What financial advisors need to know about the changing nature of work
Millennials have challenged the status quo for years, and they’re now bringing that mentality to the workplace. The way they work, what they value, and the careers they lead are already a far cry from the 9-5 jobs of the previous generation. These sweeping changes in the workplace also have big implications for financial advisors. Advisors looking to connect with millennials, and the succeeding generations, will need to update their approach to reach this new generation.
The era of working 30 years at the same company is long gone.
Unlike previous generations, millennials are more willing to change jobs, a move that has earned them the reputation of job hoppers. The Bureau of Labor Statistics found the median tenure for workers aged 25 to 34 was 2.8 years—compared to over ten years for workers aged between 55 and 64. At this rate, millennials will have held more jobs by their mid 40s than boomers did their entire lives.
A key factor driving this trend is a desire for millennials to improve their financial security. Unsurprising for a generation that entered the workforce in the aftermath of the Great Recession, millennials are concerned about their finances and looking to get ahead. The Federal Reserve found millennials earned less, had fewer assets, and had less wealth than earlier generations when they were young. As a result, six in ten millennials were open to new job opportunities primarily because of career mobility and higher wages, according to a recent Gallup poll.
For more and more workers, even the idea of working for a company or someone else is outdated. The rise of the gig economy, fueled by the popularity of apps/platforms like Uber and Doordash, has enabled more people to work independently. Almost half of all millennials and Zoomers now take part in the freelance economy, whether in part time roles or as a full time career.
The pandemic has also accelerated changes to the nature of work. Even though the US economy has added millions of jobs this year, people are leaving their old jobs at speeds never seen before. More than 7.5 million people resigned in April and May alone, according to one survey.
The so-called Great Resignation comes after a year when many millennials have experienced work-related burnout. Like other groups, millennials faced long working hours in stressful and challenging work environments. An Indeed report on employee burnout found that 53% of millennials were exhausted before the pandemic, and since then, that number has swelled to 59%.
Many young workers are now reevaluating what is most important to them. Is it working long hours for low pay? Is it spending time with family? Or is it the flexibility to work remotely?
This changing nature of work has big implications for the financial advice millennials need. Unlike past generations, many millennials can’t bank on a stable paycheck or a generous company-funded pension plan. The same assumptions that worked for Baby Boomers, who stayed at the same job for 10+ years and retired with a comfortable pension, will no longer hold for millennials, who frequently change jobs and have considerable debt.
For financial advisors looking to cater to millennials, they should consider the following:
1. Rainy day fund - A generation of job hoppers and gig workers may want to focus on building a comfortable "rainy day" fund. The additional funds, whether they get used or not, provide a buffer for millennials' unstable income streams.
2. Better retirement planning - The changing nature of work means many millennials won’t have access to a company-sponsored 401k and will need more help with their retirement planning. Educating clients on the benefits of non taxable (IRAs, SEP IRA) and taxable accounts can help millennials view retirement as a reality rather than a dream.
3. Financial literacy - Millennials rank as the most educated group in history, but when it comes to financial literacy, they might as well be reading a different language. A recent study found that only 16% of millennials qualified as financial literate. Reaching this group requires advisors take a more hands on approach, from developing holistic plans to educating clients on basic financial concepts.
That doesn't even begin to account for their investing habits. Younger generations support broad societal issues and want their investments to reflect those values.
Many advisors will need technology-powered tools to customize investment strategies and portfolios that capture all the moving parts of a millennial's life. These tools—like direct indexing, custom indexing, and more advanced platforms— give clients direct ownership of individual securities in a separately managed account. By owning single stocks, rather than through an ETF or mutual fund, advisors can build custom portfolios that meet a client’s preferences and circumstances. For example, an eco-friendly freelancer who owes their estimated taxes soon may want a portfolio focused on ESG and cash management. With technology-powered tools, advisors can dictate how each portfolio weighs aspects of the investment process, from asset class constraints to tax-loss harvesting.
All this suggests millennials need a more high-touch and high-tech type of service than was previously available.
July 20, 2021