Considering Millennials’ Investing and Advice Needs

Roughly half (51%) of affluent Millennials claimed that they like to be involved in the day-to-day management of their investments, according to a new report from Spectrem Group, “The Investing Habits of Millennials.”

What does that mean for retirement plan design? Given the current movement to automate everything, will this have an impact on how plan sponsors and their providers build and market their offerings in the future?

“It should,” says George Walper, president of Spectrem Group. “The key to this is the plan sponsor working with whatever provider they use to make sure they are tracking behaviors by the age demographics of their participants. Millennials are very active with their assets because they are more adept at using technology to track investments.” Plan sponsors can meet Millennials’ demand for information by providing comprehensive websites and applications (apps) that are optimized for smartphone and tablet access.

Sponsors should not give up on their qualified default investment alternative (QDIA) just yet, though, as only 36% of Millennials with less than $1 million are as involved with their investments. Seventeen percent of survey respondents 35 and younger favor a completely hands-off investment experience, providing their information to an adviser service that then recommends a portfolio.

For those Millennials who want to have some input in their portfolios, Spectrem ranked the importance of various investment selection factors. Millennials, regardless of their net worth, were the most likely generation to value the social responsibility of their investments, and the least likely to value the reputation of the companies where their investments were made. They also put less value on the diversity of their investments than any other age group, likely related to their willingness to take significant risk in their portfolios in order to pursue a higher return, which was the highest of all age groups at 57%.

Spectrem Group’s survey finds that the majority of those with a net worth of less than $1 million are concerned about paying for their children’s education (62%), and many also worry about their descendants’ financial stability (42%).

Given their median age of 26—Spectrem defined this generation as those born between 1981 and 1997—those fears may seem a little premature. However, current pre-retirees say that is the perfect age to start saving for retirement; questionably good news for the non-millionaire Millennials who are already looking ahead to when they will be able to leave the work force. Sixty-three percent are worried about being able to retire when they want to, but 71% expect to have sufficient retirement income to live comfortably.

Unsurprisingly, fewer Millennials with $1 million or more in investable assets share these concerns. Less than one-third worry about financing their children’s education (29%), about being able to retire when they want to (22%) or about their children’s and grandchildren’s financial situation (18%).

Millionaire Millennials are also far less concerned about receiving meaningful financial advice than their less-affluent peers—4% vs. 38%—likely because they generally report being more fiscally aware. Nearly four in five affluent investors (79%) report being “fairly” or “very” knowledgeable about financial products or investments, compared with 58% of non-millionaire Millennials. Notably, no Millennials with a net worth above $1 million admitted to being “not at all” knowledgeable in this area.

Survey respondents were also asked to rate how likely, on a scale of 0 (not at all) to 100 (very), they were to use technology in order to receive advisory services. Those 35 and younger were most likely to consider a service that is 100% technology-based (42%) or one where they communicate with a personal adviser via video or another online chat medium (41%).

Most (69%) said they communicate with a financial professional via their smartphone, with 32% saying they would like to text with an adviser. Many Millennials are interested in video-chatting with an adviser—52% would consider using a tablet to do so, and 45% would use a smartphone. Ten percent of Millennials reported having video-conferenced with an adviser already.

Millennials’ preferred method for obtaining financial information is reading an article, cited by 55% of respondents, but one-third (32%) said they prefer to talk to someone in person. While 39% of respondents said they watch videos on financial websites, just 13% said that was their preferred method of receiving financial information.

“If you think of Millennials, it’s a growing population of investors, but we find that most advisers tend not to think too much about them since their assets are relatively small,” Walper says. Less than one in five Millennials (18%) currently receive wealth management support, indicating an opening for the more holistic financial wellness programs that are now growing in popularity.

Plan sponsors and advisers should develop very strong tools on their websites that are geared toward this age group, to provide them with the information and services they want and deserve.