Millennials setting the rules of financial advisory – Time to take Robo Advisory seriously?

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To be successful in investment advisory and asset management, you cannot force Millennials to work your way. You need to understand and adapt to their world. As Millennials’ everyday life may differ significantly from the older generations, you might think that so does their investing habits. Whereas in technology Millennials might be trendsetters, in investing they actually lag behind and are likely to follow trends set by others – if following trends at all.

The Millennial Generation has grown up surrounded by rapid change, uncertainty and technology. They have seen two big market drops, their parents struggling losing their investments and jobs, and they already have big student loans on their shoulders. After knowing the background, no wonder Millennials might be somewhat afraid of investments and markets. According to a survey, Millennials hold dramatically higher cash allocations than Non-Millennials: where asset allocation for Non-Millennials is 46 % in stocks and only 23 % in cash, Millennials tend to have 52 % in cash and only 28 % in stocks. This allocation does not refer to Millennials’ cash needs, but it reflects their wariness of markets and long-term investing.

– Also referred as Generation Y
– Born between 1980s and 2000s
– Grown up with rapid change, uncertainty and technology
 

 

Scepticism lies in the nature of a Millennial

Seeing their parents investing in something they didn’t probably even understand and then losing all in a market drop, Millennials want to be sure what they are doing. Millennials want to know exactly what, when, why and how. This thirst for knowledge is of course healthy but in some cases may also restrict one’s decision making by making things too complicated.

And when it comes to financial advice, Millennials are not that trustful. They want to retain their place on the driver’s seat. As they have grown up with technology and all the information just a couple of clicks away, they are more likely to try to find relevant information by themselves rather than relying on someone that they don’t even know personally. For financial advice Millennials tend to trust their own sources, family and friends. According to a survey, Millennials actually tend to associate investment advisors with salesmen. It is just normal life for Millennials to rely on algorithms to find the best deal on flights, shoes and pizzas, so why wouldn’t they rely on the same artificial intelligence when it comes to their investment advice? It is easier for Millennials to trust algorithms to work for their best interest rather than another human being, who might have a conflict of interest between the best solution for the customer and the best result for themselves.

 

It is just normal life for Millennials to rely on algorithms to find the best deal on flights, shoes and pizzas, so why wouldn’t they rely on the same artificial intelligence when it comes to their investment advice?

One for all, and all for one

Instead of chasing fortunes, Millennials are chasing happiness and a good life. A successful life is not only defined through financial success, but also through emotional experience and activities. Money still matters to Millennials as they dream of financial freedom. They tend to think that money impacts success and happiness. Rather than trying to beat the market, Millennials measure their success by their own, personal goals.

Even though Millennials are considerably wary of the market, they are also pretty optimistic for their future. More than half of Millennials think that they already have or will achieve a better financial situation than their parents. Millennials just do not believe that long-term investing is a way to reach that goal, and surprisingly they have a somewhat more conservative attitude. Millennials believe that hard work pays off and by working and saving more they are able to reach their goals. By working hard Millennials do not want to get more for themselves but they want to be part of making something significant. They want to be part of a system where anyone can win. That also fits well with the fact that Value-Based Investing and the importance of Social Responsibility are more popular than they have ever been.

Consumers having more power than ever forces companies to rethink their service models

From financial advisors Millennials are expecting more than just financial advice. They expect that investment managers understand their needs and communicate with the same language as they do. A growing number of Millennials are expecting their asset manager to provide Value-Based Investing and the kind of products and services that they are not able to find anywhere else. As entrepreneurial by nature, they also seek access to funding for their own businesses. Financial advice is just one of the things that Millennials are expecting – they seek relationships, connections and networks that they can diversely benefit from now and in the future.

As Millennials might have a hard time seeing the value of investment advice, investment advisors and asset managers need to re-think their pricing and service models. When Millennials have become used to pay their Spotify, Netflix and gym membership on a monthly subscription basis, would a monthly retainer be a solution when pricing investment advice services? By Millennials believing more in algorithms than human beings, could for example Robo Advisory or index investing be the answer to investment management companies for winning the trust of Millennials?


In the world of Millennials, customers have more power than ever. This is the end of the time where companies were able to push something from the top level to the bottom. Nowadays customers and employees working in the customer interface are the ones setting the rules.


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