.com/advisor-blog/how-advisors-can-attract-and-profitably-serve-millennial-clients.

3.“Designing the Digital Wealth Management Client Experience.” Dow Jones n.d. https://visit.dowjones.com/content/celent-digital-wealth-management/.

4.“How to Align Pricing with Value through Transparency and Variety.” Ernst & Young, 2019. April 26. https://www.ey.com/en_us/wealth-asset-management/how-to-align-pricing-with-value-through-transparency-and-variety.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

You may also be interested in...