Maximising Value Through Excellence

How to prepare for Millennial investors

How much are we defined by the generation into which we are born? The latest research seems to suggest that socioeconomic factors have a huge impact on our behaviour, enabling experts to pinpoint common characteristics across entire generational groups.

While this may be a slightly unnerving notion for some people, the evidence does seem to support these trends. These demographics have their own labels based on birth dates. For example, Baby Boomers were born roughly between 1946 and 1964, while Generation X generally refers to people born from the early 1960s to the beginning of the 1980s.

One of the latest additions to the mix is Generation Y, otherwise known as ‘Millennials’, which includes anyone born between the early ’80s and the turn of the century. It’s this cohort that is due to have the biggest impact on the world over the coming years – and investment managers must be prepared.

Generation Why? Understanding Millennials

Research from Merrill Lynch indicates that perceptions of Generation Y can be misleading. Millennials are often presented as somewhat selfish, entitled and seeking instant gratification having grown up surrounded by modern technology.

Millennials have a hard time believing that advisors have their best interests in mind

Merrill Lynch’s survey showed a different story, particularly in terms of investment. In fact, analysis revealed Millennials are savvy, independent and sceptical. The days of the ‘no questions asked’ approach that may have been prevalent in prior generations appears to have subsided in a generation growing up with the global financial crisis (GFC).

Michael Liersch, director of behavioural finance at Merrill Lynch, said scepticism is a crucial part of Generation Y’s DNA.

“Many grew up immersed in online communities, where the wisdom of the group, the ethic of crowdsourcing and DIY culture are highly valued,” he explained.

“It is not enough for Millennials to accept recommendations based on vague references to ‘experience’ or past performance; they want to be shown the math.”

What does this meanĀ for investment management?

Millennials will soon be the world’s largest living demographic. This is already predicted to occur this year in the US, according to the country’s Census Bureau.

As Baby Boomer and Generation X populations are overtaken, Millennials become an increasingly core concern. Investment management firms must therefore adapt their current approach to clients in order to appeal to a new generation of investors.

So what are Generation Y’s wealth management needs? The recent Fidelity Investments Millennial Money Survey revealed that respondents primarily viewed wealth as a form of security, although 22 per cent admitted it was a source of fear.

Millennials want more control of their investments. This means wealth management firms and financial investment boutiques must allow clients to choose their own opportunities, while educating and advising them through a more partnership-focused role.

Mr Liersch stated: “Millennials have a hard time believing that advisors have their best interests in mind. Young people seem to equate financial advisors with salesmen.”

The global financial crisis has made some Millennials sceptical of investment.
Millennials want to play an active part in their investment strategies.

Building stronger client partnerships

Generation Y investors demand transparency, but they also understand there are no free lunches in today’s economic environment. As such, they appreciate risk in portfolios and are less likely to harbour unrealistic expectations of returns.

They also encourage the development of industry regulations and often favour corporate social responsibility. Millennials have lived through political and economic instability and are keen to enforce measures that can prevent future disruptions.

Wealth managers that identify these trends can cater to these qualities by providing more frequent communications, espousing the benefits of regulatory accreditations and offering honest, transparent advice.

This approach will not only help investment management firms build strong relationships with past and present investors, but should also put them on a solid footing for the next generational wave.

Contact Us