Financial Planning and Advice for Millennials

Building wealth in your 20s and 30s looks different.

The traditional financial service industry targets the retirement market, as that is typically the height of wealth for most families. Financial advisors usually attempt to get their investments and charge a percentage or sell annuities that generate commission-based and ongoing fees. Either way, financial services focus on people late in their wealth cycle, either retired or approaching retirement. 

People face the most financial strain and significant financial decisions in the middle decades. The largest generation of financial services consumers is in their 20s, 30s, and 40s are early in their career or wealth accumulation phase. They do not have sufficient assets or need for the services offered by traditional financial advice firms. Their most significant financial planning needs are for all of life’s transitions and stages before retirement. 

Financial planning and building wealth in your 20s, 30s, and 40s requires different thinking than the investment-heavy retirement planning industry. There are many transitions after becoming financially independent from parents that come before retirement: 

• Building a career
• Figuring out employee benefit packages
• Navigating stock option grants or restricted stock units
• Getting married and having kids
• Buying a first home
• Changing jobs
• Planning for college
• Divorce
• Starting a business

There is so much life lived before decisions about what to do with retirement assets need to be made. 

Life’s transitions create the financial complexity that allows a financial planner to demonstrate and create value beyond simple asset management.

People in their 20s and 30s see their financial futures differently than previous generations.

Millennials are no strangers to economic turmoil, and their experiences shape their needs and expectations. Those looking to build their wealth in their 30s have already had a lifetime of economic crisis and face more complex challenges in their future than previous generations.

• They entered the workforce during the financial meltdown.
• Millennials struggled to find jobs in their fields or stagnated early in their career in the malaise after the Global Financial Crisis.
• They are saddled with student loan debt and trying to step onto the property ladder. 
• The pandemic, ensuing inflation, and financial market meltdown as the Fed increases interest rates at the fastest clip in its history.

A survey by Orion found that while millennials feel that the political, macroeconomic, and investment environments look pretty bleak, they are confident about their financial futures. In fact, given the recent market pullbacks, they are more likely to buy than both gen x and boomers.

Contrary to some accounts, millennials working with financial advisors are more optimistic about the markets and their financial future than those who do not. Those in their 20s and 30s are more likely to seek advice and have a more positive outlook about their future than gen x and boomers.

More from the study:

1. Compared to gen X and baby boomers, millennials have much more positive outlooks on the U.S. economy, the global economy, the U.S. stock market, and their financial future.
2. Inflation is the top market concern among investors across generations. Millennials are more concerned with rising interest rates and healthcare costs than gen X and baby boomers. Still, gen X and baby boomers are more concerned than millennials about the potential for a recession and the U.S. political climate.
3. Following the COVID-19 pandemic, investors changed their investment goals to focus on wealth preservation and saving. Similarly, investors across generations often reduce spending in response to their financial concerns. However, millennials are more likely than gen X and baby boomers to say they are increasing investment in the stock market, in line with this generation’s more positive economic outlook.

Those in their 20s and 30s prefer talking to a human financial advisor over using a robot.

A 2022 study by the Vanguard Group found that those with over $100,000 in investible assets preferred human advisors. The study found that in households that use “human advisors, robo-advisors, or both, the authors found that clients of human advisors were not only more satisfied with the overall service they receive compared to clients of robo-advisors, but also that these clients perceive their human advisors to offer more value in three specific dimensions: portfolio value (i.e., optimal portfolio construction and client risk-taking), financial value (i.e., attainment of financial goals), and emotional value (i.e., financial peace of mind).”

The study showed that working with a human advisor provided more positive outcomes than working with a robo-advisor alone. It makes sense as the financial advice industry has moved away from investment-centric to financial planning-centric service models to create value. Investment management is essential, but for younger clients with smaller portfolios (compared to older generations), there are other avenues to add more value to the financial planning process.  

People building wealth in their 20s and 30s are open to various financial advice service models.

Millennials are more likely to pay for financial planning and advice than previous generations. However, as they are only now coming into their wealth-building years, they may not have sufficient assets to meet advisor minimums. Financial advisors can serve more clients than the standard assets under the management model by putting financial planning at the center of service, where investment management is only part of the plan. 

By switching to a fee-for-service model, fee-only financial planners (no commissions) can serve early-career consumers willing to pay from their income when they do not have sufficient assets to meet a fee minimum. Fee-only services are typically more expensive, have a minimum fee level, and skew toward the more financially well-off. 

• Hourly or project-based financial planning is a fee structure that financial planners charge a flat rate for service that scales with the complexity of the engagement.
• Assets under management (AUM) is the fee structure that charges a percentage of about 1% (the average). The engagement may or may not include comprehensive financial planning or advice, so the level of service can vary. 
• Subscription-based with an option for reduced AUM is a growing service model for financial planning firms. Under this model, comprehensive financial planning is the core of the offering through a typically year-long engagement without investment management. The client can opt to have their assets managed by the advisor for a reduced AUM fee (ex. 0.50% – 0.80% vs. the typical 1%).
• Financial planning fees that transition to AUM fees are also standard in the industry. The idea is that a firm wants to guarantee a minimum revenue level per client and then charges a pure percentage of assets after the consumer meets the minimum. For example, a firm has a 1% AUM fee and a $5,000 fee minimum. A consumer will pay $5,000 per year for financial planning and asset management until they meet the asset minimum of $500,000, then pure 1% after that.
• Flat fee with asset management is another comprehensive model, including investment management with financial planning. Under this model, advisors charge a flat premium that includes investment management. However, there could be conflicts with this fee model as advisors need more incentive to grow the assets. Advisors may also be taking on more liability risk without being appropriately compensated. 

The bottom line is that the evolution of the financial services industry away from commissions and AUM models has allowed comprehensive financial planning services to serve a broader market. Decoupling financial planning from assets enables financial planners to engage with people looking to build wealth in their 20s and 30s who have yet to accumulate significant investable assets.