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INTERVIEW: Warning To Wealth Managers: Millennials Are Just Not That Into You

Tom Burroughes

25 April 2017

High net worth Millennials are supposedly passionate about investing to do good – at least that’s what the surveys say. They also want to invest more directly in businesses. Keeping up with such a demanding client base needs special skill and labor. And the US wealth management sector must raise its game accordingly, OppenheimerFunds argues.

The US-headquartered investment house reckons that the kind of skills and work needed to accommodate Millennials’ requirements must change to ensure advisors retain them as clients. Given that Millennials are famously uninterested in traditional brands, attracting them and retaining their business means firms must be creative, Ned Dane, head of private client group at OppenheimerFunds, told Family Wealth Report in a recent interview.

Millennials are keener on holding direct, illiquid investments, for example, and this enthusiasm is appears to be a recent development as it was not evident two years ago in the firm’s research around that time, he said. OppenheimerFunds has just issued a new survey of attitudes towards wealth and investment among different population grtoups.

The "Generation Y" group also have a relatively high risk appetite and like to do lots of direct deals, which can become a problem if not seen in the context of a coherent, broader asset allocation approach, Dane said.

One challenge is guiding Millennials on what is possible with investment. As any smart wealth manager knows, managing client expectations is a big part of the job. In the case of ESG/impact investing, baking ideas about environmental, social and governance goals into investing is an approach that has not yet been fully tested by a recession, for instance.

“There is a quick evolution of building all of these ideas into portfolios while making portfolios that will endure,” Dane told FWR. “This is a big challenge.”

The approach known as “impact investing” - putting money to work to achieve specific outcomes that go beyond financial returns - is gaining ground, although still relatively young. A survey by the Global Impact Investing Network published last year said respondents committed a total of $15.2 billion to 7,551 impact investing deals in 2015; admittedly, that figure is a drop in the ocean compared with the total of more than $3.0 trillion invested by hedge funds, for example. BlackRock, the world’s largest listed investment house, currently oversees more than $5 trillion in AuM alone. There is a lot of room for growth before impact/ESG investing ideas can match those numbers.

Itchy feet
Still, Millennials’ interests in ESG investing is only one of the ways they are said to differ financially from older generations. There is the issue of how close they feel to the financial advisor that had served their elders. OppenheimerFunds' latest report demonstrates that wealth managers must heed the views of clients’ spouses, children and other relations as much as the primary client contact. If a client died, for example, and an advisor had to work with a widow with whom there had been previously a weak relationship, that widow could walk away. And with the children, ties could be even weaker.

Getting a connection with the younger generation has prompted wealth management firms to try a range of ideas, such as education programs for next-gen clients . And no wonder: the opportunity for wealth managers in retaining such clients, and adding them, is huge. Within the US alone, an estimated $36 trillion of wealth is expected to be transferred from estates to heirs between 2007 to 2061. At the ultra-high net worth end of the spectrum, within the next 30 years, the total value of global UHNW wealth transferred down through generations is estimated, according to one study, to reach nearly $16 trillion, an unprecedented amount. In the RBC/Capgemini World Wealth Report 2015, to take another example, that survey queried more than 800 wealth managers across 15 regions and found that 76 per cent of this group say they understand the needs of younger HNW clients – while only 61 per cent of younger HNW clients agreed with that point.

Back with the OppenheimerFunds’ report issued a few days' ago, it found that while ultra-wealthy Millennials enjoy a growing influence in managing their families’ wealth, the study found only one fifth are fully satisfied with their families’ current objectives and many plan to make changes in how investments are managed when they assume full control. Most Millennials are trained and knowledgeable about their family’s portfolio and are beginning to take more measured risks with their individual investment strategies. A clear majority seeks professional advice before making investment decisions; however the research found that the dynamic between advisors and Millennials could be improved.

This worry about what can be done to hold onto the next generation, with its preference for digital technology, different attitudes on investing and disdain for “stuffy” or traditional brands, has been and remains one of the largest concerns for today’s wealth management sector. It is one of those concerns that keeps CEOs awake at night.

“We needed to better understand the challenges that families are facing,” OppenheimerFunds’ Dane said, explaining why his firm embarked on the report into client attitudes. He gave the example of a widow of a client moving onto another firm where that person feels they have more of a connection. “In about seven times out of 10 what happens is that she or he will take their money somewhere else,” Dane said.

There have been a number of reports into how Millennials differ from earlier generations. And they are impatient, it seems. A few days’ ago, a JD Power 2017 US Full Service Investor Satisfaction Study showed almost half – 48 per cent – of affluent Millennials expect to fire their wealth managers in the next 12 months, while only 8 per cent of those in other age groups expect to do so.

One issue that arises is whether Millennials’ enthusiasm for impact/ESG investing and other more “progressive” approaches will hold up if or when there is a recession and slide in global markets. Even so, advocates of impact/ESG investing, for example, argue that taking into account wider effects of putting money to work is also just good investing practice. But impact investing has yet to be severely tested. And Millennials may also find that their real financial priorities aren’t all that different from those of Mum and Dad as the years pass by. The trick for wealth managers is being able to hold Millennials’ hands in the meantime before the full realities set in about death, taxes and the cost of living.