Millennial Money: The Changing Face Of Wealth Management

Jane Leung, CIO at Scenic Advisement

Financial cycles roll around, the numbers rise and fall, but investors’ needs and aspirations remain broadly the same.

Is the wrong answer. . .

The current wave of tech IPOs is minting new millionaires and creating first-time wealth. And guess what? These people don’t see the world the same way as their parents do.

Young entrepreneurs tend to be unconcerned about ownership and extravagant spending. Remarkable asset growth, the primary objective of wealth managers throughout the ages, is not enough. Of course, affluent millennials intend to look after their loved ones, but they also want to use their wealth to make a positive impact on the world at an environmental and societal level.

So how should our industry respond? By listening to what the new generation wants and, crucially, resisting the temptation to adopt a ‘one size fits all’ approach.

Tech-savvy, but not algorithm-happy

Studies of humans reveal contradictions. And so it is with millennials. They expect digital functionality in all aspects of their lives: 47% of them would be prepared to move to a wealth management firm with an enhanced digital platform; they champion a cashless society and a sharing-based economy; they are twice as likely as baby boomers to invest in ETFs. So, algorithm-based investment models and fintech are the future then? Undoubtedly part of it.

But that’s not the whole story. You’re also looking at a generation who are tiring of the fragmented digitized experience and becoming disenchanted with the facelessness of big tech. Plus, digital registered investment advisors (RIAs) are still designed around traditional models, balancing steady income creation against anticipated retirement plans. Affluent millennials have different needs. They don’t have the same attachment to a regular income – some have never known such a thing – and plan to continue investing in companies, or start brand new ones, well past the traditional age of retirement. Robo-advisors are not currently equipped to analyze risks associated with concentrated and illiquid private stock positions or to diversify discreetly. Add entrepreneurs’ complex tax arrangements into the mix, and it’s easy to see why very few wealthy millennials are plotting their financial course using AI alone.

Knowledgeable delegators 

Affluent millennials are hungry for knowledge. They are fiercely independent and confident in their ability to make informed investment decisions. Six out of ten believe they understand their holdings and investments as well as a financial professional. They are prepared to pay for high-quality financial advice, but 41% expect to discuss fees every quarter, compared with 14% of baby boomers. Does that augur poorly for wealth management professionals?

Not necessarily. Yes, these clients are more knowledgeable about investment processes, but that doesn’t mean they want to take a lead role in day-to-day operations. Once they’ve done their research, many are happy to put their money in one place and let other people interact with it directly. They are certainly less likely to follow the markets avidly. Let others ride that emotional rollercoaster; they would rather expend energy focusing on their core companies, well aware that’s their real area of expertise.

Outward-looking, but cautious

Affluent millennials are moving away from traditional bank-led investing toward new models such as social investment. They are open-minded about putting their money directly into companies they believe in. Their worldview is philanthropic and culturally inclusive. 87% believe that the success of a business cannot be measured by financial performance alone. They are just as interested in a company’s social mission as its bottom line.

But an appetite for innovation mustn’t be confused with an appetite for risk. Affluent millennials are naturally cautious investors. 52% of their assets are in cash. True, they like the look of companies with a strong social presence and the ability to create a buzz online, but they’re more likely to invest in businesses where their families have a pre-existing relationship.

A hybrid future

Financial professionals must align investment strategies with our clients’ values, or risk getting left behind. This will involve a certain amount of recalibration. We need to up our game when it comes to impact investment and improve our ability to marry highly-personalized advice with intelligent investment tools. In terms of how we present our services, it might be useful to think less manager (you sit back, and we’ll make you richer) and more consultant (we’ll use our expertise to realize your investment choices).

Some talented millennials have prospered from rapid technological innovation, but, when it comes to wealth management, those same individuals have an appetite for the substantial as well as the digitized. Think vinyl alongside a Spotify account, if you like.

Wealth advisors have a golden opportunity to put the client at the heart of the process as never before. Strike the right balance between human and machine, and we can be agents for the sort of positive change millennials want to see.