Judging what young people want from their portfolio
Investor expectations are taking a radical shift as wealth passes from one generation to the next. In this series on the Great Wealth Transfer, Jonathan Gain, CEO of Stellar Asset Management, looks at what young people want from their legacy portfolios and how independent financial advisers can keep pace with Millennial and Gen Z beneficiaries’ changing demands.
As the UK’s baby-boomers pass on more than £5 trillion to the next generations over the coming 30 years, young people are set to acquire significant financial power. A crucial question for advisers is how these younger beneficiaries want to manage their newfound wealth. Not only do they have a very different take from their parents and grandparents on where they should invest, but also how.
Three ways young people are shaking up the investment market
- Young investors prioritise ESG, but won’t compromise on returns
Young investors are far more likely to focus on sustainability, social inclusion and other environmental, social and governance (ESG) priorities than their baby-boomer parents and grandparents. However, young investors are not prepared to accept lower financial returns in exchange for meeting their expectations on ESG. As an adviser, therefore need to find ways to deliver outstanding financial as well as social and environmental performance. - Young investors take their cues from influencers
Young people are increasingly looking for financial advice online and making their investments through digital channels. This shift could threaten advisers who fail to develop effective digital engagement and services. At the same time, it could open up growth opportunities for advisory firms as people start investing at an earlier age. The risk of advisers losing out could be heightened by the extent to which young investors now take their cue from social media influencers (‘finfluencers’) rather than professional advisers, though social circles also shape their financial decisions. While the digital shift is democratising investment, it could also create growing hazards for susceptible young investors. The dangers include piling into the latest investment fads, taking excessive risks or becoming the victim of scams. As an FCA study highlighted, the vulnerabilities could be heightened by a tendency towards impulsiveness – two-thirds of young investors take less than 24 hours to make investment decisions. - Young investors can be surprisingly conservative
Research suggests that many young investors are more conservative in their investment choices that is often assumed. When you think that many have come of age during times of financial crisis this is perhaps unsurprising. Young investors tend to be more focused on realising specific financial goals rather than absolute returns, marking them out from their older counterparts. They measure performance on progress towards these objectives and are prepared to accept short-term losses if the long-term trends are in their favour.
Advisers cannot afford to stand still as young investors reshape their market. Yet research suggests that many advisory firms are underestimating the scale of the shift and risk from losing funds through intergenerational wealth transfer. Nearly half of the advisory firms taking part in the study had lost more than 20% of their AuM in the last financial year as a result of intergenerational transfers, with 15% reporting drops of 50% or more.
What is at stake for advisers
While the study found that a significant proportion of legacy beneficiaries choose not to use their parents’ and other benefactors’ advisers, a surprising number of advisory firms have no retention strategy. With younger clients preferring to work with younger advisers, the challenges of retaining beneficiaries are compounded by an ageing adviser workforce and a lack of active recruitment to bring in younger professionals.
