As Millennials Turn 40, 5 Things Advisors Should Know

The oldest members of the millennial generation, now in their 40s, are entering their peak earning years with financial means and maturity. This bodes well for them and for financial advisors, according to a survey released Wednesday by Natixis Investment Managers.

There’s a notion abroad that millennials are entitled beneficiaries of their parents’ wealth and poorly prepared idealists with trust issues. Natixis IM’s findings give the lie to that stereotype.

Consider that 75% of U.S. millennials surveyed have a professional financial advisor, compared with 70% of baby boomers and 67% of Gen Xers.

Financial planning is the professional advice millennials are most interested in. They are also diligent savers; on average, they put aside 19% of their income for retirement.

Millennials have worked to accumulate considerable wealth so far. Thirty-seven percent of survey respondents attributed this to business ownership or self-employment income, and 43% said it came from investing. Just 13% cited an inheritance or family money as a source of their wealth.

“Millennials have high expectations, but they also are proactive when it comes to planning,” Dave Goodsell, executive director of the Natixis Center for Investor Insight, said in a statement.

Goodsell noted that millennials have enjoyed a long bull market with low interest rates and little inflation for much of their adult lives, but have also known what loss looks like and want to protect their interests as they see risks rise and their finances grow more complex.

“The good news is that millennials not only recognize the value of advice, but they trust their financial advisors almost as much as they trust themselves,” he said.

CoreData surveyed 202 millennials in the U.S. with minimum investable assets of $100,000 in March and April 2021 as part of a larger study of 2,459 millennials across North America, Latin America, Asia, the U.K., Europe and the Middle East. Natixis Investment Institute conducted additional analysis in March this year.

See the gallery for five truths about millennials at 40 revealed by Natixis IM’s research findings.

1. Millennials need human advice.

Sixty-nine percent of millennials surveyed work with a traditional advisor, 41% solely and 28% in combination with automated advice such as a robo-advisor. Just 6% solely rely on automated advice. Even though 57% of millennials say they prefer to receive financial advice through digital or online channels, the survey found that when making investment decisions, 42% don’t trust algorithms or artificial intelligence, including 51% of those between 25 and 32 and 39% of those who are older. Ninety-two percent said they trust their financial advisor.

Eighty-two percent of millennials consider time spent with an advisor important to their long-term financial success. They said the most important facets of the relationship are helping them manage volatility, discussing financial planning with family and having someone who listens. Their three top financial fears now are taxes, an unexpected big expense and health care costs.

(Image: Adobe Stock)

2. Many millennials conflate risk with volatility.

Forty-eight percent of millennials said risk, which they most commonly defined as market volatility, is the most important factor they consider when selecting investments. Sixty percent see volatility as something that undermines their ability to reach financial goals. Just 13% of millennials defined risk as not meeting their financial goals, in contrast to financial advisors who told Natixis IM in a previous study that this is the primary way they talk about risk with their clients. Another 12% of millennials think of risk as losing money. Many also see risk as having too much money in cash positions and missing out on potential investment returns.

The survey found that even though 71% of millennials are comfortable taking risks to get ahead, 79% would choose preservation over outperformance as an investment objective. And while 84% understand that passively managed index funds will deliver market returns, three-quarters think index funds are less risky and will help minimize losses, despite there being no inherent risk management built in.

(Image: Shutterstock)

3. They want to do well while doing good.

After risk, millennials’ most important investment selection criterion is whether investments match their values; 81% think of investing as a way to make a positive impact in the world. Forty-six percent of millennials currently have investments that incorporate ESG factors, while 42% do not but are interested. Their biggest barrier: not knowing enough about them.

The survey found that millennials are primed to do well while doing good, yet they also are pragmatic. Considering ESG a better way to invest, they are as likely to be motivated by wanting to make a better world as opening up new investment opportunities. Sixty percent know that investing in index funds exposes them to companies that don’t match their values. Three-quarters of respondents feel personally responsible for addressing global issues, but also think companies and government must share the responsibility.

(Image: Shutterstock)

4. They want to retire early, but they're pragmatic.

Millennials in the survey hope to retire by the age of 59, on average. It's an ambitious goal strewn with risks, which may explain the importance they place on planning and advice:

66% expect inflation to be a big risk to their financial security
66% accept that they may need to work longer than they anticipated
55% worry that health care costs will compromise their retirement security
51% accept that they may never have enough money to retire
45% think financial security in retirement will require a miracle

(Image: Adobe Stock)

5. The pandemic taught them the value of financial advice.

Nearly half of millennials said they felt stressed about their financial security during the pandemic, which likely prodded many of them to seek professional advice. They said advisors helped them better understand their whole financial picture and prevented them from making emotional investment decisions.

In retrospect, 53% said the pandemic reminded them of the importance of having an emergency savings account, 51% of keeping their spending in check and 38% of having a will and estate plan.

(Image: Shutterstock)

As Millennials Turn 40, 5 Things Advisors Should Know

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1. Millennials need human advice.

2. Many millennials conflate risk with volatility.

3. They want to do well while doing good.

4. They want to retire early, but they're pragmatic.

5. The pandemic taught them the value of financial advice.

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As Millennials Turn 40, 5 Things Advisors Should Know

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More on this topic

1. Millennials need human advice.

2. Many millennials conflate risk with volatility.

3. They want to do well while doing good.

4. They want to retire early, but they're pragmatic.

5. The pandemic taught them the value of financial advice.

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