Fact or fiction: Millennials harbour a mistrust of financial services
In Part 1 there was a suggestion that managers who are relying upon inheritance as the fountain of wealth for millennials might be waiting for some time. However, millennials are saving. According to the Calastone survey[1] discussed in Part 1, buying a first property is the top priority for millennials in all countries where they surveyed. It would be logical to conclude that fast access to capital therefore is required should the relevant opportunity arise. While there are selective short-term vehicles offered today, there is no certainty that the redeemed value will achieve a higher return. Given that many of these potential investors entered the workplace during or shortly after the financial crisis, their appreciation of what can happen when the markets turn might resonate when making such decisions. Calastone’s survey additionally revealed that a lack of understanding about investing and financial services was evident. 47% of respondents on average said they had a poor grasp of investing and investment knowledge. The report was quick to point out though, that irrespective of the lack of understanding in existence, 68% of all respondents stated they were likely to invest for the future. This finding is supported by Deloitte's millennial report[2] which found that 62% of millennials have set clear financial goals over the next 5 years.
If there is an opportunity to attract new investors, does the funds industry resonate the trust, understanding and thinking of millennials for it to be a viable option in long-term savings? Establishing trust is fundamental in changing buying behavior. Firstly, almost half of respondents to Calastone admitted a poor grasp of investing and investment knowledge. If this is so, people do not have the understanding in making informed decisions, and therefore entrusting their accumulated wealth to an institution that they do not understand is a difficult proposition. Is the funds industry doing enough to tackle this?
Secondly, does the stigma associated with financial services following the crisis remain? It was more than a decade ago, so has time healed all wounds? Finally, do financial institutions understand what lifestyle choices millennials are making and what is important to them? How does this differ to their parents?
Trust
According to Calastone, there is a certain level of trust in existence, or at the very least there is an understanding of who might be best placed to offer appropriate investment advice. When respondents, (those with or without investments), were asked who would be their first choice in seeking guidance, Calastone’s research revealed that parents or other family members would be the first port of call. This was closely followed by banks and independent financial advisors (IFAs). The internet / websites followed, but it should be noted that the survey did not indicate any specifics into the type of urls that were being leveraged.
Importantly, of the respondents who already have investments, IFAs and banks were first choice. This indicates that trust is in existence with the traditional providers once investing has commenced.
Of note, social media is significantly low on the scoring. This is a relevant learning. While digitization has broadened the communication channels of organizations, not all of them should be deemed appropriate at any given time. Out of social media platforms, influencers originated who are apparently able to help spread the word of a brand / message. While many of these experts have significant followings, Calestone's findings suggest that they are not as influential in financial matters as they might be in suggesting which shampoo to use.
This observation on social media is supported by the BMO/F&C Millennial report[3] which stated two-thirds (67%) of people in the age group of 22 to 38 think it is to blame for portraying a false picture of what young people must achieve to be successful. Additionally, headlines on scandals such as the Facebook / Cambridge Analytica saga or films such as Netflix's "The social dilemma" will not have helped the image of social media to new investor mindsets.
Given these revelations, those institutions leveraging social media platforms within their marketing need to be confident that their approach is not inadvertently causing negative consequences to their brand. Any marketing strategy needs to be clear as to the purpose of each channel. As more concerns are raised publicly around the effects social media is having upon people and society, financial services brands need to very careful that they are not caught up in any possible backlash.
Calastone’s evidence suggests that millennials are as comfortable with traditional sources of advice as their parents, which is typically an in-person experience or through phone calls with their advisor. The global pandemic has escalated awareness to a wider audience as to how easy it is to have a face-to-face conversation digitally. This is important as managers embarking on any digital journey should not underestimate the value of maintaining an interactive relationship in demonstrating their trust and expertise. Bots have their place. Deciding when human interaction is required versus automation within customer service needs to be carefully scrutinised and decisions made upon potential revenue versus the cost.
“The financial industry is not capturing people’s interest”
In the same report published by Deloitte[3] that suggested millennial wealth will double in the early 2020's from where it was in 2015, the same authors suggested that banks are challenged as millennials are demonstrating behaviours unseen by their predecessors. The report noted that 75% of the age group wanted to stay authentic and not compromise family or personal values. In addition, two thirds are not only concerned about the state of the world but also feel obliged to contribute towards changing it.
