Practical analysis for investment professionals
17 March 2017

Next Generation Investors: How Millennials Will Influence Finance

What will the client base of the future look like?

As investment firms chart their paths going forward, that is a key question. And millennials are an important group to consider. As they gain wealth, their preferences for investment services may well be different than those of previous generations.

Part of the reason for the focus on millennials, at least in the United States, is the sheer size of this demographic. Though definitions vary, the US Census Bureau defines millennials as the 83 million people born from 1982–2000 who now compose more than one quarter of the country’s population, even outnumbering baby boomers. The size of the millennial cohort is an outlier in the larger overall trend of ageing populations in developed markets.

Wealthfront, an automated investment service, estimates that by 2019 millennials will control $7 trillion in liquid assets. So how can advisers attract and retain these clients, and help them meet their financial goals?

Geographical differences aside, this generation shares some traits. We asked CFA Institute Financial NewsBrief readers (in an unscientific poll) which factors would matter most to finance over the next five to 10 years. A total of 558 readers responded, and their top answer (44%) was that the tech-savvy nature of millennials would have the greatest effect on the industry.

How will millennials most influence finance in the next 5–10 years?

How will millennials most influence finance in the next 5–10 years?

It is exactly this trait that firms like Wealthfront and other robo-advisers are looking to leverage. In the CFA Institute Fintech Survey Report, respondents predicted that robo-advisers would have the biggest influence on financial services, compared to other forms of fintech. Some even wonder if traditional advisers are doomed. But there is still room for premium wealth management.

Technology also allows for more customized products, and customization has been the norm for this generation more than any other. Millennials buy online and their every preference is tracked. Because of this, they expect firms to know them. In fact, their definition of “luxury” is changing, becoming synonymous with “customized,” rather than simply high cost.

The BlackRock Global Investor Pulse study picked up on this desire for personalization, reporting that 48% of millennials feel “investing is for people like me.” This is an opportunity for investment firms to show their value, yet just 5% of our respondents chose this response. It is incumbent upon those in the industry to better articulate the value proposition of investment management to younger investors, as is noted in The Value of the Investment Profession published by CFA Society United Kingdom.

One in five survey respondents (20%) thought that the longer working lives and changing perspectives on retirement of millennials would have the greatest effect. Retirement is a central goal of the investment industry, and the industry is structured around $40 trillion in pension assets. Retirement is becoming a less meaningful concept, however, as the next generation has less confidence in retirement promises — and they have been offered fewer promises. Managing lifetime wealth is a more appropriate goal, recognizing that people have financial needs throughout their lives. People will be working longer, and pension funds need to find creative ways to engage all beneficiaries.

A final trait worth noting is that millennials are more socially conscious and interested in the purpose behind their investment activities, setting them up to be enthusiastic investors in environmental, social, and governance (ESG) products, though only 13% of poll respondents chose this option.

The remaining 18% of poll respondents believe it is too early to know the potential effect, especially as millennials are known to be a bit slower to become financially independent.  The Fidelity Investments Millennial Money Survey (which looks at a narrower, older range of 25–35 years) found that 47% have received financial assistance from their parents since they have “been on their own.”

While it is true that the full effect of millennials is yet to be known, firms that proactively seek to manage this younger generation’s wealth well will have an advantage going forward.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Rebecca Fender, CFA

Rebecca Fender, CFA, is chief of staff for Research, Advocacy, and Standards at CFA Institute. Previously she lead the Future of Finance initiative, which is the thought leadership platform for CFA Institute. The group publishes studies to help investment professionals build their careers and serve their clients more effectively. Their paper Investment Professional of the Future was recently awarded Best Investment Industry Paper of 2019 by Savvy Investor. Fender has testified before the US House Financial Services Committee AI Task Force on the impact of artificial intelligence on investment roles. She speaks regularly at industry events and has been quoted in the Financial Times, Bloomberg, and the New York Times, among others. Prior to joining CFA Institute, Fender was a vice president at BlackRock working with pension funds and endowments, and she also worked at Cambridge Associates, where she published research about manager selection. She earned her undergraduate degree in economics from Princeton University and holds an MBA from the Darden School at the University of Virginia.

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