Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 225

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.

 

5 Comments
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?

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.

Frank
November 02, 2017

Why are people born in 1980 called ‘millennials’?

 

Leave a Comment:

RELATED ARTICLES

Four reasons ESG investing continues to grow

Looking deeper than the home page of roboadvice

Sustainable, responsible or ethical – what’s the difference?

banner

Most viewed in recent weeks

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Welcome to Firstlinks Edition 566 with weekend update

Here are 10 rules for staying happy and sharp as we age, including socialise a lot, never retire, learn a demanding skill, practice gratitude, play video games (specific ones), and be sure to reminisce.

  • 27 June 2024

Latest Updates

Investment strategies

The iron law of building wealth

The best way to lose money in markets is to chase the latest stock fad. Conversely, the best way to build wealth is by pursuing a timeless investment strategy that won’t be swayed by short-term market gyrations.

Economy

A pullback in Australian consumer spending could last years

Australian consumers have held up remarkably well amid rising interest rates and inflation. Yet, there are increasing signs that this is turning, and the weakness in consumer spending may last years, not months.

Investment strategies

The 9 most important things I've learned about investing over 40 years

The nine lessons include there is always a cycle, the crowd gets it wrong at extremes, what you pay for an investment matters a lot, markets don’t learn, and you need to know yourself to be a good investor.

Shares

Tax-loss selling creates opportunities in these 3 ASX stocks

It's that time of year when investors sell underperforming stocks at a loss to offset capital gains from profitable investments. This tax-loss selling is creating opportunities in three quality ASX stocks.

Economy

The global baby bust

Across the globe, leaders are concerned about the fallout from declining birth rates and shrinking populations. Australia, though attractive to migrants, mirrors global birth rate declines, and faces its own challenges.

Economy

Hidden card fees and why cash should make a comeback

Australians are paying almost two billion dollars in credit and debit card fees each year and the RBA wil now probe the whole payment system. What changes are needed to ensure the system is fair and transparent?

Investment strategies

Investment bonds should be considered for retirement planning

Many Australians neglect key retirement planning tools. Investment bonds are increasingly valuable as they facilitate intergenerational wealth transfer and offer strategic tax advantages, thereby enhancing financial security.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.