Millennials do not consider wealth as a sole success factor (consistent with F&C’s findings). Additionally, in another survey by Deloitte[4], their findings suggested that both younger and older (Generation Y) millennials, ascribe more value to brands that act socially responsible.
Source: Deloitte
This finding should not come as any surprise as it a consistent message that has been reiterated for at least 5 years. However, according to Deloitte, while there has been an increased satisfaction with direct employers, it was not the same when thinking of businesses generally.
As the report quotes: "The once-strongly held belief among past Millennial Survey respondents that business is a force for good continues to wane, with companies’ conduct still regarded unfavorably— despite generally positive reviews of business’s reaction to the COVID-19 crisis.
In the primary survey, barely half of millennials (51%) said business is a force for good, down from 76% just three years ago and 55% last year. Five months later—while offering flattering opinions of companies’ pandemic response—only 41% of millennials (and 43% of Gen Zs) in pulse countries agreed that business in general around the world was having a positive impact on wider society."
The millennial generation have strong beliefs in social responsibility. Even at one of the peaks of the global pandemic, while healthcare and disease prevention concerns rose significantly, climate change maintained a top priority in their eyes.
So why does this matter? Before going any further let's take stock as to where we are so far. According to the research laid out here and in Part 1, millennials have less wealth accumulation than their parents did at their age. This has been caused by both wage stagnation and inheritances being bequeathed later than in previous generations. The cost of living including real estate has increased adding more challenges. While the trust levels with financial services is not quite as negative as one might believe from the internet, they certainly identify with brands that are more aligned with their own values. They are less focused on wealth accumulation and more on social responsibility.
Therefore, if someone only has a small proportion of income to allocate to savings and investments, and is not going to receive a boost to their wealth through inheritance for another decade or so, how is the investment fund industry going to attract new customers?
Just as customer values and opinions have changed over time, so too has their buying behaviour. It would be inconceivable for someone in the 1980’s to think that everyday expenses would include US$5 cups of coffee, US$70 monthly gym memberships plus added expense on classes, app and other online subscriptions, smartphone purchases every few years (at least), and so on.
Buying behaviour changes over time and so too must the way financial services including the funds industry identify themselves with potential customers. They need to make themselves be in that mix of choice as to where disposable income is distributed. The Calastone survey suggested that 68% intend on investing in the future. Clearly there is appetite but today's menu is not appealing enough.
Thoughts for consideration
When visiting the homepages of some asset managers, it is clear (to me), that they have realised the changing priorities of their future customers. Most homepages are focusing on sustainability. Whether that's in the form of what they are doing as an institution or how they can help their customer choose investments that are in line with their own beliefs.
However, banks are still the main source of distribution for the funds industry in many countries. While I've never worked in asset management marketing, I would at least expect my main distribution channel to ensure it is promoting my organisation's values first and foremost. Take a look at your banks investment homepage and decide for yourselves.
Some of you will point out that there are plenty of other distribution channels which many are using including directly through the asset manager. I do not dispute that. What I would point out is that a significant number of would be investors (according to the research) do not understand the financial products on offer. They would therefore be inclined to use savings accounts or purchase equities rather than funds.
I continue to hear that content marketing is king or queen. I'm not going to dispute this. I frankly just feel that the funds industry is not doing a great job in leveraging their marketer's expertise in helping to pre-position their offering through education. It's all very well promoting how your firm's employees raised hundreds of thousands of dollars for good causes, it is something completely different to help would be investors understand how a collective investment scheme works, the types available, the ethical choices, the penalties for early redemption, the risks involved and so forth.
Changing buying behavior only happens with a certain level of trust and an ability to make an informed decision. I'm not quite sure whether that potential has been realised as much as it should be.
In part 3, I will look to explore the digitization of financial services and whether this is making a difference in attracting a generation born into the digital age.
Sources:
[4] Millennials and Wealth Management – trends and challenges of the new clientele published by Deloitte. Copy available from https://pdf4pro.com/view/millennials-and-wealth-management-inside-article-12daf6.html
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