The Millennial generation (those born between 1982 and 2000) holds important and somewhat mystifying prospects for the investment management and financial advice community - both in terms of bring a new talent pool and as the next generation of investors.
Companies continue to ponder how to finesse their communications and messaging to attract this growing market segment, which has a host of distinct issues compared with previous generations.
There is no doubt that it is a very different world for Millennials, and we must not underestimate the impact this will have on the industry and its client base.
Millennials have come of age in the context of economic crisis and the resulting era of slow recovery and job scarcity. They continue to battle debt from rising university fees alongside skyrocketing housing prices (either in purchase or rent).
The strain on this generation is undeniable as they face the prospect of being the first generation to earn less than their predecessors over the course of their working lives, not to mention the realisation that they may need a £1m pension pot to fully retire (according to research by international advisory and accountancy firm Mazars); and with defined contribution models being the norm since the demise of the lucrative defined benefit model this will be a challenge. All this presents quite a conundrum for our industry.
On the one hand we have a generation that, on the face of it, may not appear an attractive market to the investment management and financial advice industry with so many challenges and an initial lower net worth.
On the other hand this must be tempered against an ageing client base and a need to begin the pipeline for future clients. And in contrast, firms must also consider the rewards of a growing tide of millennial entrepreneurs who have a higher net worth and need investment management and financial advice solutions today.
Our industry undeniably needs to build relationships now, and develop educational programmes and meaningful engagement in a way that speaks to this base while remaining economically viable for the firm.
Millennials are a digitally-savvy cohort with different needs, values and ambitions to the preceding generation to meet. Pimfa members will need to shake up services and product offerings to make them relevant to millennials and capitalise on the opportunities and challenges presented.
PIMFA 2017 Millennial Forum research identified that most of the respondents had concerns about investments and pension planning but felt that these remained unobtainable for them while they focused on keeping their head above water and swimming towards the ideal of home ownership.
As many as 67 per cent of respondents surveyed across gender, income and profession felt that investment was “not relevant to them” due to the current size of their investment pot being too small.
One of the Forum’s research groups called on the industry to be prepared to take on an initial loss in order to on-board clients at an early stage from this cost-conscious generation, developing client retention over a longer term horizon.
Their proposal included lowering the minimum required investment thresholds, while adding fees tiered by age to help encourage millennials to step up their investment strategy.
Millennials expect technology to be slick and empower them as a norm in terms of product delivery, not as an exceptional service. But at the same time, this cohort has also shown the value they attach to face-to-face investment relationships. To accommodate these needs, ‘bionic advice’ as a hybrid solution may provide the way forward.
Some millennials' priorities are similar to those of preceding generations, that is, buy a house first with considerations of savings and investments following after. But buying a home today is so expensive that any products that can help manage tax efficiently while saving are very important and will resonate with clients.
Our industry can also help them look beyond this and discuss investment strategies that may get them to their goal in a different way – from the Help to Buy Isa all the way to a risk appropriate investment profile in equities.
Liz Field is chief executive of Pimfa
