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The impact of Millennials on the asset management industry

By James Hoey

Updated on Tuesday, 5 June, 2018

The world nowadays is divided into generations that have grown up in completely different circumstances and which therefore have very different outlooks on the world. The generation made up of those born between 1980 and 1995 have come to be known as millennials, and while older generations may look down on them and say how “things were better in my day”, its undeniable that millennials and their views are shaping the future. This blog will consider the influence of millennials on the asset management industry and how it should be adapting to meet their needs.

Why focus on millennials?

The next generation of wealth

Millennials are the next generation of wealth. According to Deloitte[1], by 2020 – the year after next -  the aggregated net worth of the millennial generation is tipped to more than double the 2015 figure. The estimated figure, the report states, is set to be $19 to $24 trillion. With most millennials currently being at the start of their career or working their way up the ladder, there are arguably three impending shifts on the horizon that asset managers need to be aware of.

Firstly, millennials are heading towards their prime earning years, which means that their assets will rise. Millennials will be looking for the best places to invest this newly created wealth to maximise its future return.

Secondly, the report suggests that the rise of entrepreneurship and self-employment will continue. Approximately 50% of millennials in developed countries want to start their own business for which they’ll need capital accumulation and investment expertise.

Thirdly, millennials will also reap the benefits of the wealth created by the baby boomer generation through inheritance where careful tax and financial planning will be required.

Social investment

One of the main differences that the industry must come to terms with is the emphasis placed on the social impact of investing by this millennial generation. Whereas the key consideration of the baby boomer generation has been to get the highest rate of return, millennials in many cases base their investments on a different set of values; one which is socially conscious and where impact trumps return.

According to the Schroders Global Investors Study 2017, which surveyed more than 22000 investors globally, 86% of millennials named sustainable and ethical investment as being of high importance to them compared to 67% of baby boomers[2].

Trust, the new currency

It is not just socially responsible investing that millennials are looking for but transparency. Now, it goes without saying that all generations want transparency in their investment processes. However, millennials have grown up being influenced by recent events such as the global financial crisis and, as a result, trust in financial institutions is low.  Much more detailed information must now be provided than ever before to gain trust and millennials require more than just a printed fund fact sheet to be prepared to part with their hard-earned savings.

Millennials prefer digital

Millennials are technologically adept, having been raised during the rise of the internet and social media. This means that not only do they consider themselves innovators, but they also place great importance on brands that show themselves to be innovators, through the technology they employ.

Whether it is the investment industry, banking, or any other industry, firms run the very real risk of losing out on this generation if they don’t take measures to meet this demand. The key question for asset managers to ask themselves is: when investors search for my company online, what will they find? This is not to say that millennial investors base their entire investment decision on the digital offerings provided, however it is a crucial factor.

What do asset managers need to do?

Adapt to digital world

Firms need to concentrate on improving the client experience with millennials demanding seamless, visually impressive, rich, easy digital offerings.

This demand is not easily met for all in the financial services industry. A 2017 report by PWC on fintech influence on financial services[3] shows that more than 80% within the industry believe their business is at risk from the rise of such developments, while 88% are concerned that revenue will be lost to innovators. Despite this, 77% of financial institutions are willing to increase efforts to innovate. 82% expect FinTech and wealth management firms to form partnerships over the next three to five years, with 30% of large Financial Institutions set to invest in Artificial Intelligence.

The report specifically states that Asset & Wealth Managers are not taking the situation seriously enough may being complacent about the impact of FinTech developments. Despite being aware of the changes in the industry, the focus has been on short-term solutions.

In 2017 a Living Group study rating Asset Managers on their attitude towards digital solutions was conducted[4]. 100 asset managers were rated and described as being determined, focused, energetic or lacklustre in their approach. Results showed that 63% were classed as lacklustre and facing a massive challenge. Reasons for this classification were that their websites and social media channels were weak and user engagement poor and they were failing to improve their digital communications with even simple design and functionality changes.

The highest-ranking asset manager was Russell Investments. Top spot was awarded to them because visitors are categorised by user-profiling and geolocation that delivers targeted content, as well as a host of useful tools, resources and market insights to the desktop.

FE Precision+ Digital

FE’s suite of digital tools -  Precision+ Digital can help asset managers to produce high quality tools to display their products in the best possible ways, aiding asset managers with their necessary digital development and the objective of greater transparency and accessibility of information.

Furthermore, part of the digital demand is a necessity to provide an investment service that can be accessed over multiple devices. FE’s Precision+ Digital tools are fully responsive on smart phones and tablets, catering for the way modern audiences access information.

It will be interesting to see to what extent the asset management industry grasps the opportunity that the millennials offer. Some have already caught on to the change but as the PWC report stated, far more have not. By remembering that millennials are the next generation of wealth and by shaping their offerings, whether it be through their websites or investment tools, to meet the interests and demands of this generation, they give themselves a far better of chance of stepping ahead of the competition in the years to come.

 

[1] https://www2.deloitte.com/content/dam/Deloitte/lu/Documents/financial-services/lu-millennials-wealth-management-trends-challenges-new-clientele-0106205.pdf

[2] http://www.schroders.com/en/uk/private-investor/insights/global-investor-study/2017-findings/sustainability/

[3] https://www.pwc.com/jg/en/publications/pwc-global-fintech-report-17.3.17-final.pdf

[4] http://www.living-group.com/media/34382/living-ratings-of-asset-managers-2017.pdf

 

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