Did you know that Canadian Millennials, along with parts of Gen X and Gen Z, are set to inherit about $150 billion by 2026? In the United States, this figure is expected to reach an astonishing $68 trillion by 2030. This massive transfer of wealth from the Baby Boomer generation to their children and grandchildren, known as the ‘Great Wealth Transfer’, will require the financial services industry to adapt to the needs and investing styles of Millennials.
Who are Millennials?
According to Pew Research, Millennials were born between 1981 and 1996, making up over 25% of Canada’s population. They are a unique generation, having experienced an analogue childhood followed by a digital adulthood with the rise of Facebook.
The oldest Millennials are now entering their 40s and have lived through significant economic changes. They started their careers around the time of the 9/11 attacks and the 2008 financial crisis. In Canada, many have struggled to buy homes due to a hot real estate market, even during their prime earning years.
Millennials often face unfair stereotypes, being labeled as “entitled” and “lazy.” They are also seen as overconfident and ambitious with their financial goals, including early retirement. However, studies show that this generation is more realistic and has a growing interest in areas beyond traditional finance.
Millennials and Money
When it comes to finances, Millennials have modest goals. They aim to avoid living paycheck to paycheck and build some retirement savings, though many doubt they will be able to retire at all. Income and debt are significant barriers for those who do not invest.
A lack of financial knowledge also holds many back. A 2018 study by the FINRA Investor Education Foundation and CFA Institute found that less than half of Millennials feel confident in their investment decisions. Most agree they lack knowledge about investing, countering the perception of overconfidence.
Having grown up in the digital age, Millennials expect financial services to include technology. They prefer mobile apps and platforms with social media integration. Most rely on the internet for investment research and advice. While robo-advisors offer a cost-effective solution, fewer than 20% of Millennials are interested in them. They still value human interaction, recognizing that robo-advisors cannot fully understand the complexities and emotions of significant life events.
How do Millennials Invest?
A survey by The Motley Fool found that both Millennial and Gen Z investors prefer a mix of traditional and new asset classes. They are not particularly interested in trendy stocks like SPACs, IPOs, and meme stocks. Survey results include:
– 73% of Gen Z investors, 66% of Millennial investors, and 67% of investors aged 18 to 40 own stocks. 58% own growth stocks.
– Millennials value diversification, with 47% investing in mutual funds and 23% in ETFs.
– Historical stability, not social media buzz, is the most important factor in stock selection.
Millennials are not as confident in their investment knowledge as some might think and are relatively conservative investors. Many who do not use a financial professional cite fees and lack of resources as the main reasons, not distrust. According to the FINRA report, about 40% of Millennials do not know the fees charged by financial professionals. Of those who estimated the fees, 75% believed them to be 5% or more of their investable assets.
For Millennials, trust in financial advisors is built through education and ensuring their interests come first. They want advisors to explain their actions and assure them that transactions are in the clients’ best interests.
Millennials and ESG Investing
When making investment decisions, Millennials consider factors beyond company performance and earnings. The Responsible Investment Association (RIA) noted that Millennials are 65% more likely than Boomers to consider environmental, social, and governance (ESG) factors. They evaluate a company’s corporate behavior and societal contributions and are interested in investments that address social and environmental issues.
“Millennials see money not just as economic value but as an expression of their ideals, such as inclusion, diversity, social justice, and climate change,” says Dr. Brooke Struck, Research Director at The Decision Lab. This presents an opportunity for financial professionals to adapt their services.
Women are leading the charge in ESG investing. A study by RBC Wealth Management found that women are more than twice as likely as men to prioritize ESG factors in their investments.
Many asset managers and service providers now recognize the importance of socially responsible investing. They are becoming signatories to the United Nations-backed Principles of Responsible Investing (UNPRI). Partner companies like Connor, Clark & Lunn Private Capital and Longview Asset Management are proud signatories.
What do Millennials Want from Financial Advisors?
Contrary to popular belief, Millennials’ needs are simple. They want to learn. A 2017 study by Accenture found that over 50% of Millennials want to learn more about cash flow management, budgeting, and planning for specific life goals. They seek educators to expand their financial and investing knowledge.
Millennials prefer a hybrid approach to financial advice, combining digital tools with human advisors. As they age, they will manage their own families and aging parents, requiring nuanced advice. Financial professionals can support Millennial clients with one-on-one interactions supplemented by digital resources like online tutorials.
Millennials are a large and diverse group. As the Great Wealth Transfer continues, they will need personalized financial advice tailored to their unique needs.