The Millennial Investor

I have heard many commentators state that the millennial investor is a rare breed. They are too focused on the here and now to worry about investing to grow their wealth for the future. Five years ago I could understand this view point but the tide has now significantly changed. This is driven by two key factors as far as I can see it:

1. The older demographic of millennials now have sufficient wealth to invest more meaningfully; and
2. Investment platforms and providers are now offering technology solutions that meet the needs of the generation far better than before.

This blog is focused on the exploration of this shift and will conclude by looking at what millennials are looking for when they do decide to invest.

Setting the Scene

Millennials grew up with huge boom periods of the 80’s and early 00’s. Wealth was growing at levels that hadn’t been seen for years with Baby Boomers and Gen-Xers heavily investing to capitalize on these periods of growth. Property prices rose at exponential rates, the equity markets provided good returns for the longer term investors and interest rates were at very high levels (ranging between 5% to 15%). This allowed wealth to accumulate even for those who opted to save rather than invest.

The pressures on the baby boomer generation to invest and accumulate wealth was high. They had the drive to provide levels of wealth for their children’s generation that their parents could not easily provide for them due to post war austerity. These factors in the UK, alongside the de-regulation of the financial services sector (also known as the Big Bang) in the 80’s, created the perfect storm for investment to thrive and for London to become a global financial services super power.

A key element of this growing sector was the emergence of financial advisors and wealth managers. There was a huge demand for these services as many were earning high salaries but didn’t have the time nor the experience to invest their own wealth.

However, a common complaint was that they often had no idea where or how their money was being invested. A jargon filled statement at the end of the year with a very hefty management fee was the extent of the communication between investor and adviser. This created a feeling of alienation from the financial process for many.

Millennials Approach Investing in a Different Way

I am not going to pour over the financial crisis as the story has been told by many far more eloquent than me. However, what has come out the other side is an investment landscape that is not only being shaped for Millennials but it is being shaped by Millennials.

The traditional financial investment channels are still alive and well but we are seeing a shift in the demands of a younger investor audience. 

So what are the factors that Millennials are looking for when investing in this new era of finance…..

Technology Obsessed

Millennials are the first generation to be truly digital. They have grown up with technology touching every part of their lives. As a result, they not only desire investment companies to be technology enabled, they demand that they are in fact led by technology.

Investment businesses that have not embraced technology as a core part of signing up and engaging with new investors will struggle to succeed in a market that will become more and more dominated by Millennials in the years to come.

We have seen brands like Monzo and TransferWise deliver this engaging technology experience for other areas of the FinTech eco-system. It is now the turn of the investment sector to revolutionize how they engage with their customers.

Millennials simply expect a technology product that works, works first time and looks great in the process. This will not be easy to achieve for many traditional investment businesses that may be structured around ageing technologies but they need to keep up with the FinTech pioneers.

UK-based FinTech robo-advisor Nutmeg, have taken a well-established business like wealth management and dragged it to the cutting edge of FinTech. A key component of this has been the development of clear and well-designed technology to seamlessly onboard and engage with their customers.

Millennials back what they believe in

The Millennials that do invest have told us that they want to invest in companies that they are passionate about. This has certainly been a factor behind the growth of Equity Crowdfunding in the UK and across the world.

Investors in this asset class can buy shares in a startup or scaling business. This gives Millennials the opportunity to support brands that they love and use on a daily basis rather than investing in more traditional FTSE 100 or 250 businesses that formed the backbone of investment strategies of previous generations.

Equity Crowdfunding certainly comes with a higher level of risk than traditional investments, including a lack of liquidity. But many investors are now prepared to risk a portion of their wider portfolio in a set of investments in this asset class given it allows them to back young businesses that they believe in.

Thirst for knowledge

One of the largest barriers to the Millennial generation engaging in the investment sector is knowledge and education. Many are keen to invest their money even at small levels but they simply don’t know where to start. We all know that Millennials are very engaged via social media and video content. Again we are seeing investment based businesses capitalizing on this and looking to provide thought provoking and engaging content in video format via social media channels.

This is a great way to educate a new investor base and get them more engaged in the process of making investments. Businesses that can unlock this potential will have a huge advantage. They will have the ear of a generation that is largely untapped at the moment but have the potential to be the largest investor base of all time.

What does the future hold?

The FinTech revolution continues to be shaped by Millennials. They love FinTech brands, they run and work at these businesses and they use FinTech products without regard for the age old businesses that they are disrupting. Now the first large group of Millennials that have the wealth to invest at scale are entering the market.

This growing group have a far closer brand affinity with the likes of Nutmeg, Moneyfarm or Crowdcube than they do with MorningStar or Yahoo Finance. The next five years will be fascinating to see how the traditional investment institutions evolve to combat this threat. It certainly feels that the FinTech firms of today are primed to become the household brands of the future.