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How wealth managers can meet the demands of millennial investors

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Simone Westerhuis

Attributed to Simone Westerhuis, Managing Director, LGB Investments

Wealth managers need to boost their tech skills as well as their sustainable and alternative investment options to meet the demands of millennial investors 

Wealth managers and indeed the wider financial industry are continually evolving their products and services to meet the challenges and opportunities of the rise of so-called millennial investors. But are they doing enough? Millennials and their generation X precursors are set to benefit from a significant transfer of wealth over the next few decades. To successfully address their needs, private wealth managers need to engage with more digital-savvy generations by understanding their needs and offering a greater array of investment solutions.

Digital approach is key

Today’s world is very tech-savvy. Some 98% of millennials own a smartphone and 25% of them spend more than five hours on these gadgets each day. Combine this with the fact that over the next 30 years, up to $30tn is expected to be passed from baby boomers to generation X and on to millennials is leading wealth managers to reassess the link between online engagement and financial advice and upgrade their capabilities in this area.

The perception that wealth management is the preserve of the middle-aged male in a pinstripe suit is fast-changing and the firms that fail to adopt strategies that cater to rising younger generations will risk falling by wayside. Many wealth managers are undertaking a host of initiatives, launching client portals, developing new apps and incorporating new communication channels to appeal to the younger investor who is more interested in an iPhone-friendly investment portfolio than a spreadsheet-filled paper report followed by dinner at a Michelin-starred restaurant.

Thanks to this new breed of investor, a digital wave has swept through the wealth management industry, prompted by digital-first online managers such as Nutmeg, Moneyfarm and Wealthifyin which Aviva took a majority stake last year. These so called robo-advisers increasingly lean towards machine learning and cater to the responsiveness, flexibility and online nature of engagement which millennials have become accustomed to in all areas of their lives.

Face to face meetings still have a role to play

Although upgrading a client’s digital experience is vital to attracting and retaining millennial investors, service, trust and integrity remain core to the private wealth industry.  Some aspects of financial planning and investments can be commoditised, but human factors such as education, empathy and authenticity cannot.

Research published by InvestmentNewsshows that some 66% of children would fire their parents’ wealth advisers on receiving an inheritance. Insufficient connectivity, on both a human and a digital level, would appear to be the cause. InvestmentNews found that “lack of a relationship” with clients’ children was the single biggest obstacle to an adviser retaining management of a family’s assets.

Forbes,in one of its latest insights reports which included a survey of generation X and millennials, comes to a similar conclusion. Among the key findings are that 42% of wealth managers believe that a mix of digital and offline ways of communicating is ideal, while 62% of the HNW clients surveyed said that the digitization of wealth management services is good overall, but they still want to meet often with an advisor.

According to the write up in Forbes, it is largely a myth that wealthy young investors are entirely self-sufficient and that they communicate primarily through virtual channels, with little or no interest in face-to-face relationships with advisors. “True, they want to make their own decisions, but they also want to work with one or more financial advisors to get second options and to validate their views.”

Greater willingness to consider sustainable …

With regard to investment approach, increasingly millennial investors are going “green” and are more socially and environmentally aware of the impact their investments have on the wider, global economic landscape. Recent research by the Morgan Stanley Institute for Sustainable Investing revealed that millennial investors are twice as likely as the overall investor population to invest in companies targeting social or environmental goals.

…and alternative investments

The financial crash and volatility of the markets still deter millennial investors from an over-reliance of equities and bonds within their portfolio.  Caution appears to be the watchword of their investment approach and only one in three millennials invests in the stock market, according to Bankrate.

Given this, it is no surprise that a strong majority of millennial investors are interested in alternative investments, according to a recent survey by global asset management company Affiliated Manager Group (AMG). Some 83% expressed openness to a range of alternative investment strategies—including hedge funds, private equity, real estate funds or other non-traditional investments—compared with 52% of older investors. More than half of millennials said they already invested in alternatives, the AMG survey pointed out, while 69% said they would like to know more about their benefits.

At LGB, we provide investors with access to non-traditional, institutional-like investment strategies and opportunities. These range from secured, high yielding fixed-rate debt issued by SMEs and growth businesses, to access to private placements on the AIM market and participation in management buy-outs. The majority of the equity opportunities will qualify for business property relief after a holding period of two years, which is relevant for the transfer of wealth to the new generation. Most importantly we pride ourselves in offering service, which has allowed us to build strong relationships with our investors who are introducing us to the next generation.

