One Airport Place,
Do I need a financial advisor if I'm in my 20's?There's a stereotype that financial advisors are only for older adults - either in or approaching retirement. And that's simply not true. Today, Richard Oring of New Century Financial Group sits down with Jag to talk about why young adults need a financial advisor.Having a financial advisor early in your working years can be like having a coach who gets you into strong practices and habits for your entire career. Through this relationship, you can talk about everything from debt and budgeting to job offers, life transitions, and unforeseen circumstances.Rich also talks about how he structures his planning fees to make plans affordable for younger clients.
Welcome back to Financial Matters with Richard Oring. I am Jon Gay, joined as always by Richard Oring from New Century Financial Group. Rich, good to be back with you.
Good to be back.
We're going to talk today about a little bit of a misconception in the financial advice sector. And that is whether or not young adults, 20-somethings in particular, need a financial advisor. I feel like Rich, the stereotype is you're either approaching retirement or near retirement or in retirement. And that's when you talk to your financial advisor, but talking to somebody like you can really be beneficial to folks just getting started in their careers, right?
Absolutely. The reason why I wanted to talk about this just recently I'm in a study group, and we had a guest speaker from actually a financial planning company. And somebody asked a question about planning for young people, right? Out of college, young adults. And I was shocked to hear their response. It was, there really no reason to do financial planning for young adults out of college because there's so many hypotheticals you're going to be guessing and the numbers are going to be so skewed. And I was just shocked because it's not about just documenting a financial plan. It's about making right decisions and guiding them and educating them so they don't make mistakes. There's a lot of things you could be helping young adults with, with financial planning.
See Rich, you and I have been working together for a couple years now. And steam started coming out of my years when you said that. The idea that, "Oh yeah, well, you're 25. You don't need it." Then my mind starts going some of the other things we've talked about in previous episodes of this podcast, compound interest, starting 401k early, taking advantage of a company match program that's basically free money, whether you're 65 or 25, all these things are going through my head. So, I mean, how did you react in this room? Did you raise your hand? What did you do?
I guess one thing I've learned as I got older is sometimes it's just not worth saying anything and I just let it go. It just won't be invited back to our study group. It's funny, what you just said, you probably remember when you graduated college and you got all these job offers. Hopefully you got a bunch of them or you at least got-
Oh no, I was a communications major. I had no job offers, but your point is still well taken.
But you got a job offer and you didn't know what it meant, some of the benefits they were offering. And you had to go to your parents, you sat down with your mom or dad at the kitchen table and you said, "What am I looking at?" And they had explained it to you. I got to figure, at some point in life, you don't want to be going to your parents for all your financial questions. You want to become financial independent, like you're not calling your mom every time you have a cold. Well, I don't know if you are Gag. I'm not.
I think the first time I was hungover in college, I called my mom because I was really sick and she laughed at me. She goes, "You expect me to feel bad for you. You did this to yourself." But you're making a really good point. There comes a certain time where you want to spread your wings and not ask mom and dad about everything. There's a point where I wanted to learn how to cook and not have to call my mom and ask her every time I had a question about her recipe, this is really no different. So as we start to dive in here, Rich, what can a financial advisor offer to somebody in this specific age group talking early, mid, late twenties, starting out in your career? What advice and services can you offer to somebody who's just starting out in life?
Gag, before I even answer that question, I want to bring up one thing and it goes with what you're asking me. In one of the previous podcasts, maybe one of the first ones, I've got a response back from other advisors and some clients on a statement I made. And I said, "Well, really a financial advisor is like a financial coach."
Tiger woods has a swing coach. Baseball players have bating coaches, throwing coaches. Let's think of a financial advisor as a coach, a financial coach. So where can we help? Well, first off, when you're getting coached, you sometimes don't even know where your problems are, because you're busy maybe swinging that golf club, not realizing you're twitching your hand or releasing late. And that person watching you is looking at all the fine details. And that's what a financial planner does or a financial planning coach can do. A lot of people graduated college with debt or student loans, credit cards. I remember going to college and Discover Card would give out free T-shirts-
I remember those.
... To get a card. And then you had to learn real quick about how to plan for debt. It's interesting, my son starts college in two weeks, freshman going in and as a financial advisor, I see the good and the bad. And one thing I didn't want to do was be a co-signer on a credit card.
I can see why. Yeah.
We used to give him one of our credit cards, but it was always like having to teach him when not to use it, that wasn't really something we should be paying for. So we took that away a couple months ago and Gag, I was able to get my son a credit card, which I didn't have to cosign for, it was great. My wife and I are sitting down now, going over with him, "You don't want to put more than 30% on. You want to make sure you have auto pay for at least the minimum so you don't miss a payment. You can always pay more." And we're going over this and we're setting it up so he can't fail because, I don't know about you. You got that Discover Card and you start racking up some bills on it, because it's like, "Wow, this is cool, money I didn't have."
