How Asset Managers Can Help Millennials Make An Impact
by Nandini Rao | Feb 27, 2018 | Current Affairs and Opinions, Industry Tips | 0 comments
What springs to mind when you think of millennials? "Lazy", "restless" and "Peter Pan-like" are some popular stereotypes. But by many measures, this generation is also the most socially and environmentally conscious there's ever been. This means, among many other things, that there are opportunities for marketers in asset management. And a recent event hosted by the Financial Services Forum, chaired by John Elder, the managing director of Knox Investment Consulting, looked to uncover what those possibilities are.
What do millennials want to do with their money?
Another stereotype is that "millennials are broke". But in fact, quite apart from those that are poised to benefit from their parents' nest eggs, many have now embarked on their earning years and are going to become wealthier.
Unlike their baby boomer parents, millennials want to do more than just build up funds for a rainy day. "Millennials are not content to be passive; they want to be agents of change" said panellist Natalie Orringe – the director of innovation at Teamspirit Group. Millennials care about the "triple bottom line" and want to use money to improve society and spark change for good.
Fellow panellist James Gifford – the head of impact investing at UBS Global Wealth Management – said that most millennials feel that corporate success means more than just good returns. This should make millennials keen hunting ground for creators of sustainable and impact investments that maximise the good and minimise harm. In the case of impact investment, this means channelling funds towards companies which actively work on solving society's problems: think improving water and energy efficiency, increasing agricultural yields and enhancing access to healthcare and education.
The challenges for asset managers
If millennials do have money to invest and are positive about making a difference, what stops them from engaging with the financial services industry when it comes to using their money to do good?
It's certainly not a lack of interest: while a lot of people feel investments are boring, they get excited about impact investing, according to Gifford. So as BlackRock chief Larry Fink recently said in his open letter, there is an opportunity for investment managers to use impact investing to stand up for something good and push engagement.
However, for asset managers, the road to this promised land is far from smooth. "The attributes millennials look for in life are what they expect from the financial services industry" said Orringe. But the negative media coverage during the financial crisis planted seeds of doubt about the industry in the minds of many millennials – these seeds have now sprouted into distrust of the industry as a whole.
Furthermore, several millennials feel the products are too complicated – they perceive investments as opaque and complex, so are more likely to choose physical products than investment vehicles. These are headwinds for a generation who want to be in control and make their own decisions.
Another issue is brand loyalty. There are mixed findings on whether or not millennials have the devotion to certain brands that their parents and grandparents do. But one clear point is that millennials expect exemplary digital experiences from brands they interact with, Orringe said. If they don't get it, they are perfectly happy to switch to a brand which does offer this. For example, she said, over half of millennials would change their banks for one which offered better digital interaction.
Can these challenges be overcome?
Gifford said that marketers should communicate with millennials in a way that keeps them engaged on the journey to improving the world with their money.
Given millennials' perceptions that the industry is too complex, industry participants need to focus on putting out information that encourages this generation to make their own decisions. While marketers can do little to simplify the structures of some of the products on offer, they can definitely simplify the language they use by weeding out jargon. Filling marketing material with sentences such as this: "investments in floating-rate green bonds carry little duration risk as markets switch to pricing in quantitative tightening" is likely to create confusion rather than encourage someone to invest in green bonds. Simplifying the terminology used would work wonders to make investing more appealing – and this holds true for everyone, not just millennials. This is something regulators are also keen on, as we've said before.
As well using more plain English, marketers also need to convey how money can have a positive impact. A lot of asset managers may be missing out when it comes to doing this: our own research has identified content gaps when asset managers talk about ESG and sustainable investments.
The solution to overcoming millennials' inertia towards investing doesn't lie in just churning out more content, but in improving its quality. Millennials are definitely more tech-savvy than their parents ever were. Unsurprisingly, the panel shared the view that asset managers need to be proactive when it comes to using digital means to keep millennials engaged. As many companies have found, fintech is generating lasting value for brands and investing in this can pay off.
Orringe quoted an article from the Harvard Business Review which suggested that millennials are more willing than their parents and grandparents to sacrifice some financial gain for the greater good.
But while millennials may have more on their minds than just getting rich, this doesn't mean marketers should ignore the performance aspect. Financial returns are "the elephant in the room", as Gifford put it. He said that sustainable funds are just as (if not more) likely to outperform as others, considering that environmental damage and corporate governance scandals can actually erode shareholder returns for firms.
That said, there is a nagging perception that sustainable investments and impact investing don't really pay. However, Gifford pointed out that there is no empirical basis for this, and Morningstar's research reinforces this point. So marketers don't need to be shy in pointing out that investing to do good can also result in investments that do well over time.
Nandini Rao
Nandini is an investment writer in our London office. She has an MSc in financial economics from Saïd Business School, Oxford University and an undergraduate degree in economics from Aston University. She also holds the Investment Management Certification.
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