A new report by Bank of America has described wealthy investors between the ages of 18 and 35 as savvy, independent and skeptical. But the firm also identified a “classic perception versus reality scenario.”

A new report by Bank of America has described wealthy investors between the ages of 18 and 35 as savvy, independent and skeptical.

But the firm also identified a “classic perception versus reality scenario” as, contrary to some stereotypes, the differences between these so-called millennial investors and their parents’ generation are actually very subtle, it said.

According to the Young High Net Worth Insights survey - conducted in February by Merrill Lynch’s private banking and investment group - 83 per cent of millennial investors feel that they “somewhat or fully understand” their parents’ approach to investing.

And while many of these believe their investment approach aligns closely with that of the previous generation, less than half (46 per cent) actually discuss financial matters with their parents, the survey found.

However, rather than a perceived “disconnect,” there is a “real opportunity” here, Michael Liersch, director of behavioral finance at Merrill Lynch Wealth Management told Family Wealth Report.

“I think the biggest opportunity based on what we’re seeing from the data is that younger investors want to be seen as individuals and they want advisors and wealth managers to come to them with a structured way of helping them articulate what they want out of the investment process and what they need to do to achieve that,” he said. 

Highlighting this, although 59 per cent of the survey participants currently work with a wealth advisor, most (72 per cent) also describe themselves as “self-directed” investors.

“So that translates into this notion that they want to understand what’s going on and why the investment strategy is designed the way it is - all the way from generating resources that will last for a lifetime to things like social impact investing,” Liersch said.

The survey involved 153 investors with at least $1 million in investible assets and participants included both those who had inherited much of their wealth and those who had acquired it via entrepreneurial ventures or lucrative professions. This is significant because there are “unique concerns” to those younger individuals who have inherited wealth, according to Liersch.

For example, those who have inherited much of their wealth may be very focused on wealth preservation and not succumbing to the “shirtsleeves to shirtsleeves” phenomenon, whereas entrepreneurs who have built their own fortunes might want to understand how to control their own behavior as they recognize that investing isn’t always in their control, he said.

But perhaps most crucially, Liersch added that younger investors want their investment process to reflect what matters to them.

“I think a lot of the time they feel that the investment process reflects investments, which they don’t necessarily feel connected to or regard as personally meaningful,” he said.

“Meaningful” connections  

When it comes to sources of financial and investment information, 27 per cent of wealthy millennials turn to social media or blogs, BofA found. This is significantly lower than “traditional media” such as general and business television newscasts (67 and 58 per cent respectively); national newspapers (55 per cent); and magazines (52 per cent).

But while 56 per cent described themselves as “moderately knowledgeable” regarding such matters, just 19 per cent believe they are highly knowledgeable and 25 per cent admitted to having “very little” knowledge.

Challenges of inherited wealth  

“Lacking financial acumen, or at least a healthy relationship with money or investing, can be especially challenging for young adults who inherited wealth or grew up in families where wealth was not discussed,” the firm warned.

It added: “Merrill Lynch private wealth advisors find that adult children in wealthy families will often avoid talking about money in family settings because they are worried that they will somehow disappoint their parents or, conversely, that if they ask too many questions about family money they might be seen as overstepping or entitled.”

Meanwhile, according to Liersch there tends to be two types of family, broadly characterized as those that “really do” communicate with one another about their values (and thus how to translate that into an investment strategy), and those who “do not talk about it at all.”

But, he said: “The interesting part is oftentimes these two behaviors within families come from the same place […] - this notion of being good wealth stewards and not being centrally focused on money as a vehicle for everything.”

Outlook 

BofA highlighted that every generation has distinguishing characteristics born of its historical moments, so there are bound to be important disparities between this generation and its predecessors.

“These wealthy millennials are savvy, independent and skeptical; they value expertise, question everything and intend to maintain control of their financial destiny, but admittedly lack a high level of knowledge about investing,” Liersch said.

Meanwhile, this segment seems to be “uniquely focused” on not spending down money too quickly or irresponsibly, while also having a positive impact on the community and making money, he told this publication. “I think this is something very unique to this generation based on things like social media, as well as traditional media and other mounds of information that is now available to younger investors,” he said.

There is a “huge opportunity” to connect with the next generation in a way that allows them to work both with an advisor and autonomously, he added, saying: “those two things aren’t incompatible with one another.”

So traditional values resonate with these younger investors - illustrated in part by the finding that 65 per cent believe their parents' approach to investing still works in today's environment (versus 35 per cent who do not hold this view). But, importantly, they also want to be seen as an individual who is engaged.

In fact, contrary to popular belief, BofA said the survey revealed that among young investors not already working with their parents’ advisor, half (49 per cent) said they would be open to doing so.

“Today’s young adults want to work with wealth managers who can help them devise strategies that are open, transparent, adaptive and ongoing, and that align to their life goals and values,” said Phil Sieg, head of the ultra high net worth client segment and solutions at Merrill Lynch Wealth Management.

Interestingly, a recent survey by Accenture found that millennial investors are more conservative and less trusting of financial advisors than their older counterparts, baby-boomers (age 46-70) and generation X (age 31-45). The younger generation are also more inclined to consult other sources before accepting financial advice, but are nonetheless are a highly viable target for advisors, it found.