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How Financial Services Needs Differ For Millennial Investors

Millennials have long been the most hated generation. From Baby Boomers calling them “lazy” to Gen Z calling them “cheugy” and “cliché,” it seems like the now 27- to 42-year-olds can’t catch a break. But the biggest complaint from older generations is actually proof that millennials are important: Boomers notably lament the fact that millennials shook things up—they “killed” the cereal industry, housing market and many more trends, which means that their spending power isn’t to be ignored.

What does that mean for the investment world? As noted in our 2023 trend report , Millennial trading habits are different than the generations before and after them. It’s more important than ever to be up to date on the values and practices as new groups age into the target demographic range.

Here, we’ll run through the key trends to keep in mind when serving their age group, and how financial advisors can best attract this cohort.

Why does millennial investing matter?

According to a report by the Federal Reserve, by the end of 2022, there were 1.6 million more retired people than predicted. This led the Reserve and other sources to believe that the Covid-19 pandemic caused a big boom in retirement, in what has been called “The Great Retirement.”

62% of adults ages 30 to 49 (which is mostly in the millennial bracket now) own stocks, according to Gallup, so missing out on that key demographic could mean a huge reduction in business. It also means that, as more and more Boomers and Gen X retire, the entire market will soon be taken over by younger generations, so investors will be behind the curve if they’re not prepared for the millennial mindset.

Plus, the numbers are showing that millennials are a bigger cohort than others have been. As Goldman Sachs noted, the millennial generation is the largest in history, with over 92 million members compared to 77 million Boomers. It will soon be impossible to ignore that large chunk of the population, so catering to their specific needs and mindsets is a must.

What funds do millennials care about?

So, what does it mean to cater to millennials? One of the biggest concerns for this cohort is climate change, and that heavily impacts their investing habits. A recent study showed that 63% of millennials “say they have a responsibility to help fix societal issues through their investments.” Similarly, the same report found that 73% of millennials claim they are “more likely to buy a fund with a better carbon footprint.”

Millennials have been credited with starting the trend of looking into environmental, social and governance (ESG) factors of their investments, something only 16% of Gen X and 2% of boomers care about, according to CNBC.

This sustainability-forward mindset is part of why Tesla Inc. (TSLA) is the number-one stock for millennials, making up “19.6% of the top 100 holdings among millennial investors at the beginning of 2022” according to U.S. News & World Report. Nio Inc. (NIO), a Chinese electric vehicle (EV) maker, is also in the top 10 stocks for this generation.

How can financial advisors serve millennial clients?

Because ESG investing is so crucial, advisors should be prepared to answer questions about the social impact of the funds they’re suggesting. Understanding the fine print even for exchange-traded funds (ETFs) and Vanguard funds is important to ensuring that younger clients feel like their money is going to places that share their values.

Another major way to reach millennial audiences is by using tools like social media and online banking to cater to their habits. 38% of millennials use social media to communicate about a service or brand, and over a third of them are more likely to buy a product if the brand is active on social media. That means that advertising on these networks, as well as incorporating them into overall strategy, is more important than ever.

Downside to reaching younger generations

As millennials become the key demographic for the stock market, there’s also a few major downsides they bring with them. The biggest of which is that they have less money, fewer assets and more debt than previous generations. The mean student loan balance for 25-year-olds doubled in the first decade of the millennium, and inflation and unemployment have all but destroyed younger generations’ ability to save money.

Similarly, millennials are far less likely to own property —only 47.9% of millennials owned homes in 2020 compared to 77.8% of baby boomers.

With lower net worths and higher debt, millennials simply have less opportunities for investments. Plus, the formative memories of the 2008 recession have left a mark on their view of the financial world in general.

Another concern to keep in mind with millennial clients is that ESG investing can have major drawbacks. For instance, sustainable funds might not be as lucrative as the run-of-the-mill ETFs that allowed Boomers to build up their wealth.

Avoiding major companies because of their social impact can make for a less successful portfolio, so advisors need to stay ahead of the game on researching positive investment opportunities in that category. Professionals working with ESG-minded generations also need to mitigate risk by ensuring that new and exciting “green” funds are actually the real deal.

A summary of millennial investing highlights

The largest generation in recorded history is not letting their debt and lower proportional income come in the way of their values. This ethics-driven cohort wants ESG funds more than any other generation, and the 26 to 42 year-olds who fall under the label of “millennial” are also more tech-savvy than their elders.

Using social media and emerging technology to reach millennials will be vital for financial advisors as older clients retire and the market shifts. Advertising on platforms like Instagram and TikTok is more important with these younger cohorts, as is ensuring your investment partners are well-represented on the internet.

The necessary research component for keeping up with younger generations means you need to have the right research tool; by using analytics and reporting, advisors can stay on top of emerging trends like sustainable investment opportunities or online banking apps that are making waves in society.

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