Good luck to the investment advisers waiting for young adults to replenish a client base that now relies on boomers and older Canadians.
For a bunch of reasons, millennials don’t seem destined to follow their parents and grandparents in seeking investment help from advisers. The same reasons suggest a different path for young adults – one that focuses more on financial planning than selling and managing investments.
A report on millennials commissioned by FP Canada Research Foundation (FP Canada oversees the certified financial planner designation in this country) highlights the financial challenges faced by young adults today. They’re graduating with higher levels of debt than previous generations into “one of the hardest job markets in a century.” As a result, many millennials are working in the gig economy, which means temporary or contract work, and have erratic income.
“They have little savings and their appetite for risk is low because they do not know if or when they might need those savings to bridge gaps in cash flow,” the report says. “Accordingly, their savings do not grow quickly either, leaving them further behind in saving towards big goals such as home ownership and retirement.”
What investment advisers want and need are assets to manage. As described in the FP Canada report, millennials don’t seem an ideal cohort to deliver this in the near term. On the other hand, the financial struggles of millennials do seem a fit with what’s on offer from financial planners, especially those who work on a fee-for-service basis and can scale costs to the needs of individuals.
Of course, millennials and Gen Z will eventually accumulate wealth for investing as they build their careers. Many have already dabbled successfully in do-it-yourself investing during the pandemic using no-cost stock-trading apps or online brokerage accounts.
Investing will get harder than it has been in the past 18 months – much harder. But if advisers think young adults will give up do-it-yourself investing and embrace the advisory business, they are likely mistaken. As noted in the FP Canada report, millennials are very comfortable in a digital environment. They may change their investments, but not the digital investing platforms they’re using now.
Another feature of young adult life that is more in sync with planning than investment advice is the desire to own a home. The FP Canada report notes that the precarious financial position of some millennials will have an impact on long-term goals such as home ownership. Still, there’s a strong culture of home ownership in Canada. Pressure from peers and parents to own a home is a big factor, as is the fear of missing out on the kind of gains we’ve seen in housing prices lately.
Young adults may find they have to devote more of their savings to a home down payment, and then mortgage payments, rather than into investments. There’s more of a role for financial planners in this outlook than for those who advise people on how to invest.
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Rob Carrick