What Should You Charge Millennials Marg, Chip and Drew?

May 23, 2017


In December 2016, the SEI Advisor Network surveyed over 600 millennial investors, aged 21-35, with minimum investable assets of $10,000, to find out how the financial services industry should perceive and plan for this next generation of investors. While there are many other studies out there with conflicting data and conclusions about millennials – What sets SEI’s research apart is that we’re combining our own quantitative data with my own qualitative, millennial opinion to bring you more authentic and meaningful conclusions about what it all truly means. Today is part 3 of our 4-part blog series on the key findings.

Part 1: Segmenting the Millennial Market: Meet Marg, Chip and Drew
Part 2: Capturing the Attention of Millennials Marg, Chip and Drew: Be Relevant and Digital

Fees continue to be a hot topic in our industry, as we observe a slow-moving transition from the brokerage days (when people were paid on the commission of products or transactions) to the rise of financial planning (where people are trying out things like project- or retainer-based fees).

While the demand for more transparent fee models and the concern surrounding fee compression are not necessarily issues that just have to do with millennials, Gen Y does play a key role in this fee evolution. That’s because millennial financial advisors and financial planners who serve millennials are the forefront of this change. They’re the ones innovating and trying out all these different fee models. We have younger advisors coming out of CFP programs as true planners are trying to find ways to charge where they feel they add value – through planning services. We see advisors focused on younger investors trying to find a profitable way to serve these low-AUM, mass affluent clients

Here’s the thing about our three millennial segments (Marg, Chip, and Drew) and their fee preferences – they’re virtually the same across the board. And while I know most of you won’t be stunned by the results of our research (with an emphasis on free and unbundled planning fees), I will state upfront that our goal is not to create a fee model that only serves their demands and needs as your clients. Instead, we’ve found a creative way to interpret this data, to come up with an approach that also serves your business needs – namely, the need to run a profitable, revenue-producing firm.


I know what you’re thinking: “Surprise, surprise!”

Yes, the majority of millennials across our study indicated that they wanted a free trial period before paying for advice to ensure they saw the value. Here’s the thing about free, though – it doesn’t actually have to mean “free” financial advice, in the traditional sense.

One observation I have made throughout this investigation is that those advisors who have a strong social presence and robust content library on their website tend to have the most success in engaging millennial investors. And after seeing these data points, it’s pretty clear why – these advisors are giving away “free” advice (so to speak) through their blog posts, e-books, online templates and guides. Things like their downloadable excel budgeting template or their blog series on the daily trials of trying to successfully save half of your income (like Desirae with Half Banked).

Creating this type of tactical content is a great way to meet the millennial demand for free advice, without actually giving them the idea that your services are free (because they shouldn’t be). Additionally, this is a great way for you to demonstrate your value as a planner for when they are ready to pay for real advice and services.

Not cheap, just not the norm

The popularity of the pay-as-you-go fee model reinforces the stereotype that millennials are cheap and perhaps not seriously willing to pay for ongoing financial advice. However, I would argue that this has more to do with the fact that financial planning just isn’t the norm with this generation. When they’re having a financial difficulty or issue, millennials don’t seek out an advisor (in the same way a Boomer might). So they’re clearly looking for a model where they can try your services before committing to a long-term engagement.

Quite frankly, this type of fee model works in your best interests when prospecting millennials, because it enables you to filter out unqualified prospects who really weren’t serious about committing, as well as help recover your costs for any initial prospecting meetings that just don’t pan out. Take Jim McGowan, a planner with Marshall Financial Group; his MyWealthCoach program is specifically geared to millennials and the emerging mass affluent. He does all of his prospecting and fact-finding virtually, before ever meeting the prospect, then charges $250 for the initial meeting, where he spends 2 hours reviewing his proposed financial plan. This way, he demonstrates his value up front, in an effort to increase closing rates, and recovers costs if they decide not to move forward and become a client.

What should you charge millennials Marg, Chip and Drew? Click To Tweet

What’s the “right” fee model?

Up to this point, we’ve only talked about upfront costs and how to manage fees early on in the prospecting process with millennials. But what’s the right fee model for managing ongoing services for millennials? Perhaps some of you are still wondering whether millennials are willing to pay for advice at all. To that I say that only a mere 10% of the millennials we surveyed indicated that they’d never pay for professional financial advice.

