The inter-generational transfer of wealth is a trend that has taken many analysts by surprise. With the asset-rich, baby-boomer generation slowly approaching retirement, their children and grandchildren are set to inherit an unprecedented amount of wealth. Research from EY suggests that those born between 1981 and 1996 could receive $30trn in the US alone over the next 20 years in the US alone.¹

In practicality, what does the growth of the millennial investor mean for those in the financial service industry?

Some things are likely to stay the same. The ultimate aim for the investors of tomorrow will be a healthy return over the long term, whilst minimising risk. Furthermore, millennials still have many of the same client management needs as their parents and grandparents; research conducted by Deloitte suggests the overwhelming majority (82%) prefer face-to-face or more traditional means of finding out about financial options.²

However, the type of asset class millennial investors will be seeking to pool their capital into could be significantly different from the preferences of previous generations. This is due to the attitudes and beliefs of millennials, who tend to be more concerned about the incorporation of environmental, social and governance (ESG) factors when making financial decisions.

So, what does the rise of millennial investors mean for financial and wealth advisers? In short, the finance industry needs to accept that the values that traditionally informed a good investment are changing – it is no longer a simple calculation of risk and return, but a need to incorporate ESG factors into the equation.

Being aware of this trend will be crucial for advisers across the board, not least because millennials have been shown to have a negative perception of the financial service industry.³ Deloitte shows that millennials have a weaker understanding of finance generally, but think that not enough emphasis is placed on the real-world impact that investments have.⁴

Financial advisers might be concerned that attitudes of younger investors could mean a more restricted roster of potential investments, leading to reduced returns. It’s certainly the case that many tried and tested assets may not be available, but high yields are still achievable. Impact investor Ron Cordes, of Maryland, presents a notable case-study.⁵ After making the decision to invest for purpose, not necessarily profits, he restructured his finances so that by 2017, 100% of his assets were in ESG investments via his family foundation.

In these ways, financial advisers need to have a good understanding of how the market is changing. While most of us who work in the finance sector appreciate that the number of younger investors is growing, the pace of change over the medium term may not be fully realised by all.

Their preferences should be treated with respect, as there is ample evidence to show that impact investments can provide impressive returns while also positively contributing to society and the wider environment. The challenge is now to ensure we are catering to the needs of the next generation of investors. 

¹ EY (2017), Sustainable Investing: The millennial investor

² Ibid

³ Deloitte (2015), Millennials and wealth management

⁴ Ibid

⁵ Ibid