FA Playbook

Rethinking investment messages that are hurting millennials

How millennials really invest and why so many advisors get it wrong

The financial services industry has the millennial generation figured out—or so it claims in study after study. It "hears" millennial Americans; it feels their pain.

Graduating with high levels of student debt into a troubled labor market, managing day-to-day cash-flow, and making constant trips to the Internet for angst-ridden credit checks define the life of the average 18- to 34-year-old American. Only one existential level removed from this uncertainty, the millennial generation may be the first in the U.S. to not live as well as the generation that preceded it.

Read MoreTime for boomers to sell and move on?

To what extent this superficial canvassing of millennials is accurate is a more complicated question—and one that will have a big impact on this generation's financial success.

Mitch Goldberg, financial advisor and president of ClientFirst Strategy, takes one thing away from all the surveys. Unfortunately, it's not positive.

"This generation ... is not reachable with studies," said Goldberg. "This group isn't some science experiment or an Excel spreadsheet of statistics."

David Bennison | Flickr | Getty Images

Elliot Weissbluth, CEO of high-net-worth and institutional advisory firm HighTower, said, "People pick up something that sounds like it makes sense or has empirical basis, but it's not true. It needs to be scrutinized."

Let's briefly hit on some of the "truths" about millennials and then poke some holes where holes are long overdue.

Read MoreWhat's cooking in the 401(k) test lab

Here are five ways that millennials are being defined, along with suggestions for how millennials need to redefine themselves to create a better foundation for investing.

1. It's bleak out there, and it ain't getting any better. Millennials are, by and large, financially challenged. The student debt and unemployment numbers don't lie, and larger societal forces aren't kind, either, but what good does all of this bleak forecasting do?

"The idea is that it will scare them into action," said certified financial planner Erik Carter, who is senior resident financial planner at Financial Finesse. "Some people I've talked to say, 'I've heard all these things about my generation, and I want to do something.'"

Recent research on investor psychology, however, has shown that fear may be a better motivator for older Americans, while greed is the better trigger to get younger individuals to invest. If that's true, then all of this messaging about how tough it is—and will be in the future—for millennials won't necessarily spur them to action.

New message to millennials: It's tough out there, but what are you going to do about it? Knowing things are tough and hearing that message reinforced in the media is, if anything, just the thinnest of starts in dealing with the potential repercussions.

2. The 'unconventional' millennial conventional wisdom. Some millennials are taking action when it comes to personal finance and budgeting: The group has been highlighted for an unconventional lifestyle approach.

They are the first generation to come of age in the sharing economy, with ownership of material assets no longer the ultimate symbol of success. Many millennials no longer view living at home with their parents during adulthood as a stigma, for example.

Yet there's a fine line between proactive, unconventional activity to overcome financial challenges and being slowly but surely convinced by others that your generation, by definition, will have less. (This millennial "hardship" message also obscures the fact that plenty of millennials are getting really rich—thanks to Silicon Valley and social media. It might be a subset of the generation, but the list of millionaire millennials is growing rapidly.)

Read MoreHow to grow your 401(k) at any age

There's been discussion of a paradigm shift in the idea of retirement, with younger generations conceiving of "life's work" rather than "life after work." It's great if people who are living longer than ever before have a career they are passionate about throughout their life; it's not so great if this turns out to be a euphemism for having to work later into life to make ends meet. As inherited wealth remains a much easier road than self-made success, this is a critical psychological distinction.

"There is a lot of truth in the generalization about millennials and strained finances," said Gary Mottola, research director at the Financial Industry Regulatory Authorit. "Expectations are pretty low from a financial standpoint, which potentially could help by motivating, or it could make them view themselves as not needing more."

New message to millennials: Don't settle for less because someone else says you may have to.

For young investors: Compound interest will change your life

3. Millennials won't settle for less; they want less. There's been a lot made of this unconventional approach of millennials as a sign that their ideals are different than past generations—in particular, a wariness if not outright rejection of Wall Street.

