Millennials are challenging traditional approaches to investing, philanthropy and pursuit of life and career goals, according to the newly released U.S. Trust Insights on Wealth and Worth survey.
At the same time, family traditions and financial support are the foundations of success and multigenerational family wealth planning, the survey found.
Phoenix Marketing International conducted a nationwide survey in January and February of 808 high-net-worth and ultra-high-net-worth adults with at least $3 million in investable assets, not including the value of their primary residence. In addition, 40 survey participants agreed to anonymously share their personal perspectives and experience in conversations with researchers.
Generational diversity is a source of both tension and innovation in families and businesses, according to the survey.
With regard to investing, baby boomers and older investors rely mainly on stocks, bonds and cash with aggressive equity allocations of 60%, on average, that conflict with their lower risk tolerance and the importance they place on asset preservation.
For their part, millennials allocate only 41% of their portfolios to stocks and bonds, but have 47% of their portfolios, on average, in cash positions primarily for opportunistic acquisitions.
“As many as five different generations are now active in the workforce and contributing to family dynamics and financial decision-making,” Keith Banks, president of U.S. Trust, Bank of America Wealth Management, said in a statement.
“Perspective and participation of multiple generations are highly valued, but are also complex and require advanced planning and communication.”
The study found a considerable multigenerational financial interdependence but also emerging conflicts and distinctly different approaches in several areas.
The survey found that traditional investments were making way for alternative, opportunistic and personalized strategies by younger investors looking for growth, income and positive impact.
Nearly half of high-net-worth investors owned or were interested in private equity investments, and about a third also owned or were interested in venture capital and hedge funds, with the youngest and wealthiest investors more likely to invest in more sophisticated, nontraditional assets.
Four in 10 investors currently owned, and another 27% said they were interested in, tangible assets, particularly residential investment real estate and commercial property.
Nearly half of tangible asset owners said they used them for diversification of their investment holdings. Forty-five percent overall and 56% of millennials said they used them to generate income.
Millennials were also much more likely to have inherited tangible property and to want to create or pass on a family legacy to the next generation.
Taking into consideration long-term political, environmental and demographic trends and investment opportunity, high-net-worth investors in the survey thought technology, infrastructure and healthcare investments offered the best potential for investment returns.
Although some two-thirds of respondents said it was important to leave a financial inheritance to the next generation, only 42% of parents were very confident their children would serve as good stewards of family wealth. And just 37% of adult children were very confident in their parents’ capacity to use family money responsibly.
Fifty-five percent of all survey participants, and 78% of millennials, attributed some portion of their wealth to receipt of a family inheritance.
Despite this interdependence and connection, the survey found that increased longevity was throwing up new challenges that families were financially unprepared to deal with.
Seventy percent of respondents said they would be caught out by unexpected health issues in the family, 67% by long-term care expenses for aging parents, 64% by time and resources to provide care and attention for aging parents and 63% by financial support needed by aging parents.
Philanthropy, Impact Investing
Wealthy families engage in charitable giving. Seventy-four percent of those surveyed said they made financial contributions to philanthropic institutions and causes, and 69% volunteered their time and talent to nonprofit organizations.
Yet, younger family members approach giving differently, creating perceptions that family members do not share the same commitment to making a positive difference in the world.
Sixty-one percent said they supported similar issues and organizations as their families, but nearly half showed their support in different ways.
Approximately one in three baby boomers and older parents thought their children did not share the same commitment to giving as their own generations, while seven in 10 millennials did not think their parents were as committed to giving back.
Thirty-two percent of millennials said they gave back by investing in companies that support issues and causes important to them, compared with 14% of boomers and older family members.
In addition, millennials were three times likelier than boomers and older family members to view the jobs and solutions they created through business ownership and social enterprises as their way of giving back.
Interest in impact investing continues to increase, according to the survey. The findings showed that 45% of wealthy investors owned or were interested in impact investments, up from 32% in 2015.
Women and millennials were still the main drivers of growth and interest in impact investments in the new survey, but interest by men nearly doubled from 16% in 2015 to 31% this year.
Ownership of impact investments among boomer and older investors remained fairly constant at around 10%, but interest jumped between 2015 and 2017, from 17% to 29% for boomers and from 13% to 24% for their older counterparts.
Fifty percent of impact investors surveyed said it was possible to achieve market-rate returns, down from 58% in 2016.
However, those who currently invested based on impact were convinced of this, whereas skeptics remained skeptical. Eighty-one percent of the former, compared with 44% of the latter, agreed that it was possible to achieve market-rate returns.
As well, those who invested based on impact were also much likelier to agree that a company’s impact was an important consideration in their investment decisions and that investing was one way of expressing their personal values.
The number of wealthy investors who had reviewed their investment portfolio for companies’ environmental, social or governance impact increase to 34% from 23% in 2015. Seventy-six percent of millennials said they had conducted a review for their investments’ impact.
Investors listed “advisor recommendation” as one of the top motivators to invest for impact, yet only 18% said they were currently talking to their advisor about impact investing.
Three in 10 investors said they would start investing based on impact, or invest more of their assets this way, if their advisor recommended it.
Although 89% of respondents agreed that diverse generational perspectives at work improved results, nearly half of working men and women felt they were competing for the same jobs with people a generation younger or older.
Fifty-two percent of millennials felt stymied in their careers because of older colleagues working later in life.
According to the survey, desire for control of their own destiny, money and meaningful work is leading to a generation of aspiring young entrepreneurs who are aggressively managing their career paths and changing expectations of employers.
About one in three millennial respondents said they would leave their current job or company to move to a better or comparable position at a different company.
One in four planned to make a big life change within the next three years that does not involve their current field, and 35% planned to start their own business in the next three years.
— Check out The ‘Best Advisors’ Serve Families, Not Individuals: OppenheimerFunds on ThinkAdvisor.