The investment industry should get ready for the rise of the millennials

Close-up of an array of UK fifty pound notes
Apiramy Jeyarajah, Head of UK Wholesale, Aviva Investors

Apiramy Jeyarajah, Head of UK Wholesale, Aviva Investors, writes for IFA Magazine

The millennial generation is set to inherit trillions over the coming decade. Asset managers and advisers must engage with these younger investors to understand their requirements, says Apiramy Jeyarajah.

“People try to put us down,” sang Roger Daltrey on The Who’s hit My Generation in 1965. Today’s youngsters know the feeling. Millennials are often depicted in the media as Instagram-addicted narcissists or footloose job-hoppers. It is said they would rather fritter away their money on smashed avocado brunches than save for the future.

But as millennials enter their peak earning years, they are starting to wield significant financial clout. According to consulting firm Deloitte, US millennials are in the process of inheriting $24 trillion from their elders, and a similar wealth transfer is underway in the UK.1 Asset managers and financial advisers hoping to win a slice of this potential business need to look past the clichés and learn what makes millennials tick.

Millennial investors

Anyone born between 1981 and 1996 is considered a millennial. For the older members of the group, the defining event of their early careers was the global financial crisis of 2007-’09, which damaged their job prospects and eroded their earnings potential. The coronavirus pandemic of 2020 is the second major economic crisis they have faced in their working lives.

Research suggests millennials are financially conservative

The experience of recession has shaped the generational outlook. Research suggests millennials are financially conservative, belying their spendthrift reputation. Asked what they would do with a tax refund, nearly 40 per cent said they would save it, compared with 33 per cent of baby boomers and 23 per cent of Generation Xers.2

Millennials tend to be cautious investors, too; on average, they hold around 47 per cent of their assets in cash, with 41 per cent in equities and bonds and a small amount in illiquid assets.3 But they should be able to take on more risk as they start to inherit wealth and rise up the career ladder. According to research from Bank of America Merrill Lynch, millennials’ earnings potential is set to grow as much as three-quarters between now and 2030.4

Importantly, millennials will have more control over their assets than their parents’ generation. While the ongoing shift from defined benefit (DB) to defined contribution (DC) pension schemes is transferring risk from employers to employees, it has also given savers more say in how their pension is invested – and by whom.

Sustainability and technology

Asset managers and advisers seeking to work with millennial clients should be mindful that returns are not always their chief objective. Having come of age with the climate crisis looming, this cohort is profoundly concerned about the human impact on the planet.

Millennials say ESG considerations are the most important factors when weighing up an investment

Eight in ten millennials say environmental, social and governance (ESG) considerations are the most important factors when weighing up an investment.5 Other studies have found 90 per cent of millennials want to ensure investments made on their behalf are tailored to their values,6 while 92 per cent want their entire portfolio to be responsibly invested.7 Most are optimistic that allocating their assets sustainably will help arrest climate change.8

Asset managers seeking to win their custom will require expertise in ESG, including a demonstrable track record on engagement and impact. Responsiveness will be important, not just in communicating investment performance but also in providing timely updates on responsible investment objectives and outcomes.

User-friendly online platforms are another prerequisite for investment businesses seeking millennial custom. Having grown up with access to the internet, millennials tend to be discerningly tech-savvy, gravitating towards companies that offer slick and convenient online services and shunning those that don’t.

This can be seen in the emergence of robo-advisors that enable investments in low-cost index funds at the tap of a smartphone button. The Big Tech firms of Silicon Valley are also fast developing their capabilities in financial services to lure millennial customers. In this context, traditional asset managers and advisers will need to ensure they offer smart, personalised digital services to win business and stay resilient in the face of further industry disruption.

Culture shift

While millennials display certain common attitudes and traits, they are not a monolithic group. For example, despite progress in recent years, pension coverage among female millennials is far lower than among men, and they feel less financially confident as a result.9

A recent survey conducted by The Wisdom Council found older millennials in the UK are often seeking advice on financial matters as they begin to settle down, buy homes and start families. But financial professionals tend to confront them with confusing spreadsheets or technical jargon rather than empathy and guidance, which can make them feel helpless.10

Building a partnership with clients based on trust and understanding is more important than ever

In the aftermath of the personal and professional difficulties caused by the COVID-19 pandemic, building a partnership with clients based on trust and understanding is more important than ever. To appeal to millennials, the investment industry must accelerate its shift from a backwards-looking, product-focused model to a forward-thinking approach based on meeting clients’ needs.

To foster longer-lasting relationships, managers and advisers should go further, and create an organisational culture that ensures clients feel listened to and represented. Millennials in the UK hail from a much wider range of backgrounds than the baby boomers or Generation X. Sales teams that lack diversity of race, gender and social background will look increasingly out of touch.

If they can modernise their approach, asset managers and their partners have an opportunity to work with younger investors to achieve their goals. These relationships can be mutually beneficial, but first the financial world needs to stop putting millennials down – and start lifting them up.

Apiramy has included a helpful list of references that informed this article, check them out below.

1. Val Srinivas and Urval Goradia, ‘The future of wealth in the United States’, Deloitte, November 10, 2015

2. Nicole Spector, ‘Famously frugal: nearly 40 per cent of millennials will stash their tax refund’, NBC News, March 9, 2017

3. ‘Generations collide as millennials redefine work, wealth, family and influence’, Bank of America Merrill Lynch, June 13, 2017

4. ‘The generation game: Wall Street will soon have to take millennial investors seriously’, The Economist, October 24, 2020

5. Nuveen responsible investment survey, 2018. See commentary at: Kara Chin, Jacqui Frank, and Sara Silverstein, ‘Millennials are leading an investment revolution — here’s what makes their generation different’, Business Insider, May 29, 2018

6. ‘Swipe to invest: the story behind millennials and ESG investing’, MSCI, March 2020

7. Nuveen responsible investment survey, 2018. See commentary at: ‘Millennials are driving a huge shift in the way we shop and invest’, Business Insider, May 2018

8. ‘Millennials are driving one of the biggest trends in wealth tech’, March 14, 2018, CB Insights

9. ‘Millennial women less financially confident than millennial men’, Pensions and Lifetime Savings Association, May 02, 2017

10. ‘Insights – Retirement study: News release’, Wisdom Council, June 25, 2018

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