"Millennials are just skeptical of everything as a whole," Financial Finesse's Carter said.

Remember the 1960s? Well, many social researchers studying the 18- to 34-year-old demographic today could look back at that decade and conclude some of its societal skepticism is consistent with that of millennials.

"If you had forecast behaviors of that generation, you probably would have been surprised to find it's the same demographic that was responsible for engineering the 2008 credit crisis," HighTower's Weissbluth said.

Current behaviors aren't a perfect indicator of expected behaviors—they may or may not be consistent with an individual's current outlook.

New message to millennials: No one wants to become their parents, but that does't mean the "you" at 25 is going to be the "you" at 48. You need to outsmart Wall Street, and that doesn't require joining it or rejecting financial intelligence.

Read MoreForget that flashy car and save up instead

4. Infinite iPad investing. One method millennials have used to reject Wall Street is online investing platforms that require no interaction with a human advisor. The "digital native" phenomenon—those born with a computer in their hands—is real and is a secular shift.

"Millennials absolutely interact with technology in a fundamentally different way than boomers and Gen Xers," Weissbluth said. "They really are the first generation of digital natives."

Online financial-planning firms now offer algorithmic-based programs that make investing in low-cost exchange-traded funds easier than ever before. This is a good development for millennials as a way to get started—with low investment account balances, it's unlikely they would get the full attention of human advisors, anyway. But that doesn't mean when millennials get married and buy a house and have kids, their financial situation won't get more complicated and benefit from a sit-down with an advisor.

Millennials absolutely interact with technology in a fundamentally different way than boomers and Gen Xers. They really are the first generation of digital natives.
Elliot Weissbluth
CEO, HighTower

"More than any other generation before them, they value relationships," said Goldberg at ClientFirst Strategy. "I hear people say lug-headed things, like all the financial services industry has to do is have a Facebook page or a Twitter account and—boom—millennials will come flocking to us. That's as stupid as saying 20 years ago that all you have to do is come up with a fancy brochure to attract boomer clients. If anything, the millennials are the first fully integrated relationship generation."

New message to millennials: A computer is a good first step, but a human advisor may be handy at some point in the future. It's probably better to think of the "Wall Street rejection" model of investing as a hybrid between man and machine. And when it comes time to find a financial advisor, the second they push a product, run for the exits. Any advisor worth their paycheck knows those days are over.

Read MoreDon't get blown off course by a windfall

5. On (millennial) aggression. Some research suggests that having witnessed the Great Recession—a hit to their parents' portfolio or their own current job market prospects—millennials are conservative financially. Other studies have found that they are still more willing to take investment risk than older Americans (a recent Finra study showed this).

The investing conventional wisdom is that the younger a person is, the more aggressive they should be, as they have time to ride out the ups and downs in the market.

So which one is it? Should millennials be as aggressive as possible in the stock market or more conservatively oriented?

This brings out what may be the biggest flaw in age-based financial messaging: An individual may be conservative or aggressive, regardless of their age and specifically due to their life situation. There is no right answer.

Read MoreIn your 20s? Start saving now

Carter at Financial Finesse said the jury is still out on whether being more aggressive earlier in life—when you have less money in the market—is going to accumulate the most wealth. Some research shows being more aggressive later in life when you have more money in the market may be the best bet, even if you take a big hit in a market downturn. He said there are other reasons to be more conservative when you are young—maybe you want to be an entrepreneur or go back to school at some point. Holding cash outside of a 401(k) makes sense (Carter did this himself throughout his 20s).

"Asset allocation decisions are much more important than selection of particular products," Weissbluth said. "That's an academically supported conclusion."

New message to millennials: Constructing a basic asset allocation plan is 98 percent of the battle, and construct it based on what you are comfortable with, not what someone else tells you is the right degree of risk for your demographic.

More In FA Playbook