Judging by our research, there are two ongoing fee models that will fare well in working with millennials:

  1. Recurring retainer
  2. Traditional AUM-based

The difference in preference of one over the other isn’t stark, but remember – this isn’t just about what millennials want as your client, it’s also about what you want as a business owner. Namely, what fee model is going to make you profitable, but still be accepted by your target market. So here’s where we bring Marg, Chip, and Drew back into the picture.

Fees for Marg

I still stand by what I said at the start of this series; this is not a segment worth actively pursuing for ongoing planning services. I would keep it to the “free” advice for now and wait until Marg appears a little more financially mature like her counterparts, Chip and Drew. Plus, because Chip and Drew also like the concept of receiving some free advice before actually committing to paying, you’ll be playing to these two other segments at the same time.

Fees for Chip

Even though Chip has some assets, the reality is that an entirely AUM-based model isn’t going to work with this segment. For one, it’s highly likely that Chip’s assets are all tied up in his 401(k) at his employer. And though it’s likely that this millennial job-hopper could jump ship at some point, providing you with the opportunity to manage those assets when they roll over, I wouldn’t bank on that for now. Secondly, with the amount of AUM Chip does have, a basis point fee model is likely not going to pay you enough to be profitable. So, for Chip I recommend the recurring retainer fee model. Fees vary, but the most common retainer models I’ve seen are somewhere between $100 – $250 per month, depending on the complexity of the client.

That might sound high to some in dealing with a lower-end, mass affluent type of client, but consider this from the XY Planning Network, which is a network of fee-only advisors focused on serving Gen X and Gen Y investors. This group of advisors has found that you should aim the fee total to about 1-2% of the client’s annual income. When it’s in that range, it appears manageable and reasonable to the client. But once you go over 2%, it starts to feel like a burden and the client often looks for opportunities to leave. So take Chip, for example – he makes about $81,000 x 2% is $1,620 per year, or $135 per month.

Fees for Drew

We’re dealing with someone with a little more substantial asset level, so it’s not impossible for an AUM-based fee model to work, from a profitability standpoint. However, in light of trying to find a win-win scenario, I will say that this segment definitely shows a higher preference for recurring retainer over AUM-based fee models. So my guidance here would be to combine the two in a hybrid model, like Sophia Bera with Gen Y Planning did. Sophia charges basis points on assets, as well as a monthly retainer fee.

A hybrid model is great, not only because it creates a win-win scenario, but it also makes it easier to eventually transition to a purely AUM-based fee model later on (if that’s something you want to work toward). It’s not unheard of that a client might get sick of paying a monthly fee and want to move to all AUM-based fees later on where the fees are taken straight from their accounts (if only for the convenience factor).

Think differently

I know these fee models are pushing the envelope, because changing your fee structure isn’t something that should be taken lightly or that can happen overnight. However, times are changing and the next generation of investors is clearly looking for a different model. If you didn’t already notice, commission-based fees were the least popular among this group.

So my guidance to you is this – take a serious look at your current fee model to assess whether things need to change, but do not overthink this. The worst thing you can do is spend too much time (over)analyzing all the different possibilities and their projected revenue; the best thing you can do is use these suggestions as a starting point to come up with an initial model and then test it and refine later. So here’s my guidance:

  1. Try it out for a period of time with some new prospects
  2. Set expectations upfront that your fees are subject change
  3. Modify your fee structure as needed based on feedback
  4. Then once you’ve vetted a model that appears to be working, consider whether it makes sense to transition any of your existing clients to this new model over the long term.

And to all the advisors out there who still aren’t interested in millennials, even after getting this far into our blog series, I haven’t forgotten about you. I’d like to take this opportunity to remind you about what I said earlier – fees are an industry-wide issue and doesn’t just affect advisors looking to serve millennials. I invite you to at least take a look over this fee review, so you’re aware of new fee models that could gain popularity.

What’s up next?

Once you have captured the attention of these millennial segments through effective marketing techniques and have gotten them to commit to pay for your services through the fee models we discussed today, how do you service them on an ongoing basis? What level of support and interaction are they looking for? And what level of service can you provide while maintaining profitability of your business? Stay tuned – More on that later.

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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.

Learn More About Missy Pohlig



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