Coffee With Cott

Millennials and Gen Z Investors: A Bridge Worth Building

Coffee With Cott is a blog from The Options Industry Council's Financial Advisor Division. Eric Cott, the author, is a former advisor who has been the Director of Financial Advisor Education at the OIC since he developed the organization's outreach program in 2009. Coffee With Cott offers percolating insight on options strategies, as well as practice management ideas.

For financial advisors today, it may be easy to worry that the challenge of gaining the trust of millennials and Generation Z investors is just too much. Although they may want to have a talk about stocks, bonds and other assets, they also might be thinking there's no way to compete with all the other time-consuming parts of their world.

Or advisors could be concerned that even if millennials and Gen Z-ers did want to have a conversation about their financial futures, there is such a plethora of news and statistics about how this group has accumulated so much debt from school loans that investing or retirement planning in earnest isn't a top priority. Of course, they may think that even if they do actually have the ability to invest, they might look online, possibly choosing a robo-advisor platform over an RIA or advisor in their city.

If that sounds anything at all like what you've been thinking, I would encourage you to not be dissuaded by the generalizations - it just might take a different approach. Although some millennials and those in Gen Z prioritize their morning by making a trip to the local coffee shop to buy a double espresso macchiato or a chai latte, many also care about finances and the markets. Therefore, I believe it would be time well spent to connect with them, and to do so by offering a diverse menu of custom blends, including perhaps a few listed-options strategies.

Based on the numbers, anyone with an interest in advising investors needs to take notice of the opportunities. There are more than 70 million millennials in the U.S. - an investor group of that size could buy a lot of coffee beans - and that count doesn't even include Gen Z. However, it's important to know that millennials also remember the 2008 financial crisis, or at least its aftermath, and the Great Recession may have contributed to their potential mistrust in Wall Street. One study found that less than 10% of millennials considered themselves an "investor," even though many of them have an investing account.

Client Connections

This is where a financial advisor comes in. If an advisor leverages their experience and investment acumen and looks to create directed messaging and marketing to this group, perhaps involving tech stocks, cryptocurrencies, convenience and the sharing economy, they're probably off to a good start. My colleague Gary Delaney wrote a piece on millennials in 2017, and it remains required reading. A couple of points he makes that could have particular relevance for advisors are:

  • Millennials have high comfort with the internet and social media. This may mean a few things. One, they're going to do their research, so update any websites (especially for mobile use) and social media profiles. Two, if compliance allows it, see what can be done to make texting and messaging platforms central to communications.
  • They're conservative with their finances. That probably sounds like many clients, and it's a good reason to talk about risk management tools that can help protect wealth. This may be especially notable if discussing options strategies, since examples can be provided of the numerous ways these assets may be used to mitigate investment risk. While options are also often deployed to potentially enhance returns, such as with a covered call strategy on a long stock or ETF position, downside cushioning is a popular reason that investors use options.

Aren't options just going to complicate things? Not necessarily. For example, a millennial client who's long a tech-focused ETF or who just bought 100 shares of a recent IPO could first see if it has a listed option. If it does, the client could consider buying a protective put to provide partial protection against a drop in their underlying.

There are a number of other defensive option strategies to consider, and this is where a financial advisor can be a key part of the planning. Check out the video Playing Defense With Options for even more details. Options do have risks, so I want to encourage all advisors out there to develop a way to introduce all sides of these investment strategies during discussions with their clients.

As a former advisor myself, I empathize with bringing in a new investment theme or changing what one has been doing, especially since many reading this are already successful practitioners, planners and advisors. However, in the decade I've been at the OIC, and with the quantitative studies the OIC has conducted on option usage in the advisory space, I believe the time is right for different solutions.

Keeping It Real - and Relevant

An advisor may not have a Ph. D. in AI or robotics, but it doesn't hurt to have a solid awareness of how the next generations operate in the world. Their interest in business news and investing may not have much to do with blue chips and giant mutual funds. Think about the fact that in the same way baby boomers and Generation X grew up watching sports on TV, now that's being done on smartphones and tablets.

Although many new technologies may seem like a flavor of the month that doesn't have a place in serious investment plans, large asset managers are noticing the shifts and creating vehicles around innovations that hardly existed a decade ago. So it makes sense for the rest of us to pay attention too.

Meanwhile, here's something else to ponder: the Gen Z investors I've mentioned a few times may be from "more affluent circumstances" than prior generations, according to the Pew Research Center. In other words, the sooner a financial advisor can get their groundwork done, they may be positioning their practice for robust growth for the long term.

have a dialogue around their interests. Then, check out our podcasts and videos, which can be referenced when thinking about the opportunities specifically with options. Also, remember that for any questions, contact me directly at ecott@theocc.com or the industry professionals in Investor Services at options@theocc.com. At OIC, we're always happy to talk shop with advisors.

Finally, if anyone is going to be at the LPL Financial Focus Conference in San Diego in mid-August or the FSI Forum & Capitol Hill Day in Washington in early September, let's figure out a time to meet or grab a coffee. We'll have a conversation about how options may have a place in your practice - for today's investors and tomorrow's.

Do you have a topic you want to see covered in the Coffee With Cott blog? Let us know by writing to options@theocc.com. We want to hear from advisors like you with all your questions on options.

Options involve risk and are not suitable for all investors. Individuals should not enter into options transactions until they have read and understood the risk disclosure document, Characteristics and Risks of Standardized Options, which may be obtained from your broker, from any exchange on which options are traded or by visiting www.OptionsEducation.org. Any strategies discussed are strictly for illustrative and educational purposes and should not be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results. Copyright ©2019 The Options Industry Council. All rights reserved.

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