Breaking the Mold: How Millennials Have Altered the Investor Life Cycle

Aug 16, 2016


As you read in John Anderson’s recent blog post, SEI brings on summer interns for a 10-week period each year. And each year, we host a case study competition, where interns are broken into teams and posed a key issue that they have to come up with a solution to. They then present their findings to the entire company and a winner is chosen by a company vote.

For those of you who know me – I tend to be a little competitive (to say the least). This year was my opportunity to redeem myself from when I was an intern here 5 years ago and our team lost the competition (not that I’m still bitter about it). So I volunteered to coach 7 of the interns for their case study. Not surprisingly, the topic assigned to them was about millennials. Whether they won the competition or not, we’ll get to later on. What I want to focus on right now is a key finding from their research.

Missing the mark
Millennials don’t fit the traditional investor life cycle, which is:

Illustration 3

  1. Growth – You have a long time period to save for your retirement, so you are able to take on riskier investments to grow your assets for the future.
  2. Stability – Your retirement timeline begins to shorten, and you move towards more conservative investments to avoid huge fluctuations in your assets that could compromise your financial future.
  3. Distribution – You’re at retirement age and start to enjoy all of the benefits of investing and begin distributing assets for retirement income.

Pretty much every goals-based financial services firm will look at where an investor sits along this life cycle and choose the appropriate investments and portfolio mix based on this ideology. Even SEI has categorized our investment products into these 3 buckets, to help advisors choose the most appropriate solutions for their clients, based on their financial needs in that specific time period of their life.

However, in working on this research project, our summer interns found that the financial services industry totally misses the mark with millennials by trying to fit them into this traditional mold. How are millennials supposed to jump right into the growth stage, when they don’t have any assets to grow in the first place? In fact, most millennials actually start out with negative assets because of debt (namely student debt). Recent studies show two-thirds of millennials aged 23 to 35 have at least one source of long-term debt, while one-third have more than one source.

And that’s when we realized the industry was missing a key stage upfront in the investor life cycle – Recovery – a phase when you need help planning to recover from your indebtedness, in order to move onto the growth stage.

Illustration 4

Serving investors in the recovery stage requires a completely different type of approach, because they have a different mentality than your typical HNW investor. A young doctor, even if she is making six figures, might feel like she’s so in the hole due to student debt that there’s no opportunity to catch up or invest. In reality, people who are carrying student debt should still be thinking about investing for long-term priorities, such as retirement, while they pay off that debt. So, it’s not that we need to develop a solution to eliminate all the investor’s debt before they move onto the growth stage. Rather, we need to help these investors develop a plan for tackling their debt before they can consider other financial priorities. Recovery has both a financial and an emotional component to it. Financially, investors need help with debt management. Emotionally, investors need the comfort of knowing that this debt can be managed, so they can focus on other aspects of their finances and plan for the future in the growth stage.

Why #millennials break the typical investor mold and what advisors can do about it. Click To Tweet

What to do
Times have changed, and as we’ve seen, so have investor lifestyles and behaviors. Not to knock the financial services industry, but as usual, we’re behind the curve in adapting to this change. The next generation of investors will need solutions and advice to help with this “recovery” stage.

So you really have two choices:

  1. Take action.
    Alter your marketing to focus less on investing and more on financial planning. If you can show millennials how this huge financial burden can be managed with proper planning and you can get them back on track to a successful financial future, you’re presenting them with a very compelling offering. Be a diligent financial planner by keeping the focus on their financial worries and needs. Lead with questions like, “What keeps you up at night?” (And guess what? Their answer will most likely be debt.) By taking this approach, you’re more likely to engage this group by focusing on what’s timely and relevant to them today. Additionally, financial planning becomes your core value proposition for developing a long-lasting relationship with this client – from the recovery stage through the rest of the investor life cycle.
  2. Do nothing.
    Just be aware of what you’re giving up – the next generation of clientele. This debt issue and recovery stage isn’t just something that just applies to millennials – it’s something that will affect all future generations, so long as higher education continues to be a career requirement and tuitions continue to increase at a rate faster than inflation. If you continue to market yourself as a financial advisor who helps with things like “wealth services” or “asset management,” you’re automatically closing yourself off to investors stuck in the recovery stage. They’ll think they’re not rich enough to be a client. They’re thinking, “Invest what? I don’t have any money to invest.” They don’t view themselves as having any wealth because of the negative effect of their debt. By remaining unchanged in your approach, you’re ignoring and alienating all those who start out in this recovery stage.

Adapting to the times
As with any industry change (fee compression, robo-advisors, the DOL – maybe an extreme example, but still applicable), you have a choice to adapt with the times to remain competitive and relevant in years to come or maintain the status quo…and, frankly, who wants to be status quo?

Oh, and special shout out to my intern team (Christa Calangelo, Tyler Chelston, Peter Donato, Tyler Kontra, Will Pierce, Adam Schaal, Jack Wagner) for winning their case study competition (yes, I just had to make sure I fit that in) with their “Debtonator” app as a potential solution for the recovery stage, as well as for their major contribution to the findings in this blog!


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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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