Tuesday 21 March 2017 1:45 pmCFA Institute Talk

How millennials will influence finance

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Rebecca Fender, CFA, is head of the Future of Finance initiative at CFA Institute. Prior to joining CFA Institute, Rebecca 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.

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.

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 per cent) 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?

It is exactly this trait that 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 customised products, and customisation has been the norm for this generation more than any other. The BlackRock Global Investor Pulse study picked up on this desire for personalisation, reporting that 48 per cent of millennials feel “investing is for people like me.” This is an opportunity for investment firms to show their value, yet just 5 per cent 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 of the UK.

One in five survey respondents (20 per cent) 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, but is becoming a less meaningful concept, however, as the next generation has less confidence in retirement promises. Managing lifetime wealth is a more appropriate goal, recognising that people have financial needs throughout their lives.

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 per cent of poll respondents chose this option.

The remaining 18 per cent 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.

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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