I can actually tell you because I had some really, really terrible financial habits when I was younger because nobody had ever taught me those things that you're talking about teaching your son, Rich. Senior year in college, I basically ran out of money, spending money basically. And I'm like, "Well this is my senior year in college. I'm newly 21 years old. These are memories that I'm going to cherish the rest of my life with my college friends the last six months that we're all going to be together. I'm not missing on any of these bar nights when we go to the bar three nights a week." So we went to the bar at Syracuse three nights a week, swipe, swipe, swipe, swipe, swipe, pay the minimum, swipe, swipe, swipe, because I had this fear of missing out this FOMO. I didn't want to miss out on these memories and these events and occasions.
And it was years, years before I got out from under that because I didn't make a lot of money right out of the gate coming out of college. And I was really in trouble as far as having to pay it. And it snowballed on itself from there. So I love that you're talking about your 20 year old son, or how old is your son?
18 going to college and teaching him this stuff. And you can warn him about everything. He's probably going to make a mistake at some point, but the more you can prepare him for the better.
Gag, what people don't realize, and you're probably going to agree with this. You talk about the mistakes you made senior year in college. Think about everything you couldn't do because of that, while your friends were doing it, maybe you could have got a nicer apartment. Maybe the interest you got charged on a car loan was a little bit higher.
I never went on spring break couldn't afford it.
Never went on spring break. You lost those opportunities. So it's important to really understand debt and liabilities. A lot of people are much more comfortable with debt than maybe when we were younger. our parents and so forth. So people are much more comfortable taking out debt and figuring out how to pay for it. Younger people are willing to leave jobs and take risk to get a better opportunity somewhere else, quicker than we were. We might have been a little bit more conservative like, "Oh, I've been here for six years. I want to stay here for a long time." The way people think has changed over the years good and bad.
Yeah, the world absolutely changed for sure.
So debt planning is really important. The next thing we can really address is budgeting.
People get out of college, they get a job and they're like, "Oh, I can get a Tesla. I can get a nice apartment, Midtown, New York." And when they finally sit with me and all their money is going to these expenses, there's no money to set up for retirement. And then, "Wow, I met this girl. Oh crap. I got to afford restaurants. Luckily there's hot dog stands in New York. I got to pay for an engagement ring." I mean, you start accumulating obligations, these bills, and you're not thinking a few years out, you just haven't experienced it yet. You're thinking about at that moment. So a financial advisor can structure a budget, which hopefully can meet their current goals, like how they want to live life. But maybe bring it back a little bit and explain that it's important to put some money away for retirement.
If you put some now, you may not have to put as much later, let's put a little a slush fund away. If you meet a girl and you have to buy an engagement ring, or you want to go on that spring break vacation, because trust me when you're getting the Tesla and you're buying that car and you're getting that apartment in Midtown, you're not thinking next year's spring break or your friends are going to go on a golf trip and where that money's going to come from. So budgeting is very important. We're going to ask these questions because when we set up goals, we talk about what's important for you today. What's important for you in the next couple years. And then what's important. Can you imagine what your retirement's going to look like?
And they're not going to know. They're not going to know, "Oh, what it's going to be like, oh I want to move to Florida because my joints are going to hurt. You want to, it's cold." They're not going to know that, but again, it's structuring it now. And it's great because I do have a lot of younger clients right now. I have a lot of referrals from my existing clients who really wanted their kids to be on the right track.
I got to tell you, it's a lost leader, I will tell you that, but it's fun. It's fun hearing the questions of the things we didn't know when we were their age. And them asking and wanting to be better than what we were because we didn't have the opportunity to sit down with a financial advisor, no one was going to talk to us, but it is neat to see them go from graduating college, paying off some debt, getting their first apartment, getting engaged, meeting their fiance, being invited to the wedding and watching them going from making $40,000 a year to $140,000 a year and starting a family. It's very rewarding as a financial advisor to see that.
That's funny, you called it a lost leader because yes, I'd imagine the vast amount of your revenue in your role doesn't come from 25 year olds who aren't making a lot of money. But if you establish a great relationship with them, when they're 40, 50, 60, they're making good money. You're managing that money for them, that works out well for you. I want to come back to the budgeting thing, that you mentioned a moment ago. Because there are two things that really stick out to me when you talk about short, medium and long term. There's a psychological effect of a windfall, whether it's a lottery win or an inheritance or whatever it is, because you get into this abundance mindset of, I have this money, you tend to spend the same money multiple times because, "Oh yeah, I've got the money so I can buy this." And then, "Oh yeah, I can buy that done."
