Practice Management

Be the Mechanic? Connecting with Millennials on Market Volatility

By Leila Martin

More than a quarter (28 percent) of retirement investors manage their own investments and allocate money among assets as they see fit, according to the new MassMutual Retirement Savers Study, and 22 percent expressed uncertainty about how best to invest their retirement money.1

Of those surveyed, millennials seem particularly optimistic about the current market’s staying power – which could lead to unwise behavior for those self-directing their retirement investments as the market corrects over time. And that’s an opportunity for advisors.

“Everybody can do their own investing right now,” said Greg Hammer, president of Hammer Financial Group in Schererville, Indiana, in an interview, “because the market has been going up for years. The value in finding a planner is for when the market goes down, which it eventually will.”

Framing the Drawbacks of DIY Retirement Investing

“The challenge with millennials right now is that they’ve never experienced the really tough markets,” Hammer said. “They’re saving in a boom market.”

According to the MassMutual study, more than half of the millennials surveyed (57 percent) are making changes to their investments in response to recent market activity.  Twenty-five percent said they were moving more of their retirement savings into bonds or money market accounts to help protect their savings from a future market correction, while 32 percent are headed in the opposite direction, moving more of their savings into equities to try and benefit from future growth.

Neither is necessarily the best move, according to Tina Wilson, senior vice president and head of investment solutions innovation at MassMutual. “The reality is,” she said, “it doesn’t matter what demographic group you’re in: trying to time the market is a really bad strategy.”

Millennials who change their retirement investments based on market activity without regard to their long-term risk tolerance or time horizon present a potential opportunity to grow your business. But how do you convince them that working with a financial professional is a good idea?

Hammer noted that tech-savvy millennials are likely to take advantage of the research capabilities they’ve got at their fingertips via smartphones and other devices. But just because something is printed or posted online doesn’t make it true, Hammer cautioned, and savers who want to make smart investments on their own have to do a lot of research to determine the funds they want and the allocation that’s right for them.

“I never want to be the mechanic for my car,” Hammer pointed out.

When something on your car breaks down, or even if it just needs routine maintenance, you can spend the time and energy to do the research, buy the parts, DIY the repairs and hope you haven’t broken anything, or you can pay a professional you trust to fix it for you.

For some, the former might appeal. But for most, according to Hammer, the latter will win out. “You don’t mind paying the fee if you find value in the service you get in exchange,” Hammer said, which holds just as true for investment advice as it does for auto repair.

Help Millennials ‘Get’ the Market

The biggest component to minimizing mistakes, Hammer said, is to educate people that markets have always been volatile.

Investors are likely to be better off with a strategic position that involves three key components, according to Hammer: finding quality investments, creating an appropriate time horizon, and making sure their allocation matches up with their tolerance for risk.

And in order to connect with millennials, that may mean framing the talk around something other than retirement.

“Maybe you don’t talk to millennials about retirement, because it seems so far away for them,” Wilson said. “Maybe the talk is about lifestyle choices, and how having a long-term savings approach can give them more freedom to do what they need to do later. Whatever your goal is, you’ll be more likely to achieve it if you save regularly and invest strategically, with the long term in mind.”

There’s freedom, Wilson said, that comes with knowing you’re making good financial decisions; not just a financial freedom but also a mental freedom based in the confidence that you’re doing the right thing. And investors with that confidence are less likely to look at their statement and panic, even when the market is down.

Savers who work with a financial professional have, in some ways, hired a mechanic for their investment portfolio. Financial planners know the history, management and ratings behind funds and can make investment recommendations based on the client’s risk tolerance and time horizon, and investors don’t have to worry about learning the ins and outs of the market, nor do they have to worry about reacting to daily market changes.

Add Value through Strong Relationships, Trust

As always, maintaining a relationship is key: you need to be that trusted mechanic, so your clients will keep coming back to you.

“When you get your car fixed, are you going to go to a different guy every time? No. You’ll go to the guy you trust. When clients ask ‘what do you think I should do,’ that’s where you’re bringing value,” Hammer said. “A good relationship is the strongest thing that will prevent rash activity during market volatility, because they’re going to call us if the relationship is there.”

Regular check-ins are important: once you gain a client, make sure you’re keeping in touch with them.

“Maintain constant communication,” Hammer said. “Lots of people just want someone to chat with. Our clients get a call every four months whether they want it or not, just to check in. It doesn’t make sense to spend so much time and energy finding clients and then ignore them.”

Investors who understand that market volatility is going to happen and employ a long-term savings strategy are, on the whole, less likely to react badly when market changes happen.

“They’ll still get nervous; you’ll still have to talk them off the ledge,” Hammer said. “But they’re less likely to actually make changes that could hurt their portfolio. Nobody likes it when the market goes down, but it’s not an ‘if’ thing. It’s going to happen. The question is when and how much. So my question is, what’s your plan and how are you going to react?”


More from MassMutual…

Prospecting Outside the Box

Plugging the Advice Gap

Generation Shocked

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.

1 The MassMutual Retirement Savers Study was conducted on behalf of MassMutual by PSB in March 2017 and polled 1,002 adults between the ages of 18 and 70. Of those, 450 were participating in a retirement plan.