Young savers are disengaged over pensions but they need to be making provisions now. Advisers have a great opportunity to engage them on a light touch basis to guarantee a relationship that could become profitable for them in the future.
What I’m about to say may or may not surprise you. I am completely baffled and terrified about how to handle my finances.
I do know how to handle my disposable income, although some may argue over how much I spend on sushi and shoes, we all know that’s not what I’m talking about.
I’m talking about saving; a pension, an ISA and maybe having a pot on the side to save for a home. Typing that alone has numbed me with fear. That’s a lot of things I’ve got to think about that no-one’s really told me much about.
Now some of you may be wondering why I’m telling you this. This is a hub for financial advisers who all aim for high-net-worth clients, who by and large are towards the end of their accumulation phase or heading into retirement.
At 28 with a tiny pension pot from five years at my old company and having just enrolled onto the Nucleus pension scheme, and an ISA just heading into five figures I know I’m not your perfect prospective client. But in the future I might be.
Perhaps you need to grab my attention now in order to guarantee my business later down in life. Because I know myself, alongside pretty much everyone I’ve spoken to my age, which include lawyers, accountants, heads of departments and some people who undoubtedly will be successful business owners, are stumbling almost blindly into this new world where we have to think about so much more than just our rent and student loans.
We need help and we need it now, as it is painfully obvious that we need to be making some serious plans and serious savings now to secure any sort of retirement at all.
We are the generation that desperately needs to make provisions but our fear of loss and our lack of understanding is stopping us from doing much.
It’s ironic. I’ve written about financial advice, investments and pensions for over five years, and I am well aware that I may not receive a state pension and even if I do, I’ll probably be around 80 before I get it. I’m constantly reminded of how I need to be saving more, and should have started years ago, to have a nice life after work.
But, it’s this exact pressure and severity of my exact situation added with the lack of real knowledge of what I should be doing exactly that paralyses me from making any decision. We’ve become risk-adverse in a time we can’t afford to be.
At my previous company I was auto-enrolled onto the Hargreaves Lansdown sipp. For whatever reason I never understood I could not opt for the default fund and had to pick my own investments. I am embarrassed to admit that I stayed in cash the entire time because I was too scared to make a decision.
My friends presumed that because of my job I’d be able to make the ‘right’ investment decisions; so that tells you what people my age not working in this industry think.
I did not think I could make a decision that would not lead to a loss so decided that having the same amount that I started with was a much better option. Even though actually what I have done is lost all that potential I had with my savings.
This may seem like a crazy idea to a financial adviser with their knowledge and expertise. But it’s not all that uncommon.
According to Neil Bage, founder of financial behavior specialist firm Suitable Strategies, loss aversion is perhaps one of the most pervasive elements of irrational decision-making. Our ingrained tendency to overweight losses can be related to a host of further judgmental biases that impact on financial decision making.
Bage said there was empirical evidence linking under confidence to poor financial outcomes which can be further compounded by pressure to save.
“Evidence also shows that people with lower confidence levels, tend to pick a more 'risk averse' strategy when making investment decisions, therefore ‘selecting’ the less risk option, potentially to their detriment and long term goals.
“All of this can be further compounded by the social (or personal) pressure to “start saving”. With this pressure comes a whole different bunch of behavioural biases that can further create a sense of over-whelming anxiety, that often leads to conclusion of “I’ll just do it later!".”
The latest Young Money report by PR agency MRM showed that a fifth of 18-25 year olds admit they know nothing about pensions and therefore don’t save for a pension.
According to the report, 65% of that age group are not saving into a pension, with 20% saying it is because they are confused about how pensions work. It doesn’t necessarily get better once you hit 26 either, there’s no mandatory pensions test that we have to take at that age to make sure we ‘get it’.
Despite everyone’s best intentions, people my age are not being well-informed and don’t know how to become well-informed enough to make these crucial decisions and make them count enough to guarantee a secure retirement.
So who is it up to? The large chunk of responsibility goes to ourselves, we need to be more proactive in being clued up. But equally there needs to be more help available out there.
It might be one more for the government than advisers to teach my generation what to do - but helping us will be to your advantage.
Having some form of light-touch service, maybe robo-advice (but doesn’t have to be!) with an ability to explain things and answer questions on the phone, will be the way forward to engage my generation. Then as our needs evolve we will be willing to pay for advice because we will have had you guiding us on our journey and explaining to us why we need that advice.
A cost-effective service for both the client and adviser that educates the young but also guides them is what is needed. Not full face-to-face advice yet but if you earn our trust and respect and we see you as the ‘go-to’ for our finances, we are more likely to stick with you when our finances grow and our needs develop.
Maybe it doesn’t even need to be an ongoing service, but just some sort of online guide – with a helpline available (or online assistant, we love everything online and instant!)
Engage us before the pressure gets too much and we take notice of all those direct to consumer proposition adverts popping up everywhere. Although there’s nothing wrong with those services, what happens if my generation engages with the Nutmegs of the world before the age of 30, then spends 20 years doing it themselves then when they do truly need financial advice don’t pick it up because they a) feel like they’re doing an OK job and b) have spent 20 years believing they shouldn’t have to pay advice fees?
What happens if you lose my generation to D2C propositions?
I know some advisers out there have excellent intergenerational services. But don’t just focus on your clients’ children. What about those self-starters that will become successes?
I think the key to this is clever targeted marketing. Not necessarily tube adverts, but a government campaign on the necessity of young savers to engage mixed with firms doing local advertising and social media would be a good starter.
We’re facing a new world so just because you’ve never had to deal with younger clients before doesn’t mean that same strategy will work in the future.
Our generation is feeling the impending doom of retirement more than any other, and we are acutely aware of the need to save, yet we still aren’t that savvy. This is a brilliant opportunity for forward-thinking advisers to provide something new to engage and educate their clients of the future.