Move over Baby Boomers, it’s time for a new wave of investors to shape the future of the asset management industry: the Millennials.
Who are they? The term refers to people born between the early 1980s and the early 2000s – they are also known as Generation Y.
By 2020, Generation Y and Generation X (those born between the mid-1960s and the early ‘80s) will represent 60% of the global workforce, according to PwC. As consumers, their demands are different from the generations that have gone before, and the financial providers in particular will face new challenges in figuring out how best to serve these tricky customers.
But there are a few prevailing myths about Millennials which we first need to debunk.
1) They don’t have any money
Millennials are the entrepreneurs and business leaders of the future. They haven’t had everything handed to them on a plate like the Baby Boomers did. They had to pay for further education, and are struggling to get on the property ladder. Many are now priced out of certain areas, so they are moving to the provinces, helping cities like Manchester and Birmingham become centres of innovation to rival the capital.
They are working for themselves or building start-ups, using new methods such as crowdfunding to finance their ambitions in an environment of limited bank lending. They won’t become millionaires overnight, but they will be the clients your business wants in the coming years.
2) They aren’t engaged with financial matters
They do want to engage, but in different ways. It’s not longer enough to send a quarterly fund report in the post, these consumers want real time information and one-to-one contact with a real person.
They are used to doing everything through their smartphones, tablets, and laptops, and they expect to manage their finances this way too.
Aberdeen’s head of corporate communications James Thorneley said: “Anecdotally, I would suspect Millennials will want far more accessibility and will want to interact via their mobile handset rather than waiting for a six monthly statement or being placed in a queue at a call centre”.
And, because they’ve lived through at least two major financial shocks – the dotcom bubble and the global financial crisis – they are more conservative than the generation before, and also more skeptical. Financial firms will have to work even harder to sell to them.
3) They aren’t saving for retirement
Almost half of Millennials in the US (47%) have started to save for retirement, according to a survey conducted last year by Fidelity Investments. The Millennial Money Study, which surveyed more than 1,000 adults in the US aged 25 to 34, also found the top three issues Millennials are trying to tackle are: accumulate more savings for retirement (52%), pay off credit card debt (41%), and pay off student loans (28%).
So the intention is there, which is half the battle, it’s just that many Generation Y-ers are weighed down by debt.
Aberdeen’s Thorneley said: “The decline of DB pensions schemes and the uncertainty of state pension provision may mean individuals take much more interest in pre-retirement planning. On the flipside though, the increase in the number of students leaving university with debt and the struggle for young people to get on the housing ladder may mean investing for a pension is not a priority.”
4) They are fickle
It’s true that they’re not loyal to a particular brand for the sake of it, or because of inertia. They are willing to switch between service providers if they see a benefit to doing so, and this process is becoming easier (note the fierce battle raging in the banking sector to poach each other’s customers through one-off incentives). One in three Millennials say they are open to switching banks in the next 90 days and believe they won’t need a bank in the future, according to PwC.
Interestingly, Millennials aren’t tied to the idea of only buying products from traditional financial brands. They are happy to entertain newcomers – tech firms, challenger banks, supermarkets – even where there is no demonstrable performance track record.
Does this make them fickle, or simply more discerning consumers?
The financial services sector is already changing rapidly to accommodate the demands of the next generation of consumers – the rise of roboadvice is a clear indication of this. BlackRock, the world’s largest fund manager, recently acquired roboadvice firm FutureAdvisor in a landmark takeover. Expect more deals like this as the industry reshapes its offering in order to woo Generation Y.
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