Even though millennials may be the first demographic in modern history to be comparatively less well-off than the generation that preceded them, they are expected to benefit from an unprecedented inheritance windfall, which some estimates predict could be as high as USD$24 trillion. However, millennials are unlikely to receive this incoming cash pile until much later in life, creating a unique challenge for investment managers. As asset managers increasingly contemplate their own future in this fast-changing market environment, they are trying to identify ways to win over millennials.
Understanding Australian millennials
Our recent study found Australian millennials share a number of commonalities with their global peers insofar as they are not that interested in finance and investing, but instead prioritise travelling, social media and gaming. Even though Australian millennials are better savers than their counterparts in Europe and North America, 84% of those who did not save said it was because they simply could not afford to, the survey found. Accommodation costs were highest among the samples that we took in the Australian market.
However, there are grounds for optimism. Despite millennials beginning their careers during the financial crisis, they do not hold a negative perception of financial services. 61% of Australian millennials, for instance, told us that they had a positive opinion about the sector. Moreover, 76% of Australians confirmed they intended to invest in the future. In terms of investment criteria, Australians prioritise long-term returns (60%), fees (59%) and transparency (57%). Despite the industry’s crusade to promote ESG (environment, social, governance) causes, our survey found the majority of millennials to be largely indifferent to ethical investing.
When it comes to seeking advice, our study found that Australian millennials prefer speaking to people – whether it is their family, IFAs or banks. The digital generation want to speak to people too.
Transparency and trustworthiness
In order to win millennial mandates, the funds industry needs to demonstrate that it is both transparent and trustworthy, according to a number of experts at the Calastone Connect Forum. Progress is, however, happening in Australia although it has primarily been regulatory-led. February 2019 marked the release of the eagerly awaited Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the findings of which are likely to impact fund management, wealth advisers and IFAs. While the Royal Commission stops short of imposing prescriptive structural reforms, it has created an accountability regime and provided guidance to financial institutions on how they can improve their overall culture, remuneration practices and corporate governance standards.
If the industry is to attract more capital from retail investors (including millennials), fund managers need to become less fixated on complex jargon, explains Simone Newman, head of distribution and marketing at APN Property Group. “There is more information and data than ever before but that does not mean consumers are better educated. In fact, I believe customers are actually quite overwhelmed by all of this information. Moving forward, managers need to share information in a way that is digestible, meaningful and possibly even entertaining. If we deliver content to clients that is too complex, it separates us from the consumers. The funds industry does not have to demonstrate its superiority or intelligence but instead, it needs to smarten up the way that it produces content marketing for retail customers,” says Newman. If the funds industry is to win more mandates in this current environment, it needs to start by at least becoming more accessible to ordinary investors.
Winning the digital battle
Most millennials tend to be cash poor yet digitally attuned, which means the funds industry is going to need to evolve accordingly. Despite living in an environment where people can compare the best deals or purchase goods instantaneously online, the process of buying or redeeming from a fund continues to be heavily intermediated. In response, Richard Harris-Smith, deputy group CEO at OneVue, says the industry is embracing new technologies like DLT (distributed ledger technology), AI (artificial intelligence) and data analytics to help provide a faster and frictionless service to end customers. “We need to continue to leverage technology to ensure clients receive information seamlessly and in turn provide an ability for clients to invest more efficiently,” continues Harris-Smith.
Not only does intelligent use of technology make the investment process less onerous for retail clients, but it can also generate sizeable cost savings. Calastone has migrated the technology underpinning its network onto a DLT-enabled market infrastructure. Not only will this development digitalise the trading and settlement of funds, but the mutualisation of the fund distribution process could net savings of around £3.4 billion for the entire global industry. By making it cheaper to invest and ensuring the process of buying funds is an enjoyable, straightforward experience, the industry will become more attractive to millennial clients.