Our Insights

Communicating mega-trends to millennials

Bridging the investment demographic divide

Attracting millennials, now one of the largest demographics globally, is rapidly becoming a business priority for fund managers and their distribution partners. Millennials, however, may be skeptical about the concept of entrusting their assets and savings with third-party managers. Bridging this disconnect, and encouraging millennials to focus on the potential benefits of capital appreciation and long-term financial stability, is a challenge.

Key insights

  • The disconnect between asset managers and millennial investors must be addressed, otherwise the industry could struggle to raise capital in the years ahead
  • The provision of ESG or sustainable investments will be key to encouraging younger clientele to put their money to work in asset management
  • Fund managers are looking to digitalize offerings as well as communication channels to maximize distribution reach

This is further complicated with the growing digital divide between providers of financial services, many of which have struggled to transition away from legacy infrastructures, and tech-savvy young people, many of whom rely on smart devices to purchase goods and services.

Closing the generational divide 

Building trust with millennials is an incremental exercise for fund managers. With younger investors often more conscious about sustainability and Environmental, Social and Governance (ESG) issues than their older peers,1 fund managers are developing strategies that are more in tune with progressive causes, a theme discussed at the 2018 FundForum in Berlin. By transitioning into ESG assets, managers hope to diversify their client base and future-proof capital inflows.

ESG investing has matured over the last decade, evolving from simply excluding securities that do not conform to specific criteria to proactively and inclusively identifying companies that score highly on various sustainability metrics. Estimates suggest there are now USD 23 trillion of assets in sustainable investments,2 as allocators increasingly take note of the performance benefits that can be accrued, particularly with more studies showing returns from sustainable investments typically meet or exceed the performance of traditional portfolios.3

New strategies for new investors

One beneficiary of the sustainability investment boom has been healthcare. The world is seeing a dramatic increase in its aging population, a number of whom are dependent on state services. As a result, Fund managers are encouraging millennials to invest in companies and sectors that help support an ageing population. Private investment into these sectors can lead to potential savings for taxpayers, freeing government funds to be redirected to other core services and infrastructure.

By transitioning into ESG assets, managers hope to diversify their client base and future-proof capital inflows.

Sustainable technology is also a growing focus area for asset managers, particularly boutiques, which argue their nimbleness serves as a useful advantage in spotting innovative companies relative to large cap providers. According to a FundForum panellist, sustainable technology investing has delivered demonstrable results. Showcasing an investment product that produces evidential and quantifiable outcomes resonates with younger investors in an era where 'fake news' and 'alternative facts' have proliferated, added the panellist. 

Investments in technology facilitating automation and Artificial Intelligence (AI) such as robotics are less clear-cut, according to attendees at FundForum. The benefits of automation and disruptive technology are well known as they introduce efficiencies and cost advantages across organizations and remove the need for companies to invest in repetitive processes that do not provide intrinsic value. Proponents of AI argue the technology will allow companies to reallocate resources from cost centres into innovation hubs and create new jobs and opportunities.

Conversely, others argue investors of all ages may be apprehensive about investing in funds exposed to AI tools, which may threaten jobs. Research by PwC noted that 30% of jobs could be lost through automation by 2030,4 which could result in social and economic upheaval. In response, a handful of technology CEOs have advocated the establishment of a universal living wage.5 While AI and robotics will open up opportunities, its impact on the employment market could make it a less attractive investment proposition, irrespective of investor age. 

Smart marketing and digitalization

Fund managers are encouraging millennials to invest in companies and sectors that help support an ageing population.

Having spent the last few years focusing on reining in operational and technology costs, asset managers are now looking to invest more heavily in digitalization as they seek to improve their clients' experience and grow their distribution footprint beyond the traditional client base. Digital communication strategies can help asset managers better promote brand awareness with their clients, in addition to giving firms access to millennials,
an underserved target market who are heavy users of
technology and appbased products.

Simultaneously, digital strategies could also be used to educate millennials about the importance of investing, and provide a useful boost to financial literacy and understanding. 

Managers and distributors are increasingly seeking to streamline the investment process by launching robo-advisory services aimed at tech-aware younger investors and those unwilling to pay for full-service investment advice in a post-Retail Distribution Review and Markets in Financial Instruments Directive II operating environment. Such tools could help shift more millennials into becoming investors, a trend that would be welcomed by the asset management sector.

 

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