The future of traditional advisors – a Millennial’s view

The debate around the potential impact of technological innovations in the wealth management industry is hot right now, with many people believing that the demands of the Millennial generation inevitably put the traditional advisor on an irreversible path to extinction. As a Millennial myself, I would like to weigh in on the debate and offer my view on the status of the traditional advisor. The media has largely been focusing on two technology pressures in particular:

• the rapid growth of “robo-advisors”
• the demands of emerging tech-savvy younger generations.

Rise of the “robo-advisor”

A “robo-advisor” is an online wealth management service (e.g. Wealthfront, Betterment, Motif) that provides automated, algorithm-based portfolio management advice without the use of human financial planners and predominantly, if not exclusively, recommends ETFs. Some of these companies explicitly target Millennials by offering virtually instant online account creation, low or non-existent account minimums and a dramatically reduced fee (0.25%). And they’ve been rewarded: several of these firms have seen a large proportion of their growth in assets flooding in from members of my Millennial generation.

The big misconception

This has created the perception that the average Millennial shuns human relationships and contact in favor of online relationships and that, hence, my generation has turned its back on the traditional advisor for investment advice once and for all. I beg to differ. It’s true that we Millennials are extremely reliant on technology in our everyday lives – we use Google to answer almost every question we have, we are addicted to our smart phones and tablets, we live through social media, and we expect access to information immediately. But, like preceding generations, we do still need and desire human relationships and contact – especially when we’re faced with making important decisions. But right now, most of us Millennials aren’t making important financial decisions. Our nest eggs are small and our goals straightforward. Most of us don’t need a trusted, traditional advisor to help us navigate our investment options – and we don’t have the funds required to meet that advisor’s account minimums...yet.

The medical parallel

Think about it this way: When WebMD – the public website that offers a wealth of health-related information, including a symptom checklist, pharmacy information, drugs information and more – was first launched in the late 1990s, pundits argued it would make physicians redundant. After all, if you had internet access, WebMD could help you diagnose yourself and identify the appropriate treatment. How convenient and how cheap! Fast-forward to 2015, and doctors are still a central part of the health care system and have established a peaceful co-existence with WebMD (which still exists and is still popular). That’s because health is important to us – and the more complicated our health issue, the more personal and individualized our treatment typically is – and the more personal interaction, support and guidance we humans tend to seek. But, among healthy Millennials, WebMD is typically sufficient for treating our ailments – most frequently the common cold or flu – for now. As our health situations become more complex, I have no doubt that we, too, will frequent the doctor’s office more regularly. And I expect it will be the same with our finances. When we are at a point in our lives where we are making complex financial decisions, many of us will find that we have outgrown the appropriateness of robo-advisors and won’t hesitate to turn to a human advisor.

But advisors shouldn’t wait until Millennials are all grown up

In my view though, this doesn’t mean that advisors should automatically shy away from establishing connections with Millennials now. Instead, I believe that those advisors who make the effort to begin building these relationships stand to benefit most in the future when Millennials are in need of a “trusted doctor” for their financial life. But of course, from a purely practice management view, advisors need to consider the business economics trade-offs of allocating time and resources to a group of prospects that is unlikely to be profitable in the near future. In that case, advisors may want to consider things like how long they plan to stay in the business – will their investment in Millennials pay off before they retire? So, if after considering the business economics trade-offs, you determine that acquiring Millennial clients is a serious target for your practice, you may want to consider some of the following, in no particular order:

• Is your back-office as efficient as possible to effectively compete in a low-cost environment?
• Is your website sufficiently sleek, dynamic and would allow Millennial clients to access their relevant information easily?
• Are your communication channels up to snuff? For instance, are you capable of holding a meeting via video chat software, such as Skype?
• Are you active in the social media space? A recent study conducted by Putnam Investments found that 66% of the advisors on social network sites were able to find new clients this way.