Financial advisors accustomed to communicating with baby boomers and Gen X will increasingly engage with millennials and Gen Z, either as new clients or as family members of existing ones. This shift necessitates considering whether established communication approaches remain effective or if generational differences require tailored adjustments.
Retirement expert Anne Lester addressed these questions at the recent Exchange Conference in Las Vegas. A veteran financial expert with a focus on retirement issues, Lester previously served as JPMorgan’s head of retirement solutions. She oversaw the highly successful rollout of the firm’s target date funds as well as other retirement-focused products. Lester is a frequent speaker at industry events ,and authored "Your Best Financial Life: Save Smart Now For The Future You Want."
Hyland: Let’s kick off with the differences between advisors talking to younger generations and older generations, particularly in regard to retirement planning, which tends to be a major focus for younger investors.
Lester: For starters, the newer generations are less likely to trust institutions than their parents or grandparents. The name of your major firm does not carry the same weight with them. At the same time, we as an industry tend to default to a presentation style that is very professional with lots of charts and numbers. Clients of all ages tend to smile, nod their head, and learn and retain nothing. Most advisors know that at least half of their clients are not telling the truth when you ask them if they understand what you are telling them and they say yes. Part of the problem is they don’t want to feel stupid and so they do not ask questions.
With Gen Z and millennials, it comes across not only as a lecture, but also a bit judg-y. Like you are making value judgments about whether or not they are saving enough for retirement. They will tend to want to shut down.
Hyland: So how do you approach these younger investors?
Lester: You need to connect at a more human level. Tell stories because a good narrative is how people actually learn and retain information. Use analogies because a good analogy is better than charts and graphs. When it comes to retirement discussions, a story like The Tortoise and the Hare can fit. You also want to tell stories about yourself because those strip away the judgmental aspect.
Hyland: In your presentation, you talked about stories in which you are not always the hero. Like when you dropped a box of puzzles on your head or spent your first big raise on a baby grand piano, which you did not really need!
Lester: Yes. Telling stories where things do not go perfectly for you helps with the connection. It is really about connecting with them on a human level. You need to meet them where they are and not from your place. They need a mentor.
Hyland: Let’s turn to younger investors and their prime financial focus, which is planning for retirement.
Lester: Let’s start with the elephant in the room: Planning for retirement is essentially an unsolvable problem with no right or wrong answers until the end. There are so many variables that occur over such a lengthy time frame that you cannot know today what is the best choice. We see this in asset allocation choices. A pet peeve of mine is that you can always, in any asset allocation path, have [options that would have worked better in hindsight]. But the reality is, you almost certainly would not have taken that specific mix.
The new generations are taught to track everything and have rubrics that show you how you are doing and how to get to your goal, in their schooling and their work lives. But retirements and investing don’t work that way.
Hyland: So if the hyper-rational and mathematical precise approach favored by the industry — where much of the goal is performance and to beat the market — is not really the way forward, what is?
Lester: Many sophisticated institutional investors view it not as, did I beat the market or not, but what return do I need, and what is the most efficient way to get there? Turning toward young investors planning for retirement, the framing goal is not to be the best, but to be not the worse. This introduces the human notion of the path of least regret. What choices will they want to have made so that at retirement they felt they made, if not the optimal choices, at least no major blunders? Our industry focuses on what can be quantified: best performance, beta, alpha, correlation, etc. The path of least regret is not quantifiable, and so it is not part of the traditional discussion.
Hyland: Are there special problems that Gen Z's and millennials face compared to early generations?
Lester: Part of meeting Z's and M's where they are is to help them understand humans are not wired to save money. We need to help them understand that they are not bad people for failing to do the right thing all the time. Humans are wired to consume. Using another analogy from a children’s story, we are grasshoppers, not ants. You need to not display judgment here as if the fact we are wired that way is their fault.
But, at the same time, Z's and M's have been bombarded their entire lives with ways that make it easy for them to buy things and spend money. The internet and smart hones mean that everything is just a push of a button away — much more so than how boomers or X's grew up. It is the financial equivalent of always having a bag of Oreos on the kitchen table when you are trying to cut down on your eating.
Additionally, over the past number of decades, home prices are up 6x, while median income is 2x. Looking at it from the standpoint of Z's and M's, they feel that buying a house is impossible. Yes, new houses are bigger and nicer than when boomers grew up, so there is some positive impact there, but they are facing a different situation than their parents.
At the same time, travel is actually cheaper. Maybe they will travel more but don’t have a house. Electronics and clothing are cheaper, but cars are more expensive. So, their consumption patterns may change compared to their parents.
Finally, for them, Social Security is viewed as a much less reliable portion of their retirement planning compared to older generations.
Hyland: What ways can you help guide them?
Lester: A lot of this is a matter of framing and not immediate major changes. You can help them feel like they are financially competent savers by getting them to start to save, perhaps through their 401(k) or IRA , even if at a very small level. It helps build muscle memory and it is the start of them becoming a saver instead of a spender. The framing is, “we are going to start somewhere and make it better over time” and not “all or none.” Should they deduct 15% into their 401(k) when they are 30? Yes, but it is more important that they save something and work from there. After all, they have something that boomers and X's do not have when it comes to the retirement process: They have time.
Hyland: What about in other areas of their financial life?
Lester: You can be that trusted person who helps them control financial impulse. And use stories. Is getting rid of Apple Pay — to cut down on impulse spending — the equivalent of getting rid of the bag of Oreos on the kitchen table? You can explain the hedonic treadmill effect by talking about the process of trading up from a junker to a new car after they get their first real job, to trading up to a newer car with that cool new self-parking feature a few years later only to find out that you don’t like or use the new feature but you do have the new higher payment. They need a mentor.
Hyland: What about talking to existing older clients' children as current or future clients?
Lester: Several issues here. Most people don’t like talking about their money because of how uncomfortable it can be. Many parents will have money shame because they feel they either have too much or too little money. What would be really helpful is to get the parents to talk about money with their children. How transparent parents are with their children can have a huge impact on how these children deal with financial matters as adults. You can help.
This leads to a serious question: Can or will an advisor be willing to take on small accounts for the younger generation? Obviously, this depends on an advisor’s business and book, which may or may not allow them to have small, unprofitable accounts. But an easy way to start building trust with people who eventually may inherit your current customers’ accounts.
Using some stories, a client might have one son who is a young adult with a fairly modest account that the parent’s advisor also handles. They may need advice as to how he would pay for graduate school. Obvious choices being to sell assets or take a loan. The financial advisor earns a lot of trust by being the person to walk him though those options and making recommendations even if the size of the account is well below their normal minimum. A second adult son might be looking at buying a house and has a different set of questions. Does your practice allow you to provide this level of service? If so, this is something you need to consider.
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