It’s the middle of the week and I get an email from my co-worker with the subject line “You Should Read This”. In my head I’m thinking ‘here we go again, another article about Millennials and finances…
As one of the few millennial-aged financial advisors at my office, I am the default Millennial expert. Don’t get me wrong, I love working with my young professional clients looking for clarity and guidance on personal finance but I could go without my inbox being inundated with links to articles on Millennials and finances. I love the sharing of knowledge but I can almost always count on the article being somehow related to millennials, technology, investing or personal finance which typically translates into… millennials making bad financial decisions.
I was pleasantly surprised when I opened this particular article “Successful Millennials Want Real Advice” by Gail Graham originally published in FA Magazine. The author’s perspective set this article apart from others that flood my inbox. She writes about her son and daughter-in-law’s experience interviewing financial advisors and makes some spot-on observations on what Millennials are looking for in a financial advisor.
These are qualities all young professionals should look for when seeking out a financial advisor.
The next generation is looking for a financial coach that can relate to them and understand their unique perspective on investments and financial success.
The millennial’s experience with the financial markets aligns with the Great Recession that began in the Fall of 2007. Millennials at this point in time were anywhere from starting college to newly minted professionals in the working world. Having the Great Recession as the backdrop to their formative financial years has had an impact on how this generation approaches financial matters.
It is important to have a financial advisor that can appreciate this perspective and understand why there may be some hesitation to becoming an investor. An advisor should be understanding and consider the emotions that can come from making financial decisions.
A final point on making sure your financial advisor is relatable is when considering the definition of financial success. This is a term that has shifted over the generations.
Looking to my parents, their definition of success is having the ability to retire and stop working in their mid-60s. I’ve found with Millennial generation, financial success lies somewhere between living in the moment and having options to do something different in the future. When creating plans for clients, the focus is on finding a balance between living in the now and also thinking about the long-term.
Services Beyond Investing
When you think about a financial advisor, the image that will pop in most people’s head is a man in a suit with an investment strategy. In this day and age, financial divisors need to do more than just offer and investment solution to differentiate themselves. The list below includes some of the other services you should be asking your financial advisor about:
- Financial Planning
- Budgeting Tools
- Financial Coaching Discussion
- Access to High Yield Savings Accounts
- College Savings Analysis
- Debt Management Solutions
- High Level Tax Planning
I could keep going but I think you get the picture. In this day and age, your financial advisor should be doing so much for you than just offering an investment approach. For all you know they may already be doing these things for you but its important to ask the question.
I will take this quality one step forward and say that your advisor should be transparent and competitive when it comes to pricing. For those of you who are new to working with an investment professional there are three areas of fees that you should be aware of.
This is the cost to be an investor in a particular mutual fund, bond fund or Exchange Traded Fund (ETF). Be warned that not all funds are created equal and some are more expensive than others. The most cost effective way to purchase a security is to buy the institutional level that offers the lowest fund expense ratio. As a rule of thumb, try to keep this number at or below 0.60%. If you are spending more than this on a fund expense, there is likely a more cost effective way to get the same investment exposure.
This is the cost of trading in and out of the investment securities within your account. Some people don’t realize that there is a cost to transact and this is a commission that goes right to the firm you are investing with. One way to control these expenses are to stick with a long-term investment strategy. One of my favorite quotes puts it perfectly.
Your money is like a bar of soap, the more you touch it the smaller it gets. –Unknown
Investment Management Fee
The final fee to educate yourself on is the management fee you pay to an advisor, if you are working with one, to set an investment strategy. This fee may vary across firms and its important to make sure you are working with someone who is competitively priced.
This fee is typically charged as a percentage of the assets they are managing on your behalf or assets under managements (AUM). As a rule of thumb, if a firm is charging you more than 1.0% of (AUM) to manage your money, I would keep looking for a more cost effective solution.
As I mentioned at the beginning of this post, this article was a breath of fresh air. While the article stopped at the items listed above, I will add one more quality that young professionals should seek out in their financial advisor and that is a fiduciary.
What is a Fiduciary?
In the personal finance industry a fiduciary is someone who puts the interests of their clients above their own. This is called the fiduciary standard. It’s important to understand that some financial advisors are held to the fiduciary standard, due to a professional designation, firm philosophy or otherwise, while others are held to the lesser suitability standard.
At a very high level, the best way to demonstrate the difference between a fiduciary advisor and suitability advisor is to look at their business model. An advisor operating under the suitability standard has a product centric business model. This means the advisor is focused on the product they sell to their client and overlook if its in the the best interest of the client. In the case of a fiduciary advisor, their business model is client centric. This means that they will work with their client to understand their needs before suggesting a financial product or strategy.
One way to know for sure if you are working with a fiduciary advisor, just ask!
So there you have it, a list of qualities that Millennials should be looking for in a financial advisor. They should be be relateable, have service offerings beyond the investments, be transparent on how they are getting paid and act as your fiduciary. Honestly, most of these traits are things you should be looking for in all the professionals in your life from doctors to career coaches, accountants and beyond.
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