Do financial advisors pay enough attention to the investing habits of millennials?
Are financial advisors offering millennials the products and services that appeal to them?
These are some of the questions I'd like to discuss in this podcast.
Hi, my name is Keith Thompson, I'm the Northeast Division Director & Principal at Miller/Howard Investments.
A typical wealth manager may not have many millennials as current clients today. In fact, wealth managers usually have an older client base, with a recent Deloitte survey showing that two-thirds of wealth managers' clients today are over the age of 60. But this can essentially change overnight if control over a client's account is transferred upon death to a spouse or child. For advisors, this poses a business risk, and it's worth some attention and planning.
Millennials now outnumber baby boomers, and there are three times as many millennials than there are Generation Xers. According to some studies,1 over the next 30 years or so, millennials in the US are expected to inherit an estimated $6 trillion from their parents. Understandably, many private banks would like to connect with this demographic whose parents are largely their current clients.
What does the research tell us about millennials who stand to benefit from possibly the greatest wealth transfer in our country's history? According to some studies,2 millennials:
- Define themselves by experiences more than goods owned.
- Prefer intuitive and compelling account management platforms, and will move on to other options when offered outdated customer service or digital offerings.
- Are relatively conservative in financial matters as a result of the recent financial crisis
- Want their financial purchases and investments to reflect their personal values.
Miller/Howard believes that financial advisors, as a first step, can focus on the last point because millennials appear to be much more focused on socially responsible investing. According to a survey,3 millennials, especially women, place greater importance on environment, social, and governance factors than the older generations. Reliance on these factors is commonly called "ESG Investing".
So how does an advisor evaluate available ESG investment strategies? Early approaches often utilized screens to exclude "sin stocks" such as tobacco or weapons from portfolio investments. This evolved into so-called "socially responsible investing" that excluded stocks based on negative criteria, including essentially positive-impact companies as viewed by the portfolio manager.
Today's ESG managers employ an integrated approach that combines rigorous financial analysis with research into a company's ESG policies and practices. ESG builds on SRI by emphasizing active ownership through engagement on issues rather than on avoidance or dis-investment. Effective ESG managers show proxy voting records consistent with their policies, and they seek engagement with company management on key issues to drive change—whether the aim is to reduce pollution, increase diversity in management and boards, or establish reasonable limits on executive compensation.
We believe that ESG is no longer a niche consideration. Advisors would be well served by understanding and providing the new generation ESG solutions. Those who are unable to offer ESG strategies are at risk of potentially losing business, as older clients transfer assets and investment decisions increasingly shift to millennials.
Sources:
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Wealth-X and NFP Family Wealth Transfers Report
ThinkAdvisor: "Huge Wealth Transfer of $16 Trillion Estimated in Next 30 Years"
- OppenheimerFunds: Proving Worth—The Values of Affluent Millennials in North America
- Forbes: "2015 Is The Year Of The Millennial Customer: 5 Key Traits These 80 Million Consumers Share"
