The Pitfalls of the Referral Generation


Millennials are a generation that loves to get input from others. Just look at how they use social media: posting pictures and seeking approval from likes and comments, asking for recommendations on places to eat while traveling, and polling their network of friends about new products and apps. The marketing world has recognized that millennials are a referral generation and don’t trust traditional advertising — they want to hear about something from their peers. Before trying something new, millennials tend to listen to what their friends and connections have to say about the product, service, place, etc. This can be a great way to get recommendations for restaurants, dog walkers and other services. But it can also be a major pitfall when it comes to handling their money.

I’ve often seen millennials make investment decisions based on what their friends are doing or what they read online. If someone recommends a certain type of investment, people will frequently follow along without even knowing what it is, how it works or if it’s right for them. This can lead to some poor investment choices. Because millennials are more inclined to do something that is recommended to them, they are more likely to go the DIY route for money management.

This means they are more likely to use an app than seek help from a financial advisor with their investments — one of the biggest pitfalls millennials face as novice investors. Thinking they can do it themselves based on things they read online can really backfire. There is so much information available on the internet these days and a lot of it isn’t accurate. Some advice found online may also be inappropriate for their personal situation. Not everyone has the same goals, lifestyle or amount of money. Investing is not one size fits all.

Another problem with going the DIY route is that it can lead to inaction. According to a survey, 69 percent of millennials say they find investing confusing. And I understand that doing it yourself can become overwhelming because you may hear or read conflicting information and then grow hesitant about making a decision. Some millennials are so fearful of choosing wrong and losing money that they just don’t invest at all, even in company-sponsored 401(k) plans.

 This is troubling because not investing may actually cost you millions of dollars throughout your lifetime. I can’t emphasize this enough: Don’t be afraid to ask questions! Most of the time, millennials are confident enough to ask questions; except when it comes to their finances. If you don’t know the answer to a question about your finances or investing, I recommend steering clear of the internet. I know I’m repeating myself here but this is worth repeating: If you go searching for answers online, the information you find may lead you in a direction that’s not best for you.

Instead, I suggest asking a professional. Your money is a very important topic and you want to make sure that you’re getting personalized information — not just generic content that you read online. My clients ask me all kinds of questions and I really enjoy educating them, whether it’s about the fundamentals of investing or how to select a mutual fund. And if you don’t know what a mutual fund is, just ask.

Another reason millennials want to go the DIY route is because it doesn’t cost them any money. Millennials tend to focus sharply on fees and many of them actually fear fees, the cost of working with an advisor and being locked into a product. Some millennials have a negative perception of financial advisors, in general. But when it comes to investment advice, you get what you pay for. There are apps and online investment advisors that will help you with investment allocations for a cheaper price than hiring a professional, but what you’re giving up for that smaller fee can ultimately determine success or failure.

When you pay the fee for an advisor, you’re getting personalized advice from someone who knows you. When you have a question, you can call an advisor for guidance. If you’re about to make a rash investment decision, they can help save you from yourself. Friends and family members are often a great support system, but they may not have the expertise to say that what you’re about to do with your investments could be a really bad decision.

Here’s an alternative solution: Since millennials typically seek guidance from their network, make your advisor part of your network. Of course, don’t just blindly choose someone to invite into your circle. Rather, interview multiple advisors before selecting one you trust. Make sure you get a good vibe from the advisor and are confident they have your best interests in mind. I also recommend focusing your search on advisors who have significant experience.

When you work with a knowledgeable professional who manages your investments based on your preferences, you’ll feel more confident. And if you don’t have the minimum required assets, some advisors may still meet with you to help guide you in the right direction.

Lastly, millennials — start talking about your advisors more. Since members of this generation are more inclined to work with an advisor they’ve been referred to, tell your friends about your advisor. Millennials typically don’t like feeling left out of the loop — if everyone else is doing it, they often want to as well. If several people in a group are talking about investing and saving for retirement, it can pique the interest of others. So next happy hour, talk about your advisor, why you’re using them and the benefits of having personalized investment advice that works for you instead of boilerplate guidance from the internet.

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