And you tend to count your chickens essentially, multiple times. And so I think when you get that first full time job out of school, particularly if you're making decent money, it's that windfall mentality of, "Oh, I've got all this money coming in." So to your point, "Yeah, I can get the nice apartment in Midtown. I can get the nice car. I can take these trips. I can do other things." Before you know, it's gone. The story that I may have told this on the podcast before, but my wife and I were long distance. I was probably early thirties I think at the time. She was here in Detroit, I was living down in New Orleans and we would fly back and forth, see each other once or twice every month and all that. And I didn't have a lot of money at the time and I'm like, "Oh, you know what? I might have to cut back on some of these plane tickets, I'm spending a lot of money to come up and see you."
And she laughed at me and, "What are you talking? Why you..." She goes, "Your money is not going to plane tickets. That's not why you're broke. Your money is going to five and 10 bucks Starbucks every morning." And I said, "No, it's these $300 plane tickets. It's not 10 bucks Starbucks." And so we sat down and I downloaded my bank statement or my credit card statement. And I looked at it and I said, "Son of a gun she's right." That goes to the budget thing where, until you can really take an honest look at what you're spending every month, because especially with swipe, swipe, swipe, and not using cash, like most of us aren't anymore. Once you see it in black and white and download it to an Excel spreadsheet or whatever program you're using, it really is an eye-opening experience to be honest with yourself and say, "Wow, this really is where all my money is going."
Yeah. Look at all your digital subscriptions you're paying for Netflix, Hulu, YouTube Premium. They all add up.
I was just talking about this with somebody today, where I'm a cord cutter. I got rid of cable because I got tired of paying Comcast. So I have my internet, my fast internet that I need to hear for work in the house through AT&T. I got my YouTube TV. And then all of a sudden I had ESPN+, my wife had Disney+, and then we've got Netflix and my parents are on my Netflix, Netflix if you're listening and everything adds up. Shoot, I'm paying more now than when I was had full cable. So it really adds up and it's so important to track it. So I'm glad budgeting is one of the first things that you talk about with these younger clients.
It's funny, my son's going to college in two weeks in Indiana. He actually met a girl a few months ago in Indiana and she's been following him at his races. So when she graduated high school, she's always been working. Her grandma said, "I want you to enjoy your last summer before you start college." And her graduation gift was some money. So she'd have to work this summer. Which is cool. The first time she flew to our house, I said, "Do you have a suitcase?" She's like, "Oh no. Do you know how expensive it is to get luggage on an airplane?" She goes, "I'm paying for my own tickets, I'm up." She packed everything in a backpack. I was like, "Wow, that's awesome." I don't even think my son knows they charge for luggage.
You know what I mean? It was so different. And I love it because her influence is going to be good on him. Understanding what things cost and how to spend money. So we were in North Carolina with one of his races and I got there the day later, she flew in the day before, her parents were there actually too. They have family there, right near the track and there's something called a pit pass. So if you want to go so far in the race, you pay $65 for that weekend. And then you could walk all the way up to pit lane. So I noticed that she paid for her own pit pass and that's like, I'm old fashioned. She's my guest. I would pay for something like that.
So the next day I said, "I don't want you to argue with me because I know how you think, but here's the $65 back for the pit pass." She's like, "Oh no, no I'm not going to take it." I go, "No, please take it." And she was arguing with me. I said to her, I go, "There's a difference between a $65 expense for you and a difference between $65 expense for me, you might be making 10 to $15 an hour. Let's assume I make more than that. I know when you're paying $65 plus the cost of being here, that's a lot of money for you. So take this cause I don't want you to have a financial burden because you're supporting my son."
So it's interesting how my son would never even think of that. He would be like, "Okay, thanks."
Yeah. That's a really good point too Rich about $65 to you being different than $65 to somebody who's 17, 18 about to go into college. But I've got to imagine that a lot of the conversations you have with these younger clients are really about perceptions around money and getting into the right mindset when it comes to managing their money too.
I'm going to say in the beginning, the first year or two it's about education. They're getting health insurance now at their first job and they have to make a choice. So it's not like I'm just telling them what to pick. I'm trying to educate them so they can make the right choice. We're talking about what an HMO is. What a PPO is.
That stuff is so confusing.
How about an FSA? Use it or lose it.
and which is different than an HSA.
