Millennials don't invest like their elders, wealth advisers say

By Anamika Roy
BridgeTower Media Newswires
 
BALTIMORE — With technology playing a large role in the industry and older generations looking to pass money on to their millennial offspring, wealth management firms are at a crossroads.

For starters, the relationship millennials have with their parents is very different from what baby boomers had with theirs.

“When it comes to money, millennials have not followed their parent’s investment behaviors,” said Ellen Pierce, Mid-Atlantic market head for UBS Wealth Management America.

The term “millennial” is generally used to describe people born between 1982 and 2004. In finance, the term is sometimes used to describe people born in the late 1970s as well.

A report by UBS Investor Watch found that 74 percent of millennials receive some kind of financial assistance from their parents after college, whether it’s health insurance or a Netflix subscription. Millennials also have a different investment philosophy than their parents, preferring the safety and stability of cash over financial principles such as “buy and hold” and long term investing, the report said.

“The millennial is far more conservative than I was 20 years ago,” said Rich DuVal, senior vice president and financial adviser with Baird & Co.’s Baltimore wealth management office and a Generation X’er in his 40s.

A lot of that conservatism stems from the Great Recession that hit in late 2007, the first economic crises for millennials that had an impact on their adult lives.

In contrast, “the boomers of today, the crisis of 2008 was not their first setback in the market,” Pierce said, adding that boomers experienced the tech bubble in 2000, the 9/11 terrorist attacks in 2001 and a high interest-rate environment in the 1980s.

That said, advisers believe that mentality among millennials will change.

“I firmly believe it will and it has to,” DuVal said. “I’ll talk to millennials today about 9/11 ... they don’t really understand the impact of 9/11. But the same can be said about the Great Recession. By 2022 that will be out of sight, out of mind.”
DuVal’s prediction is that millennials’ investing habits will change as the generation ages.

“As they grow older and economy improves, they too, will embrace a lot of the traditional methods of investing,” he said.

On top of the recession, student loan debt has been a huge anchor for this generation, DuVal said, one that is keeping people from making long-term investments such as buying a house.

“You can’t buy a home if you have student loan debt and you’re waiting tables,” he said. “We will see that impact 10 years from now if that continues.”

But if people in their 30s and 40s, traditionally the prime earning age, are not saving as they need to, that might cause larger economic problems down the road, DuVal said.

Investing mentality aside, the mediums through which millennials approach their finances are also different than their parents.

“We will find millennials are much more digital savvy and like to have contact through the digital mediums,” Pierce said, citing a study that shows boomers enjoy having direct contact 70 percent of the time while millennials prefer having direct contact 40 percent of the time, supplemented by some digital contact.

For wealth managers, the main entry point for its youngest clientele is their parents.

“For us, we are always talking to our advisers and our clients to have their children come in and talk to us,” Pierce said.

Those conversations cover everything from saving for retirement financial literacy, she said.

A report by Deloitte Consulting recently identified the rise of robo advisers, which include combinations of science and human-based models, as one of the major “disruptors” of the current wealth management model.

However, when it comes to offering targeted financial advice, Pierce said she does it “the old fashioned way,” through conversation and learning about her clients.

DuVall sees today’s robo advising the way online trading was perceived 20 years ago, as a potential threat to traditional investing that later fizzled.

“Robo advising is interesting right now,” he said. “Folks 25 to 30 years old are incredibly comfortable seeking advice without having that personalized touch. I’m curious to see if millennials go on to seek traditional, customized, individualized relationships.”