By Kostya Etus, CFA, Portfolio Manager at CLS Investments
Financial advisors and investment managers are trying to crack the code on what millennial investors are looking for and how to help them save for retirement. Here are some ideas from a millennial perspective on how to deal with this evolutionary generation.
Follow the technological evolution
Millennials are always busy. They are often tired and often work. They usually start their families and don’t have much time to consult financial advisors. Millennials also want everything at their fingertips, which is of course entirely possible with the evolution of the mobile phone. We all have a supercomputer in our pocket.
But financial advisors don’t always make it easy to manage investment accounts from a mobile device. Although they’d rather have their customers call if they’re worried or have questions, many millennials just don’t have the time. They prefer to send an SMS or receive SMS notifications. This preference is leading to the growth of automated account opening tools, which allow users to log into a website and create accounts in minutes, while making everything easily accessible through online interaction.
Advisors need to think about how they interact with their clients and how they can evolve their technology offerings to keep up with this trend and fit for the future. At CLS and our sister company, Orion, we continue to evolve our back-office support with video statements, SMS notifications for account information, and the launch of an automated account opening platform called Autopilot. We’re constantly trying to find ways to help advisors keep up with changing technology.
Follow the evolution of investments
When it comes to product developments, all signs point to ETFs. Flows have continued to shift into ETFs over the past decade, growing 20-30% per year. There has been intense competition in the investment fund space, and the focus has shifted to low cost. Millennials are very cost-centric and they are also very skeptical. After experiencing two major bear markets – the tech bubble in 2000 and the global financial crisis in 2008 – young investors have little reason to trust the markets. Therefore, they demand products that are easy to understand and transparent.
Also, I like to call millennials the know-it-all generation because we think of ourselves as experts in everything. Whatever the question, we “just google it” and find the answer instantly. The ability to find things quickly creates a big advantage for ETFs, which are very transparent and simple. They are very easy to understand; they are indexed and transparent. Anyone can view the underlying holdings every day and know exactly which companies are held. Millennials can really grasp and appreciate this. If you told me that I could have a simple and diversified investment at low cost, it is not obvious.
The chart below is taken from an investor study by Charles Schwab highlighting Millennials’ preference for ETFs.
Track the evolution of life stages
Millennials are getting married, having children and building homes a little later than previous generations. For most millennials, these significant life events have happened within the past five years or so. So the natural evolution of life stages suggests that we’ll see more and more millennials start saving for retirement.