Right. And then you got the MSAs too. So we're breaking down that and I'm explaining to them, look, you're healthy. You don't have any health issues. Maybe the HMO's better for you. If you do have health issues and you want to see specialists, maybe the PPO is. When we look at the limits and deductibles and I help them make the right decision. I'm not telling them what to do. When we have to look at their 401k, I'm breaking down and explaining to them what a mutual fund is. We're learning how to read some data, basic data, total returns, how it's doing against its peers on S allocation. These are the things, not just a young adult should know, anybody who has money in the market should know. So once they understand mutual funds, I might even say, "Why don't you build a portfolio on a piece of paper, tell me what you think, and then we'll analyze it. And then I'll give you my opinion and what you should do."
And we talk about risk to that investment. There is a lot of things will go into it. we talk about career choices. Are you at a job? And they'll say to me, "I had been here for two years. I've got cost of living adjustments. I've asked for to do something else, more higher level. They don't want me to." And we talk about, well, can we save some money so you can look for a new job? Can you quit? And then look, or should you look while working? We go over these different options. So they don't get emotional one day and just quit on the job without a plan.
Yeah. Because I think, if we've all had that take this job and shove it moment where it's like you reach your breaking point and you're like, "I can't do this anymore." And if you're not financially prepared for that, that can be a real hit with lasting repercussions for years and years and years. And so I'd imagine you talk about job offers, evaluating those and some of these life transitions as well, whether that's getting married and settling down, stuff like that.
I mean, just going back to the employee benefits, here's the big one, stock options. People who go work for publicly traded companies or even some private companies have these stock options. And I have clients who are adults who don't know the difference between RSU, ISOs and they don't understand any of this. So how would you expect someone right out of college or even five years out of college now finally working for a publicly traded company and understand what options are. They could be great or they could be useless. They can have a tax consequence you should be aware of.
Big, important thing there. Yeah.
Right. So that's really big, is those employee benefits. They really need to understand what they're eligible for and what they're getting and what their true compensation package is. You said something earlier about life transitions. I remember graduating college. I was thinking to myself, I didn't need a lot of money to live on. And then I started dating, got serious. And then I was like, "Got to save up money for sharing things, dating everything." And then we eventually got married.
We had to save up for a down payment on a house. For us, we had to have children right away. We got married November conceived our first child in August. And then we have two more after that. So all these things and even now, I'm transitioning another transition. I got my first kid going to college. All these things which are going on and having someone, luckily for me, I mean my dad passed away in 2009. My dad was a financial advisor and a CPA. So he used to always tell me, there's some major things in life, getting married, your first job, buying your first house. And he guided me through that because it's not just about the money, it's also stress.
And understanding the financial side of it could relieve some of that stress.
Yeah. But it's that you don't have that fear of the unknown. I think that's one of the best cures for having anxiety about something, is having a better understanding of the situation because anxiety, a lot of times comes from fear of the unknown. So if you can get a better understanding of what you're dealing with that can certainly quell some of the anxiety, which another thing I'm sure you talk about with clients is unforeseen situations.
Oh my God. Everyone thinks of unforeseen situations as someone like, oh, I lost my job. My car transmission dropped, my water heater broke. How about a special needs child? How about losing a parent early or having a parent who didn't save enough? We call that, when you're you have children and a parent you have to take care of who might be sick or something, the sandwich.
The sandwich generation. Yeah.
There's things, you graduated college, you're not thinking of. And when you're having your first child, you're not thinking of that. If it happens, it's nice to be able to call someone and plan for that situation, knowing what you'll have to do differently than what you planned for.
Yeah. So whether it's planning for it or knowing how to pivot when you find yourself in that situation, because sometimes you don't see these things coming.
All right. Rich, as we start to wrap up here, you mentioned half kiddingly earlier about younger clients being a lost leader for you. But I really respect the fact that you do take the time to educate because I think one of the biggest problems we have in this country is that we don't have financial literacy classes in middle school, high school, et cetera. If someone who on the younger side is listening and wants to come talk to you, how do you structure your planning fees for younger clients so that it's affordable for them?
Well, first off I'm going to correct one thing you just said, not all states have the financial education courses in the State of Pennsylvania where I live. Students are taking investment courses in high school. You could even take a financial planning course. Once you do your investment course, some states are now requiring it.
Oh you know what? I'm glad you said that. Because here in Michigan, they just passed that about a month ago. So I'm glad you've reminded me of that. Yeah. Okay good.
Yep. And there's a lot of nonprofits now you can go to, so it is a problem which states of realizing that needs to be fixed. Even the sports, the NFL, you have to use an approved financial advisor. Who's been-
Vetted by the league.
