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How wealth managers can meet the demands of millennial investors

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.

Global Banking & Finance Review


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