What do financial advisors and millennials have in common? They’re both misunderstood. In an attempt to dispel these misconceptions, many financial firms are taking note of the investment needs of millennials and employing strategies to attract young investors.
The Next Generation of Investors
Findings from recent surveys contradict the widely held view that millennials are a generation defined by entitlement, instant gratification and disengagement with the real world. On the contrary, millennials–loosely defined as the age group born during the early 1980s to early 2000s–are focused on the future, have a strong sense of social responsibility, and are financially conservative.
According to Wealthfront, an automated investment service, this fiscally responsible generation has an aggregate net worth of more than $2 trillion, which is expected to continue to grow to $7 trillion by 2018. This generation also stands to inherit nearly $36 trillion by 2061, according to a study from the Boston College Center on Wealth and Philanthropy. With such a huge generational shift in wealth ahead, it’s increasingly important that financial advisors prepare to serve the needs of the next generation of investors.
Serving the financial needs of millennials is easier said than done. This generation is significantly different from their parents and grandparents. This is evident in their use of technology, their social and cultural views, and their attitudes toward financial advisors and how they invest.
According to a UBS Investor Watch survey, 40% of non-Millennial respondents said they are likely to seek advice from a financial advisor when making fiscal decisions, whereas only 14% of millennials said they would do the same. According to the survey, millennials are most likely to seek financial advice from their spouse or partner (62%), their parents (41%) or their friends (26%).
In fact, most millennials have a hard time putting their investing decisions in the hands of others. Around 72% of respondents in a recent Merrill Lynch survey described themselves as being “self-directed” in their investing, meaning they do not consider themselves dependent on an advisor. Around 41% report that they do not have a financial advisor of any kind.
One reason for the skepticism of the financial services industry comes from the financial crisis of 2007-2008 and the slow economic recovery that followed. These events left negative impressions on millennials, specifically in regard to firms commonly associated with Wall Street. As a result, many millennials have a hard time believing that financial advisors have their best interests in mind. According to the Merrill Lynch survey, only 19% agree with this notion.
“Based on our conversations, millennials seem to equate financial advisors with salespeople, and remain unaware or unconvinced of the industry trend toward a fee-based approach in which advisors’ fees are not based on how many trades they execute, but on the size of the portfolio and its growth,” Michael Liersch, director of Behavioral Finance at Merrill Lynch, said in the report. “As a generation intently focused on the value-add of almost every service or product they buy, millennials simply seem to question whether paying for financial advice is worth it.”
It’s Not All About the Benjamins
Not only do millennials have a different attitude toward the financial services industry than earlier generations, but they also tend to have very different ambitions when it comes to investing. For this generation, wealth doesn’t necessarily equate to success. A philanthropic cause or an entrepreneurial venture is a worthy investment; millennials measure success in part with things that provide a sense of purpose.