... Vetted out, I think at that the NBA, basketball players, before they start have to take a financial literacy course.
Yep. And they often have courses of veterans who tell some horror stories of losing their money and stuff. Hey, this is a cautionary tale. Don't let this happen to you.
We have a NFL kicker who lives in Yardley. And one day I was talking to him and he was in the league for over 20 years actually. And he said, "What saved me from not going broke, is I never got addicted to drugs and women."
Yeah. All those vices, any of those vices, drugs, alcohol, gambling, sex, whatever it is, they can ruin you financially very, very quickly.
So I'm going to go back to what you asked. I think what you were asking me is how did the young adults start off working with a financial advisor? Since I said it was like a lost leader.
Well the other thing I didn't mention though, was the biggest problem in our industry with advisors is that they don't plan for the next generation. So as they're getting older, so their clients, the clients are taking out money, they pass away. And if they don't have that relationship, their business is diminishing too. So I believe in all businesses should be run perpetual, meaning it's a living thing. And when I get to an age, it's my responsibility for my clients to make sure that someone can take over that relationship and continue it because that's what they deserve.
So saying that it's to my advantage, I believe to start working with these younger clients and educating them. Yes, I'm losing my billable time. Let's say I can't bill out my full rate, but I got to tell you I enjoy it. So I'm getting paid in a different way. I'm getting paid to see these young adults making right decisions, not making the same bad decisions we might have made when we were younger. And it's very rewarding as a professional. It's like a lawyer doing pro bono work, but I do get paid something. But it is very, very rewarding as a financial advisor working with these young adults.
So that's from your side of it. So from the client side of it, I'm 22, I've got my first job out of college. I come see you Rich. I don't have a lot of disposable income right now, but how do you set it up, the fee structure so I know what I'm getting into, walking into work with you?
So I never want to turn someone away because they can't afford me.
Okay. All right.
So just recently I actually had someone who can't afford me and it wasn't that, and this was not a young adult, this was actually so closer to retirement, bad situation, disability and so forth. And we talked about planning and I said, "Look, I don't want to charge you something you can't afford. So the first thing you need to do is deal with your debt." And we talked about the snowball theories and things like that, how to pay them off quicker so we can save some cash flow. I said, "The first thing I need to do is get you to cash flow positive."
So instead of charging for a full financial plan, maybe we could just break it down and it'll be like a hundred to $300 and we're discounting that because I want him to succeed. I want him and his wife to have a successful retirement. Everyone deserves that. So with the younger generation, I mean it's not complicated, it's more time consuming. So it's talking to them, we're usually around $50, 75 to $100 a month, depending on their income situation and so forth. I try to make it so they can afford it. But I also want it to be a bill for them because they won't see value in it unless they're paying for something.
Yeah. That's a really good point. I like that approach.
So I would imagine as their life gets more complicated, it's going to probably go up. One of the things I've always been playing around with is maybe recording some of these conversations, not with the client, but pre-recording them. So I can create a library of some educational stuff where people can just go and listen to it. And we might talk about it a little bit, but then get more information. And there's other advisors I work with and one of them has been building out. So I might team up with him and maybe use his material and he can use some of a mine.
Also known as a podcast.
Well, I'm not just talking about a podcast, I'm talking about more of a website where they can go in and say, "Oh, I want to learn more about how to understand, how to pick a mutual fund."
I don't think anyone wants to listen to that on a podcast, but at of the day, if it's a referral from a client, you got to treat them well, because that's a smart business. If it's someone coming in to you randomly, they found you or referred to you maybe from another client, I won't turn anyone away. I just can't. I want to try to charge something because it makes it valuable. If it's just a hour conversation to fix a problem for them, I'll do it. It just, there's certain things as a professional, you should give back to people.
And I love that mentality. So Rich, if somebody listening wants to come talk to you about their financial situation and or their financial future, what are the best ways to reach you?
You can go right to the website, www.ncfg.com. You can always Google, my name will come up. You can always reach out on the telephone. (609) 924-2049. My direct extension 126, shoot me an email, email@example.com.
Good stuff Richard, talk again soon.
Great. Thank you.
Richard Oring's branch office is 1 Airport Place, Princeton, New Jersey, 08549 . The branch phone number is (609) 924-2049. Security's offered through Royal Alliance Associates Inc. Member FINRA SIPC. Advisory services offered through New Century Financial Group, LLC, a registered investment advisor, not affiliated with Royal Alliance Associates Inc. New Century Financial Group, LLC and Royal Alliance Associates Inc. Does not offer tax advice or tax services. Please consult your tax specialists for individual advice. We make no specific comments or recommendations on any tax related details.