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Millennials Turning to Advisors as They Approach Middle Age

Industry Trends and Research

In contrast to the stereotype of Millennials as entitled beneficiaries of their parents’ wealth, Millennials have grown up and it turns out they are financially disciplined, focused and responsible.

In fact, the oldest members of the generation born between 1981 and 1996 are now in their 40s, and they are entering their peak earning years with financial means and maturity that should bode well for them and, in turn, their financial advisors, observes Natixis Investment Managers.

According to new survey results by the firm, Millennials are more likely to have a financial advisor than Gen X and Baby Boomers, with 75% of U.S. Millennials having a professional financial advisor, compared to 67% for Gen X and 70% for Baby Boomers.

They also are diligent savers, putting aside 19% of their income for retirement, on average, and have worked to accumulate considerable wealth, the source of which 37% attribute to business ownership or self-employment income and 43% say comes from investing. Just 13% cite receipt of an inheritance or family money as a source of their wealth.

Natixis IM surveyed nearly 2,500 Millennials around the world, including more than 200 in the U.S. with minimum investable assets of $100,000. The U.S. findings presented here are a subset of the larger survey and mirror global trends in the firm’s corresponding report, Five Financial Truths about Millennials at 40

“Millennials have high expectations, but they also are proactive when it comes to planning,” notes Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. Goodsell explains that the generation has enjoyed a long bull market with low interest rates and little inflation for much of their adult lives, but they also saw how the global financial crisis impacted their parents.

“They’ve known what loss looks like and want to protect their interests as they see risks rise and their finances grow more complex,” he says. “The good news is that Millennials not only recognize the value of advice, but they trust their financial advisors almost much as they trust themselves.”

According to the survey findings, Millennials do have certain distinct investment preferences:

1. Millennials are turning to advisors over algorithms. Don’t assume the digital generation will automatically settle for robo-advice, the report emphasizes. Most Millennials (69%) work with a traditional advisor, either solely (41%) or in combination with automated advice such as a robo advisor (28%), but just 6% solely rely on automated advice. And even though 57% of Millennials say they prefer to receive financial advice through digital or online channels, they are finding reasons to opt for working with a person.

Moreover, when it comes to making investment decisions, the survey found that 42% of Millennials do not trust algorithms or artificial intelligence, including 51% of younger Millennials, while 92% say they trust their financial advisor. Millennials consider the three most important facets of the relationship as: helping manage volatility; discussing financial planning with family; and having someone who listens.

2. Risk is real when there’s more on the line. While Millennials report that they’re comfortable with more investment risk, that may not necessarily be the case. The survey found that, even though 71% of Millennials say they are comfortable taking risks to get ahead, 79% would choose preservation over outperformance as an investment objective.

Nearly half of Millennials (48%) say risk is the most important factor they consider when selecting investments. They assess risk in a variety of ways, but most commonly define it as market volatility. Moreover, just 13% of Millennials define risk as not meeting their financial goals, in contrast to financial advisors who say this is the primary way they talk about risk with their clients. Another 12% think of risk as losing money. At the same time, many Millennials see risk as missing out, such as underperforming the market (15%), having too much money in cash positions (13%) and missing out on potential investment returns (11%).

“The way Millennials understand risk matters because it guides investment decisions and return expectations,” adds Goodsell. “Despite high annual return expectations of 19.8% above inflation, Millennials may be more risk-averse than they let on and more exposed than they know.”

3. Millennials may be pursuing societal change, but they also want returns. After risk, the second most important consideration Millennials make when selecting investments is whether investments match their values. The survey found that as many as 46% of Millennials currently have investments that incorporate ESG factors, while another 42% do not, but they are interested.

The survey also found that Millennials are primed to do well while doing good, yet they also are pragmatic. They invest in ESG because they think it’s a better way to invest (42%). They are as likely to say their motivation is to make a better world (40%) as it is opening up new investment opportunities (39%).

4. Retirement feels a lot closer at 40. Millennials have saved a lot, are feeling confident and hope to retire by the age of 59, on average. Despite this, they are still worried about everything from inflation to how the cost of healthcare will affect their financial security in retirement and how long they’ll be able to hold their job. In fact, 48% of high-net-worth Millennials say “it’ll take a miracle” to retire securely.

Consequently, they expect much from their employers. According to the findings, 79% of Millennials and 77% of those who are business owners or self-employed believe companies have a responsibility to help their employees achieve retirement security. Nearly 8 in 10 (77%) Millennials and 75% of business owners say they would be more likely to work for a company that offered a retirement match.

5. The pandemic served as a reminder of financial basics. Nearly half (49%) of Millennials say they felt stressed about their financial security during the pandemic. The experience may have further reinforced for them the value of professional advice. They say the greatest value advisors provided was by helping them better understand their whole financial picture and preventing them from making emotional investment decisions.

In retrospect, they say the pandemic served as a reminder of basic financial lessons, including the importance of having an emergency savings account (53%), keeping their spending in check (51%) and having a will and estate plan (38%).

 

 

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