Gen Y investors pose some interesting challenges to the financial services industry, and some firms may find they need to adapt to serve these clients, a study released at the end of April found.
In “The Millennial Shift: Financial Services and the Digital Generation,” Corporate Insight highlighted how millennials’ attitudes and behaviors affect the way the financial services industry appeals to them. It laid out the specific challenges for banks, investment firms, retirement plan providers and insurers and gave tips for these sectors to appeal to young clients.
“Generation Y will be a difficult market for the financial services industry to crack,” James McGovern, vice president of consulting services at Corporate Insight, said in a statement. “This is a diverse generation that’s struggling with serious financial problems like college debt and underemployment.”
McGovern noted that millennials put a high value on transparency and aren’t always trustful of financial institutions. They may also expect more online and mobile services than firms currently offer, he said.
Furthermore, millennials aren’t under any misconceptions about why financial services firms are in business — to make a profit — and Corporate Insight noted that motive isn’t a “barrier to entering a relationship with a financial institution. What is a barrier is any perceived attempt to take advantage of consumers by hiding fees or upselling them on products or services they don’t need.”
Here are strategies that four different types of financial institutions can use to help reach milliennial clients:
Millennials are far more likely to interact with their bank through a mobile platform than in person, Corporate Insight found. Banks will need to make sure their customers can access their account regardless of the device or platform they are using.
Gen Y bank customers also want simple, free checking and, failing that, they want to know what they’re paying for. “Banks are notorious for nuisance fees, charging customers for actions outside of their control (e.g., receiving a wire transfer),” the paper noted, suggesting that banks be very clear about what they charge.
According to the Millennial Disruption Index, the four biggest banks were among the 10 least-loved by millennials, and about a third even said they don’t think they’ll need a bank in the future.
However, Corporate Insight referred to a survey by UBS that found Gen Y consumers see themselves as savers more than investors, which gives banks an edge over investment firms when it comes to securing younger consumers as customers.
Speaking of investment firms, Corporate Insight concluded that where millennials are concerned, this segment “faces perhaps the biggest challenge of any financial services industry segment covered in this study.”
Various studies have found millennial investors tend to be conservative, calling them everything from a “lost generation” to “scarred” investors. In addition to being risk averse, they doubt Social Security will be much help to them when they get to retirement, yet many aren’t saving enough.