Investing

What should I invest and How do I invest

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What should I invest and How do I invest 1

By Imogen Clarke

With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.

For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.

If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.

There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?

With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:

  • Equities
  • Bonds
  • Alternatives
  • Cash

Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.

So, how do you decide where to invest?

According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.

The main areas of ESG investing include:

  • Environmental challenges (climate change, pollution, etc)
  • Social issues (human rights, labour standards, child labour, etc)
  • Governance considerations relating to company management

According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”

ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.

As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”

So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?

There are four areas of ESG investing:

  • Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
  • Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
  • Positive screening strategies:when companies meet the ESG goals and are approved for investments.
  • Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.

You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?

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Investing

Investment Roundtable: Live with Jim Bianco

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With Q4’s macro picture still looking grim amid the return of exponential coronavirus waves in Europe and the U.S. and Europe, we speak with veteran macroanalysis strategist Jim Bianco, CMT for a data-driven deep-dive into the global economy and financial markets on Sept. 7th at 12pm EDT.

Sign up for this exclusive webinar now

Key themes:

  • Learn from Jim’s unique combination of quantitative and qualitative analytics which provide an objective view on Rates, Currencies and Commodities to make smart investment decisions
  • Identify important intermarket relationships he is watching with respect to Global Equities
  • Roadmap a global outlook for 2021 in view of socio-political backdrop giving viewers key takeaways and intermarket perspectives on global investing.

Sign up for this exclusive webinar now

Jim’s robust technical analysis includes a broad look at trends and themes in the markets, market internals, positioning such as the Commitment of Traders (COT), sentiment, and fund flows. Don’t miss out on this exclusive session from one of the investment world’s most insightful thought leaders.

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Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election

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Equity markets react to a rise in Covid-19 cases, uncertain Brexit talks and the upcoming US election 2

By Rupert Thompson, Chief Investment Officer at Kingswood

Equity markets had another choppy week, falling for most of it before recovering some of their losses on Friday and posting further gains this morning.

At their low point last week, global equities were down some 7% from their high in early September. US equities were down close to 10%, hurt by the large weighting to the tech giants which at least initially led the market decline.

The market correction is nothing out of the ordinary with 5-10% declines surprisingly common. Indeed, a set-back was arguably overdue given the size and speed of the market rebound from the low in March.  As to the cause for the latest weakness, it is all too obvious – namely the second wave of infections being seen across the UK and much of Europe and the local lockdowns being imposed as a result.

These will inevitably take their toll on the economic recovery which was always set to slow significantly following an initial strong bounce. Indeed, business confidence fell back in September both here and in Europe with the declines led by the consumer-facing service sector. A further drop looks inevitable in October – fuelled no doubt in the UK by the prospect that the latest restrictions could be in place for as long as six months.

The job support package announced by Rishi Sunak did little to boost confidence. Its aim is to limit the surge in unemployment triggered by the end of the furlough scheme in October. However, the scheme is much less generous than the one it replaces as the government doesn’t want to continue subsidising jobs which are no longer viable longer term.  A rise in the unemployment rate to 8% or so later this year still looks quite likely.

Aside from Covid, for the UK at least, there is of course another major source of uncertainty – namely Brexit. Another round of trade talks start this week and we are rapidly reaching crunch time with a deal needing to be largely finalised by the end of October.

Whether we end up with one or not is still far from clear. That said, the prospects for a deal maybe look rather better than they did a couple of weeks ago when the Government was busy tearing up parts of the Withdrawal Agreement. With significant Covid restrictions quite probably still in place in the new year and the Government already under attack for incompetence, it may not wish to take the flack for inflicting yet more chaos onto the economy.

Markets remain unimpressed. UK equities underperformed their global counterparts by a further 2.7% last week, bringing the cumulative underperformance to an impressive 24% so far this year. The UK weighting in the global equity index has now shrunk to all of 4.0%.

It is not only the UK which faces a few weeks of uncertainty. The US elections are on 3 November. We also have the first of three Presidential debates this Tuesday. Joe Biden’s lead looks far from unassailable, a close result could be contentious and control of Congress is also up for grabs.

All said and done, equity markets look set for a choppy few weeks. Further out, however, we remain more positive – not least because the focus should hopefully switch from the roll-out of new lockdowns to the roll-out of a vaccine.

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