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What does the rise of the millennial investor mean for the finance sector?

Alpa Bhakta | CEO of Butterfield Mortgages
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22nd November 2019
Alpa Bhakta Butterfield
"While the methods of communicating financial advice look set to remain broadly similar, the content of the advice is likely to change significantly."

An enormous intergenerational transfer of wealth is currently underway. Historically, baby-boomers have successfully kept a significant amount of their wealth in property and assets. Now, in the midst of retirement, they are beginning to pass their assets to their children and grandchildren, many of whom will have investable capital for the first time.

In fact, the total net-worth of millennials will have doubled by 2020 from what it was in 2015. Research from EY suggests that those born between 1981 and 1996 in the US alone could receive $30 trillion over the next 20 years. This amounts to one of the largest transfers of wealth in history and will have far reaching implications for those of us working in the finance industry.

The first question that naturally arises from this trend concerns how millennials will choose to spend their newly inherited wealth. With a large number of them becoming parents around the time they receive this windfall, analysts suggest. that many may invest in property to provide their families room to grow. However, for high net worth individuals (HMWIs) and ultra-high net worth individuals stocks and shares investment will be the priority.

This means financial advisers will be dealing with a significant cohort of younger investors in the medium term, which will necessitate understanding a new collection of attitudes and preferences. Some, perhaps not so well-informed financial advisers, will have certain preconceptions of millennials to inform them already. However, research from Deloitte shows how easy it can be to assume certain things about millennials. Much like the older generation, the overwhelming majority (82%) of millennials prefer the traditional face-to-face way of discussing financial options.

While the methods of communicating financial advice look set to remain broadly similar, the content of the advice is likely to change significantly. This is because millennials differ greatly from those that came before them in terms of the assets they find appealing. They prefer to invest in things that have an ESG - environmental, social and governance – focus. It is no longer the case of simply weighing up potential return and risk, as their parents might have done. Nowadays, investing is as much about what one’s investment is doing as it is about how much one’s investment is growing.

Looking back to the “free love” and environmental movements of the 60s and 70s, one can see a generation of young people who also had an interest in these kinds of social values. As such, it might be argued that like their parents, millennials will move on from their values, becoming less idealistic and more predisposed to pursue traditional investments. This could well be mistaken, as Deloitte’s research suggests two-thirds of millennials feel “obliged” to change the world, whilst 75% aim to be authentic and refuse to compromise their personal values when investing.

This trend has been revealed both in data and anecdotally. As of 2019, almost a fifth of assets under management are now in sustainable investments. Further, if one looks at family offices, there seems to be significant shift in attitudes when it comes to ESG investments.

A good example of this is the Cordes Foundation. An investment fund managed entirely by the Cordes family, the entire £230 million stake has been directed into “impact investments” – assets where ESG is a primary concern. It is headed by Steph Stephenson, a self-described millennial philanthropist and impact investor, who encouraged the foundation to increase its proportion of impact investment.

For financial advisers, the changing preferences of their clients means they’ll need to educate themselves on ESG and impact investing in depth to be prepared for a generation of clients with different priorities. Indeed, the impact of millennials on major financial decisions will likely increase, making it extremely important for all of those who work in the finance industry to ensure they are able to cater to the needs of the next generation of investors.

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