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Millennials and Gen Xers need different advisor approaches

  • While most millennials want financial advisors to protect investments against downturns, Gen Xers largely turn to them for general financial education.
  • Millennials tend to be conservative with investment tactics but also highly concerned with social responsibility and even activism, while Gen X accepts more risk and focuses on money-making.
  • Most robo-advisors do not offer socially responsible portfolios, so there's opportunity in that market for traditional advisory firms.

Having grown up in successive but very different eras, millennials — people ages 17 to 37 — and Gen Xers, ages 38 to 52, can harbor different concerns and perspectives around investing.

Millennials and Generation X have quite different approaches and attitudes to financial management.
Cristian Baitg Schreiweis/aluxum | Getty Images
Millennials and Generation X have quite different approaches and attitudes to financial management.

For example, a study from Global X found that for 87 percent of millennials, also known as Gen Y, their most important expectation of an advisor was protecting their investments during a market downturn. In contrast, 76 percent of Gen X wanted financial education.

This lines up with the observations of Rob O'Dell, certified financial planner with Coyle Financial Counsel. He also lectures on selling financial services across the generations for research firm Generational Insights.

Gen X tends to be very skeptical, he said. They know things don't go according to plan. They grew up witnessing the Watergate scandal of the 1970s and watched the space shuttle Challenger blow up in 1986. They were often latchkey kids, with more than 50 percent having divorced parents, which led them to become very self-reliant.

"As a result, they want total transparency," O'Dell said. "With mutual funds, for example, they want to know exactly how much they're paying in fees at the fund level and advisor level.

"They want their advisors to help save them time and money, in that order."

In contrast, O'Dell said, millennials — because they grew up so close to their super-involved baby boomer parents — are interested in similar social causes as embraced by their parents in the 1960s and '70s. They want to make the world a better place, and they invest accordingly.

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"These idealistic hippie kids tend to have a more conservative mindset in terms of investing, because they saw the results of the tech bubble, September 11 and the [Great Recession of] 2008," he said.

Millennials and Gen X have quite different approaches and attitudes, agreed Marcio Silveira, CFP and founder of Pavlov Financial Planning.

"Generation X remembers the '90s — the robust stock market and hedge funds," he said. "So they're more willing to bet on the market and stocks and risky assets.

"They're less concerned with corporate social responsibility and accept that corporations are here to make money."

In terms of portfolio planning, it is important to address any overconfidence, Silveira said, especially with those who are now thinking about retirement.

Millennials tend to be suspicious of institutions, the stock market, regulators and corporations, he said, adding, "They think the system is rigged. They expect corporations to be good corporate citizens."

Millennial clients often try to avoid certain sectors — such as defense, oil, tobacco and alcohol — in their portfolios, he said. In response, Silveira will supplement a core of index investments with funds that take a more actively managed socially responsible approach.

"They seem to be more conservative and less knowledgeable [about investing] than Generation X," he said. "We need to educate them to be not too risk-averse."

For his part, Trent Porter, CFP and owner of Priority Financial Partners, finds that members of both generations have similarities: interest in socially responsible investing and membership in what he calls the research culture.

On the investment side, younger clients (age 45 and younger) are asking, overall, for socially responsible options, he said. In response, all of his model portfolios come in two versions: traditional passive funds and sustainably tilted passive funds.

"The internet opened the information flow up, and that's where the millennials grew up. They're not buying the old line of having to choose between financial returns and sustainable, responsible business practices." -Shane Yonston, principal advisor at Impact Investors

"They like knowing they're voting with their dollars and supporting a cause," Porter said. "Once I mention the sustainable option to clients, they're thrilled."

He also sees a market opportunity in offering socially responsible investments because, he said, most major robo-advisors do not offer them. (However, TIAA — which offered its first SRI product in 1991 and described itself as "a pioneer" in the field — launched its TIAA Personal Portfolio account last June "with the Gen Y audience in mind," according to a company spokesperson. This online "TPP" product offers an SRI option among a range of investment options.)

Porter sees several effects from his clients' passion for research:

  • FOMO (fear of missing out): This is a main concern, especially of the millennial clients, he said. "As new investors, they know that the earlier you start, the better," Porter said. "They're afraid of missing the boat."
  • Robo-overload: "They're now starting to get overwhelmed with the number of robo-advisors out there and realizing they're not getting the financial planning they need from them."

It's true that both generations are interested in socially responsible investing, said Shane Yonston, principal advisor at Impact Investors, a company that considers financial returns along with positive, measurable social and environmental impact. His portfolios include socially focused mutual funds, community investment notes and private-equity impact investing.

While both cohorts share this interest, he has observed that millennials and Gen X clients have come to it via different avenues.

"The internet opened the information flow up, and that's where the millennials grew up," Yonston said. "They're not buying the old line of having to choose between financial returns and sustainable, responsible business practices.

"For Generation X and older clients, the lightbulb is going off in their heads due to greater publicity and awareness about climate change, fossil-fuel divestment and themes like environmental or women-focused investing," he added.

— By Deborah Nason, special to CNBC.com

Correction: This article has been updated to reflect that at least one robo-advisor does offer a socially responsible investing option geared to millennial clients. Financial services provider TIAA rolled out its TIAA Personal Portfolio account, which offers SRI investment options, in June 2017.

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