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What are the next generation of investors looking for?

Posted on 28 November 2018

What are the next generation of investors looking for?

When you hear the word 'millennial' what springs to mind? A generation of entitled, self-centred, unhappy moaners? That's what Scorpio Partnership, a research and strategy consultancy to the global wealth sector, suggests the media has portrayed them (full disclosure: us) as. Those who have grown up with instant gratification, who have become addicted to dopamine and – we know this bit to be true – now spend an average of four hours per day on their smart phones. 

To top this all off, there's a millennial reputation for being, to put it bluntly, a little bit precious – what's referred to as a "snowflake" – unable to take a joke because they take themselves too seriously. Scorpio points out that, for some, the Twitter backlash against 'Monopoly for Millennials" (slogan: 'Forget Real Estate. You can't afford it anyway') reinforced this. In the game, participants win by acquiring the most experiences – trip to a vegan bistro anyone? - instead of money. It came under fire from its target audience as an example of 'negative cultural appropriation' created, surely, by the baby boomer generation before it.

But, if we flip this on its head, says Scorpio's Senior Manager Tasha Vashisht, speaking at our roundtable event at which we discussed the cultural differences in the next generation of investors, we see that brands like Monopoly creators Hasbro are paying 'millennials' a big compliment. Millennials are being recognised. Their values and attitudes are garnering attention for being unique, and this – ultimately – is flattery. Here we have a generation perceived to have serious disruptive potential – one that is seeking a new status quo, with sustainability and social impact at its core. Arguably, it has arrived not a moment too soon, given an estimated $4 trillion is expected to be passed down within a generation in the UK and North America alone, according to research by RBC and Scorpio Partnership from 2017. This would represent the largest transfer of wealth ever.

The expectations and values of the tech-savvy millennials differ from those that have gone before them, most notably when it comes to social, economic and environmental issues. They have grown up in a period of rapid change, including huge technological leaps, climate change and economic upheaval. So what does this generational difference mean for the investment behaviours of those millennials who are managing wealth, whether it be inherited, or self-generated? And how does the approach of wealth managing millennials vary cross culturally?

According to Scorpio's global research of millennials aged under 35, 70% are risk averse when it comes to investing. They are more concerned with protecting their assets than with growing capital – the opposite of what a wealth manager would advise them to do, says Tasha. Those in the UK focus on cybercrime and fraud risks – those which can be controlled, meanwhile in Singapore and Australia, respondents tended to be more concerned with systemic risk, including market volatility and other factors that cannot be planned for. Consequently, UK millennials are more willing to take on risk than their peers in Asia Pacific.  

That said, UK millennials were found to be less confident in their financial understanding than their peers in Asia and the US. This confidence could be linked to differences in the technical nature of the financial education curriculum, in which Asian millennials are able to focus more on investment strategy and portfolio management, while UK millennials value their understanding of family governance and wealth transfer – key factors of NextGen programmes that are run by wealth managers. Private client advisors around the table supported this sentiment, saying that – in their experience – British millennials tend to seek the emotional bias of an advisor.

Advisors also found that millennials are increasingly interrogating the advice they are given to ensure it is robust, often arriving at meetings armed with research and seeking more regular updates than the generation before them. It was felt that, post financial crisis, they want to feel properly informed and be kept in the loop. New apps that are democratising the stock market and thriving in countries such as China will not be able to satisfy this human requirement, and will therefore not be maximised by those more sceptical of objective, tech-based options. That is, until confidence in technological security and attitudes towards data sharing improve in the West.

Millennials distinct attitude towards social impact is a key defining feature of the generation. And culturally, this means different things in different regions, which translates into varying investment behaviours. In the UK, transparency in the investment process is a priority in determining whether their wealth management firm is a responsible organisation. Further East, investors are scrutinising advisors much more closely in terms of environmental, social and governance factors.

The different behaviours derived from the personal values of millennials pose new challenges for professional advisors. In the USA, millennials are, as Tasha puts it, putting their money where their mouth is – with a whopping 69% saying they expect their socially responsible investment allocations to be higher. For this reason, she believes any organisation not thinking about its brand in terms of its responsibility towards employees, society and the wider environment is doing something wrong.

This Next Generation roundtable, hosted by Associate Millicent Freeman, was part of Mishcon de Reya's The Things That Matter: The Next Generation is a programme of events that prompts new thinking, discussion and debate on the issues that our clients care about most.

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