Why young investors are turning to financial planners


Not long ago, it was rare to spot anyone below the age of 40 in a financial planner's office. That's starting to change, with an appetite for investing driving younger people to seek expert help to hit their goals - and manage their risks.

At the same time, some planners are realigning their businesses to cater to a market of younger investors. Financial planner Ben Nash, founder of Pivot Wealth, is an example of a business owner who has done just that.

Nash's typical clients are aged between 25 and 45. They range from professional athletes to technology developers. In terms of what brings them into his office, Nash says it's often to seek reassurance they are making the right financial choices.

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"A lot of the people we work with are smart people, but when it comes to money, they don't feel that way. They feel that everybody else has it more together than what they do, but that's not true," he says.

Nash says his millennial clients are often looking to be actively involved and improve their financial literacy.

"The more engaged somebody is, the more they're really taking their time to understand, assess and get behind the decisions that they're making," he says.

It's a finding echoed by Matt Heine, joint managing director of Netwealth, who says the listed company's research in The Advisable Australian report shows the younger generation invests in a different way, and therefore needs a different model of advice.

"While other generations are happy to outsource the advice in many cases, millennials and the Emerging Affluent segment of that market in particular are happy to engage with the advice, but also want to be in a coaching and co-creation relationship," Heine says.

"They're looking to actually improve themselves and develop themselves as investors through that relationship with a professional adviser."

Generally, people feel that the role of an adviser is to provide investment advice.

But a recent survey from Netwealth found that almost half of Australians who use a financial adviser say their mental health and family life has benefited as a result. One in five say their physical health, social life and work satisfaction has benefited.

"You cannot underestimate the role of financial advice. Regardless of age, good financial advice can play an important part in alleviating money worries and helping a person or young household navigate financial markets," says Heine.

The COVID effect on investment trends

Russell Investments recently researched the behavioural patterns of millennials who sought financial advice in the past year. The firm's head of advice Bronwyn Yates says the COVID-19 pandemic is driving a larger number to seek advice.

"On one hand, we saw overconfident investors, with a significant number of new share trading accounts registered and a huge increase in retail trading. People were coming into the market for the first time at possibly one of the most difficult times to be an investor," she says.

"On the flip side, we saw the risk-averse investor. After the market had already dropped a significant amount, we saw a significant number of members switching to cash in large super funds and locking in those losses."

Avoiding psychological mistakes

Investors may be prone to psychological mistakes and biases, which can affect portfolio performance. For example, the sunk cost phenomenon is where investors have made a loss, but feel like they need to recover that loss, so stick with a stock that has underperformed because they are waiting for it to turn around.

Similarly, the gambler's fallacy sees investors use the past to inflate or underestimate the chances of something happening again. Again, this is a logical error, because something happening in the past does not necessarily affect its chances of happening again.

Yates says that one of the ways advisers often add value is by helping millennials - and investors in general - to navigate markets at complex times.

"What we see is that those that have quality advice are materially better off. They don't try to time the market, but instead stay invested throughout periods of volatility. That's where the value of an adviser is."

More generally, Yates says financial advisers can help millennials avoid investment mistakes by identifying behavioural patterns that may be unhelpful or irrational.

"There's herding and following the crowd and there's this idea of narrative fallacy, where if the story sounds good enough, it will override any factual analysis or rational decision making that I need to do," she says.

"In this high information environment, there is an important role for advisers in being able to cut through a lot of that noise and being a calm decision maker, coach or validator along the way."

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Kate Cowling is a multimedia journalist and editor. She has worked for the Australian Broadcasting Corporation and Fairfax Media (now Nine) across digital, print, television, and radio. Her byline has also appeared in Professional Planner, Money Management, Travel Weekly, and B & T. She was previously the editor of Professional Planner and the news editor of Smart Investor.