Working with Affluent Millennial Investors

by Ryan W. Smith
One of the biggest wealth transfers in history has already begun and will only pick up speed in the near future. Baby Boomers, long the prize of the investment advisor community, are beginning to retire in droves, with many estimates putting the number as high as 10,000 new retirees per day, a trend expected to continue for at least 10-15 years. Many of these retirees will begin divesting assets to their heirs as they age, following plans devised with their investment and wealth management professionals, or regrettably, pass away and leave their wealth to heirs via their estate plan.
While many investment advisors have been working hard to sign new clients under 50, many others have not yet formulated a plan. A recent study of 2,250 Millennial and Generation X members, all of whom met the minimum $100,000 in investment assets qualification, commissioned by Global X Management Company, an exchange-traded fund provider, looked at these investors in detail in the report, “Getting to Know Gen X and Millennial Investors.” The research itself was conducted by ORC International in mid-2016.
The report was commissioned by Global X because many investment advisors were asking for information on these two younger generations and the firm wanted to provide hard data to those advisors. One of the main findings of the report was that, when grouped by wealth and age, certain common links began to appear that surprised the researchers. These four main groups, two for each generation, were labeled as “Builders” and “Adrenaline Techies” for affluent Millennials and as “Cautious Consulters” and “Knowledgeable Xers” for wealthier Generation X individuals. For this report, the researchers considered those born between 1968 and 1979 as members of Generation X while looking only at 21 and over Millennials, i.e. those born between 1980 and 1995.

This week we will be looking at the affluent Millennial investors surveyed in this report:
These Millennials have just begun to save and have investable assets between $100,000 and $250,000. According to Equifax data cited in the report, this group has an approximate market size of $270 billion. Savings do not yet figure into their plans and they are 26% less likely to have devised a plan to save for their children’s education. One key commonality for these investors was that they appeared to view low fees as a pre-qualifier for investment options and had difficulty identifying many key financial strategies.
These investors were found to be 30% less likely than the other three young, affluent groups in utilizing a registered investment advisor (RIA) and most likely need a great deal of low-key trust building in the early stages of an investor-client relationship. Building trust is a difficult task with hesitant potential clients, one that we have explored previously in our Building Successful Client Relationships series, the first of which is called Establishing Trust.
The report’s authors concluded that investment advisors could best reach these potential clients by showing a commitment to financial education, especially investment concepts. These millennials, unlike previous generations, are 49% less likely to get their financial information from TV or face-to-face from advisors. This group prefers mobile-ready websites with clean designs and social media, with LinkedIn being often mentioned to researchers as being a valuable tool to these investors.
Helping these potential clients plan for future expenses, specifically education for their children, was also a potential benefit advisors could apply with these Millennials. This group is tech savvy, the researchers concluded, meaning social media is a more effective outreach tool. The report’s authors strongly recommended that advisors become experts in this form of client outreach.
Adrenaline Techies
These wealthier Millennials with more than $250,000 in investable assets, and a market size nearing $980 billion, according to Equifax data cited in the report, are very different than the other affluent millennial group, the Builders. Whereas the Builders, as a group, appear to have a need for financial education as they ramp up their savings, the Adrenaline Techies are at the opposite end of the spectrum. These Millennials trade frequently and are 125% more likely than any of the other affluent Generation X or Millennials groups mentioned in the report to trade more than 10 times per month. They obtain information via apps and podcasts and greatly prefer robo-advisors to investment professionals.
The report’s authors go to length to explain how frequent trading, often referred to as “hobby trading,” suggests a possible short-sidedness in Adrenaline Techies’ wealth accumulation strategy. While these Millennials have a strong comfort level with investing, their frequent trades belie a degree of overconfidence the authors feel gives flesh and bone investment advisors a possible leg up on robo-advisors. Educating these investors can be a foot in the door, so to speak. Other possible inroads might be available regarding the pitfalls of frequent trading and the higher fees associated with active trading.
Another possible point of emphasis an RIA could make might be through a discussion on ETFs. Adrenaline Techies are 38% more likely, according to the report, to find ETFs in general appealing and 43% more likely to consider employing Smart Beta ETFs in their portfolio. These ETFs allow for a more active approach to passive investing by following alternative weighting strategies than what traditional ETFs allow. Smart Beta ETFs will allow investors to adjust factors like size, value, momentum and volatility, which might be a factor in a comparable traditional ETF, as a way to increase returns and diversification while also decreasing risk exposure and increasing costs by a large degree.
Because of the way these investors obtain information, the researchers found that Adrenaline Techies were more likely to use web-based investment platforms that have social media components. The report’s authors felt that this could be a great way for investment advisors to build both trust and rapport with this group of affluent investor.
Next week we will examine affluent Generation X investors surveyed in this report.