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Will millennials change the investment landscape?

Millennials recently became the largest demographic cohort, and now 29% of the Australian population was born between 1980 and 2000. By 2030, they will represent the largest source of income and consumer spending, earning two out of every three dollars in Australia. While much has been written about how the shift in spending patterns will change the retail landscape (online over brick and mortar and experiences over materialism) relatively little research has focused on the changes to investing and asset management. Over the next two decades millennials will not only become the largest earners but are also set to inherit significant wealth, further increasing their importance to the investment industry.

Tech savvy and socially responsible

Much of the focus on the investments of millennials has to date revolved around the growth of passive/ETF investing (according to Commsec, millennials now account for 25% of ETF trades) and the use of ‘robo-advice’. Both have largely been driven by lower minimum investments and perceived low fees, making them attractive entry level propositions. While these trends are likely to continue, millennial investors are also likely to move into more traditional investment products as they build wealth over their lifetimes. Indeed, we are already beginning to see this, with Commsec finding that 50% of all new customers are under 35 years of age while millennial customers have increased by 51% over the last five years and now represent 28% of all active members.

With 87% of millennials believing that business success should be measured by more than just financial performance, one of the largest changes is likely to be the continued growth in responsible, sustainable or ‘impact’ investing. Growth in these strategies is accelerating in Australia, with rise in funds invested in ‘core responsible investments’ from $11.9 billion in 2006 to $64.9 billion in 2016 and reaching 4.5% of total assets, as shown below. Market share remained under 2% for the majority of the last decade, but have surged in the last few years.

Core responsible investment strategies as a percentage of assets under management

Source: RIAA, Responsible Investment Benchmark Report 2017 Australia.

With 85% of millennials interested in or currently using social impact investments, this trend is likely to accelerate further as they make up a larger proportion of the market. Additionally, 85% of millennials now consider investment decisions as a way to express their values. Financial investments will become more aligned with social, political and environmental factors.

At CFSGAM, we recently conducted a survey of our own staff (30% of whom are millennials) on the extent of their individual beliefs on responsible investment. The survey found that:

  • 80% of staff believe considering ESG issues leads to more complete analyses and better-informed investment decisions.
  • 85% supported the view that asset owners should, as part of their duties, consider both the direct and indirect ESG impacts of their investments.
  • 75% believed that the risks and opportunities associated with ESG factors are not being captured in market values.

This tells us that millennials are ahead of the curve when thinking about the impact and implications of responsible investment strategies. Further, they are more likely to favour responsible investment strategies and are also more likely to believe that investing responsibly does not negatively impact performance. Indeed, there is strong evidence that utilising ESG factors improves performance, with a recent BofAML Report finding that they could have helped investors avoid 90% of bankruptcies.

The funds management industry will need to adapt and responsible investing will become increasingly mainstream and less of a niche or nice to have addition to traditional offerings.

 

Harry Moore is Head of Business Development for Australia and New Zealand at Colonial First State Global Asset Management, a sponsor of Cuffelinks.

 

  •   2 November 2017
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5 Comments
Frank
November 02, 2017

Why are people born in 1980 called ‘millennials’?

Chris
November 02, 2017

“set to inherit significant wealth, further increasing their importance to the investment industry.”

Really ? Sorry, but as a Gen-X (born late-70s), I don’t expect or demand that my parents (one of them already being in a nursing home) will have anything to leave me (as one of four kids), in that the only thing they own are some cash, premium bonds and the house (which is nothing special).

They will likely need that money to look after themselves and any aged care requirements.

If they do leave me any money, it’s a good surprise, but I’d go and pay my mortgage off, then put my daughter through school / university, and if there was anything left after that (unlikely), then look at investing it.

Chris
November 02, 2017

And as a side note to the financial planning industry, the time to get involved and interested in millennial clients (and anyone else who isn’t a boomer like themselves, by the way) is BEFORE they grow their wealth, not when you think they might just suddenly inherit a whole lot (which is not a given and probably the exception, rather than the rule).

Most planners I’ve talked to look down their nose and over their bifocals at my modest, sub-million net worth and think it’s not worth bothering about.

Otherwise, you just come across as a gold digger, who suddenly becomes interested in marrying an old (wo)man with a dodgy ticker who has just won the lottery. It’s pretty obvious.

Gen Y
November 04, 2017

Oh Chris, I'm sure they're interested. They'll surely sell you some life insurance...

Rick
November 06, 2017

Wow, "bifocals", seriously? You've just painted the picture of a Bank Manager circa 1972, pretty outdated, cynical stuff. I don't know who you've been talking to, but the advisers I know are all energetic, progressive, and forward looking - they're very happy working with less established clients. In fact, helping younger clients move decisively towards achieving their goals is the part of my job I actually enjoy the most. And btw if an adviser charges a flat, dollar based fee, how much accumulated wealth a client has is irrelevant from an adviser remuneration perspective.

Gen Y: Life insurance and estate planning is a serious part of the wealth building/wealth protection equation, and for an adviser to not discuss it with a client would be negligent in the extreme. Let's not have a shot about 'selling' life insurance?

 

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