One Millennial Compares Investing Options: How Did You Fare?

Apr 25, 2017


I want to play out a scenario that came up recently with one of my friends. It’s a fairly common one, and telling about a key issue that our industry faces today.

A few weeks ago, my friend wanted to discuss investing options. Before I explain what actually happened, let me give you a few quick facts about my friend, to give you a sense of her background. She:

  • Is a single, 30-year-old HENRY(High Earning, Not Rich Yet)
  • Carries no debt, because she paid off all her student loans
  • Has a good-paying job with high earning potential and maxes out her 401(k) each year
  • Lives below her means and has not yet made any large life purchases (like a first home)
  • Has been able to accumulate sizeable savings

She was feeling like she should be doing more with that cash, rather than just letting it sit in her savings account. So she was finally at a point where she wanted to assess her options, but came to me because she was stuck on where to start. I began to identify her available options and explained key differences. I offered to help her evaluate each option, but explained that in the end, she needed to determine what was best, given her own personal needs and goals.

So, armed with these options, she proceeded to do a little investigative work. I asked her to keep me involved periodically as she reviewed each option, so I could see how this all played out.

One millennial compares investing options: How did you fare? Click To Tweet

Option #1: DIY investing.

This is one she was particularly hesitant about from the start, because she had pre-conceptions that investing was inherently a high risk activity. There were clear indicators that she was slightly risk adverse, mostly because of her lack of experience and expertise in this area. The thought of having to make investment decisions on her own that could impact her long-term financial goals definitely concerned her.

While she knew she could spend time researching various trading platforms and investment options, that truly didn’t really appeal to her. Plus, I pointed out that investments aren’t a just a set-it-and-forget-it implementation – they require ongoing monitoring and rebalancing. The time required to choose a platform and then research and manage investments was enough for her to eliminate this option right away. It just wasn’t conducive with her fast-paced, busy lifestyle as she was building her career.

Option #2: Robo-advisors.

Let me start off by saying that I had to explain to her what a robo-advisor was – it’s definitely an industry term that we use, but has no meaning to the general public. My friend didn’t understand what I was talking about, until I started naming a few of the more popular robo-advisors, such as Wealthfront and Betterment. She recognized their names from ads on social media, but didn’t know they were called robo-advisors.

Her main concern with the few robo-advisors she had looked at was that she felt like she didn’t have enough money to invest. It seemed like they were meant for someone who had at least $50,000 – $100,000 to invest. This might seem surprising, because we know that’s not true; robo-advisors were built specifically as a small account solution. However, you have to remember, the word “investing” has always carried the connotation that it requires wealth do it.

Because most robo-advisors (and I know this is beginning to change) are fully-automated technology solutions without any human interaction, it can leave a lot to the unknown. As consumers (especially ones with some, but not a ton of, money), it can feel daunting to make decisions about investing. They’re probably wishing they had someone to talk to before pulling the trigger, to answer questions like:

  • Is it worthwhile to open a $25,000 account, if it’s that small?
  • How much of my savings should I invest versus keep?
  • What happens if there’s a market downturn and I lose a lot of money?

Perhaps if those few robo-advisors she had reviewed had a person on the front-end to interact with, that person could have addressed these unknowns and eased those concerns. Because that’s typically not the case, you’ll commonly see this scenario where the investor gives up and moves on.

Option #3: Virtual advisors.

Here we’re talking about platforms like Vanguard or Personal Capital, who likely have robo type solutions on the back-end to help automate things but put an advisor on the front-end to serve the investor virtually.

In investigating this option, my friend explained that she went so far as to take risk assessments and got to the point where she almost opened an account. What deterred her was that it felt, as she described it, “very cookie cutter.” When she took the online risk assessments a few times to assess the different solutions that were being recommended, she didn’t see a ton of variation to make it seem personalized for her. And, although this type of solution is meant to provide more human interaction than a robo-advisor, she didn’t get the sense that she’d have the ability to get financial guidance (outside of a pure investment recommendation). My assessment of the situation was that it became difficult for her to see the added value of the virtual advisor over the robo-advisor.

Option #4: Financial advisors.

In this scenario, her sentiments were that it seemed like financial advisors were meant for someone with more financial complexity. While she had money to invest, she felt her current life situation didn’t yet warrant the need for financial advice. She wasn’t married, didn’t own big financial assets (like a house), didn’t have any kids, didn’t have any debt, etc. She was just looking for a bit of guidance on how to invest.

She had the overall feeling from looking at different advisor websites that advisors were only looking to work with older, wealthier investors, such as Baby Boomers. Now, I did step in and explain to her that there were some advisors who specifically work with people her age. But it wasn’t enough to shake her feeling that her life was simple enough that it didn’t warrant the need for professional advice.

So what happened?

It’s true – my friend shot down all my ideas. I didn’t take it personally, though. In fact, I was pretty impressed that she had even gone as far as she did to investigate each option; it was a clear indication to me that she was truly motivated to invest at the start of this process. Whether or not her assessment of each option was factually accurate is sort of irrelevant, because I know she misinterpreted and misrepresented some information. The point is – Her experience is representative of the situation that many prospective investors (potentially your future clients) face when they’re assessing their options.

While my friend did give it a good go, there was an overall sense of analysis paralysis. She seemed exhausted by the choices. There was so much information to consider that she found reasons to eliminate each option and just didn’t end up making a decision at all. And guess what she’s looking to do with that money now? She’s looking for real estate to invest it in. Obviously, it’s still a valid investment, but definitely not the original way she was hoping to make use of her funds.

Cut through the noise

In a lot of ways, it’s a very exciting time to be in our industry with all the amazing innovations going on. But by the same token, the proliferation of options in financial services has also created a bit of conundrum. That makes it hard for any one player, like financial advisors, to effectively cut through the noise to reveal their true value over the other available options.

And while this scenario was focused on one millennial’s experience and perception of the industry, the reality is that all of these options are available to every investor of every age. So this is an issue that affects every advisor, no matter what target market or age demographic you choose to serve.

So, here’s my guidance to advisors – change your approach to differentiate yourselves and shine through. That might be:

  • Blogging on topics that address specific financial issues that robo-advisors cannot address
  • Adjusting your brand, so it’s not focused solely on HNW Boomers
  • Creating niche services that don’t feel cookie cutter, like those virtual advisors

The key is to assess the other options you’re being compared to, identifying your differentiators, and finding ways to demonstrate that value.

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Missy Pohlig

Missy Pohlig

Missy Pohlig is the millennial contributor for Practically Speaking and also serves as Program Manager for the Solutions Team in the SEI Advisor Network.

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