Maximize income, gain financial independence, retire early. These are achievable goals for millennials — if you have a strong financial plan and use sound investing practices. A financial advisor is an important part of the equation, but as millennials hit their professional stride, many wonder how — in a world of free-flowing information and one-click decision-making — a financial advisor could possibly add value.
In other words, why hire and pay someone to do something you can do yourself?
Fair question. Millennials, perhaps more than any other generation in history, are quite literate in financial planning and investing strategies. Investment apps let you “play” with stock picks or day trade from your smartphone. It’s exciting, you can do it from anywhere, and sometimes you get a quick payoff with minimal effort.
But just like you wouldn’t trust a YouTube video to guide a medical professional through performing open-heart surgery, planning your financial future, including retirement, is simply too high-stakes and complex to DIY.
Information-rich, value-poor
With scores of information at our fingertips, it can be hard to imagine there’s more we don’t know. But even today, web searches, apps, and algorithms can’t predict the stock market with the degree of certainty we all want. And if information on the latest stock pick or strategy is widespread enough to turn up online or in investor newsletters, it’s likely that public information has been mostly priced into the market. But perhaps most importantly, search engines and apps don’t fully account for your personal situation — your personality, your family life, your tax situation, and your goals — the way an experienced advisor can.
Access to an advisor means you’ll have thoughtful, informed guidance through a network of qualified professionals to make some of life’s most important decisions. What’s the best approach to help you or your children (or future children) manage student loans? How should your children and grandchildren inherit assets? How much market volatility have you historically been able to stomach, and how should that inform your investment strategy going forward? Self-searching can give you answers to immediate questions, but an advisor can ask you questions you might not have considered.
While some millennials can be fee-sensitive, and rightfully so, many are willing to pay for advice that brings real value to them as they look to achieve their goals, so it’s important to focus on the value you receive for those fees. Here’s how a financial advisor can help:
1. A financial advisor can help ensure your financial plans stay on track
The overflow of market and financial information can be hard to vet and, much of the time, you will find very qualified sources of information with competing views. A financial advisor can help you make educated, neutral decisions that are aligned appropriately with your goals. An advisor also helps you prioritize and balance those goals and model out cash flow planning to ensure your financial independence projections are realistic and attainable.
2. A financial advisor can enhance diversification and discipline in your investment strategy and portfolio
Exchange-traded funds and diversified mutual funds might seem boring — being paid back over 10 years certainly isn’t as exciting as trying to jump on a large short-term increase in a tech stock. But implementing a well-diversified and disciplined investment approach can provide more stable and dependable returns over time that you can build a great financial plan around.
A seasoned financial advisor and planner might pass on large allocations to the “stock pick of the day” or on recommending a shiny, trendy new product, but they can help you achieve a diversified portfolio with solid longer-term growth potential. This way, you can build your assets while also positioning yourself to weather inevitable storms, such as downturns in specific sectors, countries, or businesses. (Remember, it’s not if there will be another downturn, but when.)
3. A financial advisor can reality-check decisions and help turn “downturn” into “upside”
Most financial advisors have the experience and a strategic framework to make logical decisions where inexperienced investors may unwittingly tend toward emotional ones. As an example, near the start of the COVID-19 pandemic in 2020, there was a huge sell-off in the market. With extreme volatility, many investors panicked and liquidated their equity investments to try to limit their losses.
Ultimately, this cost them — greatly.
The sound advice of a financial advisor could have prevented this in various ways. First, your advisor would ensure that the amount of risk in your investment portfolio aligns with your risk tolerance and return needs prior to an unprecedented, volatile time.
Second, seasoned financial advisors have seen market pullbacks before and know that liquidating can be an irrevocable mistake from which a portfolio may never recover. Millennials have recently started investing and therefore didn’t experience the uneasiness and fear brought by the 2007–2009 bear market. That unease and angst can lead to rash decisions. Although most investors believe they’ll be able to hold steady during a sharp downturn, you never truly know how you’ll react until you’re faced with the situation.
Many of our clients with long-term horizons, like millennials saving for financial independence and retirement, were actually able to take advantage of the 2020 downturn with the guidance and reassurance of their financial advisors. They sold from the bond “safety net” and purchased equities that were “on sale” due to the drop in market prices. As a result, many millennials turned the 2020 setback into a large financial gain.
4. A financial advisor will get to know your individual situation and your “big picture”
Establishing a fiduciary relationship for your investments early on can get you going in the right direction from the beginning. A fiduciary financial advisor is obligated to provide unbiased, personalized advice in your best interest for you and your specific situation rather than “one-size-fits-all.”
A holistic, experienced financial advisor gets to know those personal things about you — your family situation, your career plans and trajectory, your concerns, your goals.
A worthy financial advisor also addresses your overall financial picture, from estate planning to life insurance, tax planning, and beyond. All of these components work together. A financial advisor could, for example, save you a lot of money in taxes through thoughtful planning and avoidance of little-known investment pitfalls.
5. A financial advisor can offer access to proprietary research and ESG and alternative investments
An advisory firm of suitable financial advisors can offer clients access to investments they might not be able to buy otherwise, such as cheaper share classes and more complex investment products.
Whether it’s ESG (environmental, social, and governance) or alternative investments like hedge funds or separately managed accounts, implementing and monitoring these products can be extremely confusing, sometimes even inaccessible, without the resources of a financial advisor. When it comes to investing in alternatives, for example, a knowledgeable financial advisor or advisory firm will have a research team and managers to help you access and evaluate these investments when you otherwise might not have qualified on your own.
6. A financial advisor can help you manage and prioritize what to do when infusions of wealth occur
A big payday in the market, a successful startup, a stock or cash bonus from work, an inheritance — any of these can alter the course of your financial future in positive and, perhaps surprisingly, negative ways. Although it’s a great problem to have, it can be overwhelming when individuals receive a large amount of money as it brings with it a great deal of responsibility. A financial advisor can help you determine how to invest some or all of this money, pay off debt, evaluate your overall tax strategy, or even hire an estate planning attorney to ensure potential beneficiaries — especially minor children — are financially secure in the event of your passing.
7. Working with the right financial advisor can give you the confidence that your portfolio is structured to achieve the best after-tax rate of return
The average investor doesn’t understand all of the intricacies of different account and investment types. The goal is to achieve the best after-tax rates of return, on an appropriate risk-adjusted basis. A tax conscious advisor will assist with following a hierarchy of investments to place in various account types to maximize the after-tax returns. Strategically rebalancing clients back to their investment policy and taking advantage of strategies such as tax-loss harvesting and dividend skips are also instrumental in achieving this goal. Overall, proactive monitoring and being knowledgeable of these techniques isn’t something the average individual can do on their own.
Concluding thoughts
Millennials may have different values and goals than their Generation X and boomer counterparts (as well as many of the same goals), but that doesn’t change the worth an objective financial expert can deliver.
DIY investing can have a place in your portfolio, but it shouldn’t replace a sound investing strategy and detailed financial plan. Don’t wait to choose an independent financial advisor — the longer you do, the greater the chance you might miss an opportunity or lessen the time available to make saving and investment changes that help you accomplish your goals more effectively.
