The gig economy is skyrocketing, as technology allows more and more workers to be their own boss, and make a good living as a freelancer or solo entrepreneur.
Many gig workers are already in the six-figure annual income range, prime candidates for money management and retirement help. So how should investment professionals market their services to them? What resonates with gig workers and why?
First, some key data on freelance workers.
Gig economy workers comprise 34 percent of the U.S. workforce in 2017, said Brad Smith, chief executive officer at Intuit, in a recent conference call. That number is expected to rise to 43 percent by 2020, he added.
Yet the gig economy has a “destabilizing effect” on personal financial security, according to a new study by Newark, N.J.-based Prudential Financial.
“The majority of respondents who work solely as temporary or contract workers don’t have access to employer-sponsored retirement or insurance plans,” the study found.
While the gig model is cost-efficient for employers, reduces their benefits costs and gives workers flexibility, “these workers may in turn suffer from income volatility and lack of access to a benefits safety net,” said Andy Sullivan, president of Group Insurance, Prudential.
“The money made by gig work may contribute to reducing the national income gap, but the decline in employer-sponsored savings and insurance plans is doing little to address the wealth gap,” he explained. “Without benefit protections, many gig workers are left financially vulnerable.”
A Different Marketing Plan
From the marketing side, investment advisors should market to gig economy professionals in a way that shows the advisor understands the particular financial challenges of those workers, said Kali Hawlk, founder of Creative Advisor Marketing in Boston.
“For starters, earning 1099 income is far different than earning W2 income — and
so are the implications for how you can invest that income,” Hawlk said. “(Freelance) income earners have self-employed retirement plans, and can invest in those plans to gain similar tax advantages as employees would receive with a 401(k) plan.”
Many gig workers have no clue they even have this option, she noted, an opening for investment advisors to provide education and service.
“Give your knowledge away for free and seek to add value – rather than constantly trying to sell your services,” Hawlk said. “Create a website that speaks to the needs and questions of gig economy workers, and start a blog, podcast, YouTube channel, or social media accounts as channels to deliver solutions to their problems.”
The details of marketing to freelance workers can be tricky.
“Unfortunately, most advisors aren’t structured properly for this type of client,” said Todd Burkhalter, money manager at Drive Planning in Johns Creek, Ga. “However, a well- positioned advisor can help gig workers structure their side business properly.”
Management-wise, he recommended advisors deploy these key features in their freelancer client portfolio campaigns:
• Create a wall of protection between their personal assets and business liability.
• Show strategies to invest back into their own business.
• Teach the value of good accounting and tax planning. “Proper planning in these areas will allow their business to capitalize on the advantages of being an owner,” Burkhalter said.
Know the Differences
Knowing the differences – and knowing the unique needs – of gig workers is paramount in better managing client portfolios.
“Traditional workers who are permanent employees at one firm, usually are based in one main location, and generally have less variation in their annual income,” said Martin Zotta, managing director at Argentum Wealth Management in Tokyo. “Having a more stable work and remuneration model makes financial planning for the long-term easier as there are fewer variables to consider.”
That’s not the case with gig economy workers, and the sooner advisors know that, the better.
“Gig professionals have much more freedom and flexibility when it comes to
work hours, projects they take on, length of those projects, as well as location from where they do their work,” Zotta said. “This flexibility however also means that income levels can vary significantly month to month, year to year.”
For example, some clients might have large payouts if several projects finish at once,
followed by a period of little or no income if they are in between projects, he added.
“Thus, flexibility in their financial planning becomes essential, meaning that solutions such as monthly investment plans need to be set up for clients using more conservative investment levels,” he said.
‘Portability of Planning’
In additional, more creative planning and solutions need to be implemented for gig
workers, to reflect their flexible lifestyles and work.
“Clients may prefer to invest in larger lump sums ad-hoc, rather than committing to monthly automated contributions and dollar cost averaging,” Zotta said.
“Portability of the planning and solutions is also key, as many people who chose the gig economy lifestyle will also choose not to be tied down to any specific country, being able to work on projects from a lap-top from anywhere with a fast internet connection.”
The independence of freelancing makes access to financial advice for gig economy professionals more crucial than for traditional workers, Zotta said.
“Securing their financial future and retirement will be dependent on the individual,” he added. “Financial advisors can play a key role in helping those in the flexible economy achieve their financial security.”
Brian O’Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC’s Guide to Creating Wealth. He’s a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at firstname.lastname@example.org.
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