Meet the new kids on the block shaping the investment landscape: the high-net-worth and affluent millennials. A lot has been said about the rise of millennial demographic. Born between 1980 and 2000, the millennial generation—also known as NextGen or Gen Y—is climbing up the ranks of adulthood and changing the culture of live, work, and play.
According to a White House economic report, one of the most defining traits of the millennials is how technology has shaped their lives. In turn, technology is shaping how millennials build wealth. So the writing is on the wall: while wealthy millennials are looking to invest, they are more likely to turn to technology and trusted peers for information, which is a great contrast to their wealthy parents, a generation who has gained wealth with the help of a financial adviser.
Getting to Know The New Kid on the Block
Companies have been trying to crack the code on marketing to millennials, and the next puzzle to put together is a picture of their investment behavior. High-net-worth individuals or HNWI are traditionally defined as those who have financial assets between $1 million and just under $5 million. Ultra-high net worth individuals are those with assets that are at least $5 million and up. Affluent investors are those who have financial assets between $100,000 up to $1 million.
Gen Y’ers tend to be conservative investors, a characteristic much like the Baby Boomer generation who grew up during the Great Depression and WWII. Likewise, young investors have been greatly shaped by the Great Recession, a period between 2007 and 2009 that was defined by mass layoffs, a down economy, and the burst of the housing bubble. Millennials are likely to be entrepreneurial, a trait that reflects Ken Fisher’s success story.
NextGen has long been making waves, and now those waves have crashed onto shore and reflect the new reality. While their investor predecessors were known for desiring an early retirement, millennials don’t mind working longer if it means they are able to get them closer to their lifestyle goals. They also want and careers that they enjoy or join a company that shares their values, a trait that reflects an entrepreneurial mindset. Work-life balance and flexibility are benefits that NextGen wants now, not when they are closer to retirement age.
Contrary to the selfish stereotype, millennials are community-minded. They are more likely to put their money toward causes they believe make an impact on the world.
A Different Breed of Investors
Young investors found a backdoor, so to speak, to entering the investment market. Financial firms have largely overlooked investment potential in NextGen because it was not economical to provide services to those with low account balances. In other words, why court a customer who is not ready for the services? However, technology provided the backdoor to the investment game: robo-advisers. These online firms offer portfolio advice that is automated and based on an algorithm, not a human financial adviser. have low barriers to entry—some with $0 account minimums and low or free management fees—coupled with the millennial’s natural knack to wield technology seem like a match made in heaven.
That doesn’t mean that human financial advisers are out of the picture. More than a majority of high-net-worth millennials and nearly half of affluent millennials have a financial adviser. Firms are starting to pursue the potentially wealthy young individuals, and likewise, the potentially wealthy are looking for help to grow their value.
That’s why it’s important to understand this new crop of investors, especially when it comes to retirement savings and investing. Entering the job market in a down economy and high student debt have delayed or hindered millennials to save for retirement. Now they are coming of age, growing in their careers and raising their families, which presents opportunities for financial advisers.
Helping Gen Y’ers Find a Financial Adviser
The next crop of young investors is the first generation that has to almost entirely rely on their own wealth building for retirement, unlike the previous generation that more likely had the pensions from their employers and better Social Security benefits. However, financial advisers can help millennials utilize their greatest asset: time. Millennials, including the potentially wealthy, and financial advisers mutually benefit from this asset. Financial advisers have clients in the pipeline, and despite being late to the party, millennials get personalized guidance with aligning retirement plans with personal values and lifestyle goals.