Millennials: Ignore them at your peril

Millennials — who are they and what do they want from advisors? That's a question plaguing the industry today as advisors and broker-dealers grapple with how — or even if — to serve this generation, which currently stands at 70 million members, the largest cohort of the nation's population.

A recent panel discussion at the Investment Company Institute's annual conference in Washington of execs from the wealth management, robo and broker-dealer worlds concluded that figuring out how to serve this group of well-educated 18- to 34-year-olds is, indeed, worth it.

Stuart Parker, president of Prudential Investments, moderated the panel, which included Richard Dion, head of strategic partnerships for Envestnet; Adam Nash, CEO of Wealthfront; and Andrew Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch.

Parker threw out some statistics about these young folks: They have between $1 trillion and $2 trillion in assets; 63 percent of 20- to 25-year-olds are employed, with 31 percent living at home and another 35 percent actually owning a home; and seven out of 10 of them have student debt of roughly $30,000 with the average income of this generation standing at about $34,000, "so they have a lot to do to pay off that debt."

While most millennials don't have a lot of money — yet — they'll be inheriting a lot of money, Parker noted.

"You ignore the millennials at your own peril," said BofA's Sieg.

"I would agree betting against what is the largest cohort is probably a mistake," added Nash.

A recent analysis by Pew Research Center of U.S. Census Bureau data found that millennials have now surpassed Gen X in terms of the number of U.S. workers—with 53.5 million millennials in the labor force versus 52.7 million Gen Xers.

Pew reported that the Census Bureau projects that the millennial population was 74.8 million in 2014, and that by 2015, millennials will increase in size to 75.3 million and become the biggest generational group.

With immigration adding more numbers to its group than any other, the millennial population is projected to peak in 2036 at 81.1 million, Pew said. Thereafter the oldest millennial will be at least 56 years of age and mortality is projected to outweigh net immigration. By 2050, there will be a projected 79.2 million millennials.

Intuitive services and different priorities

What's "turning on" millennials, which is innovation, new ways to use technology and a "desire for more intuitive services," Sieg said, "is going to more rapidly turn on other generations." That's why BofA Merrill is "spending a lot of time studying millennials and thinking about them as clients for today and clients for the future."

Online investing firm Wealthfront's client base is "overwhelmingly" made up of millennials, Nash added, noting that millennials are "prioritizing differently" from other generations. "It's not just a sensitivity to fees; they want simplicity and transparency," he said. "They are not just tech savvy, […] they want to automate the things in their life."

Prudential's Parker added that this group of investors grew up in a recession, so it's not surprising that 52 percent of their assets are in cash and only 28 percent in stocks.

Indeed, a recent Northwestern Mutual survey conducted in January of more than 5,000 U.S. adults aged 18 and older found that millennials are a mix between old souls and young idealists, with 64 percent of them classifying themselves as more inclined to save than spend, and more than half (53 percent) setting financial goals, compared with 38 percent of Americans 35 and older.

The survey also found that they're "realistic," acknowledging that safety nets like Social Security won't be there for them in old age, with 73 percent of those expecting to need to work past age 65.

Yet they're twice as likely to say their generation is "not at all responsible" when it comes to finances (36 percent versus 17 percent), the survey found.

One in three cited a lack of planning as the greatest obstacle to achieving financial security in retirement, as opposed to only about one in four of the general population, the survey found.

The survey also found that nearly half of millennials have spoken to their partner, friends, family or an advisor about retirement.

An advisor problem, not a millennial one

"We're not trying to solve the millennial problem, we are trying to solve the advisor problem, who will then solve the millennial problem," Envestnet's Dion said.

The shift to technology "isn't just a millennial" shift, he continued, as 60 percent of affluent investors want to interact with their advisor in a "digital fashion."

Nash agreed, stating that this "new generation's ability to automate a lot of behaviors will be used across the spectrum" of generations.

The client, Dion added, will ultimately decide "which delivery model they want to use," which will change the way advice is priced. "When we look at the market today, the average fee is 55 basis points. […] The big challenge is how the industry justifies fees above that. How do you quantify the value of what's delivered? What is it worth to have the confidence of talking to someone about your problem: 10 basis points, 20 basis points?"

Envestnet, Dion said, doesn't "see digital advice being a stand-alone offering. It's going to force us to reinvent what we do."

Wealthfront's Nash agreed that technology raises the question of whether all of these services should be "bundled together, and if you unbundle them how much is each one worth?" Wealthfront's services are free for accounts under $10,000, but he predicted "a lot of unbundling through the years. I think there will be pricing pressure on the industry — the asset management world, not so much the planning world. You will see a lot of innovations and models that come out of this; people are willing to pay differently" for services.

Prudential's Parker cited a research finding that 65 percent of millennials with more than $500,000 use an advisor. When millennials have more serious concerns "about money and have the complexity of tax considerations, […] they're likely going to want an advisor, but they're also going to want easy access to technology platforms," BofA's Sieg said. "I don't think it's an either/or — it's how you use the right combination of human and tech advice to help this generation solve problems."

Wealthy millennials on edge

The UBS "Investor Watch" survey released in late April found that millennials who have achieved success at their relatively young age experience more stress, fear and anxiety about their wealth than older generations.

Millennial millionaires are more likely than other generations to fear losing their wealth entirely (52 percent), the survey found, and they also fear not living up to their potential (59 percent of millennials compared to 54 percent of Gen Xers and 24 percent of baby boomers) and disappointing others close to them (59 percent of millennials compared to 40 percent of Gen Xers, 25 percent of baby boomers and 20 percent of the WWII generation).

Millennials are most likely to feel pressure to "keep up with the Joneses," too, the survey found: 48 percent versus 44 percent of Gen Xers, 22 percent of baby boomers and 14 percent of the WWII generation.

This younger generation is the most conscious about how their wealth stacks up compared to peers (68 percent versus 60 percent of Gen Xers, 53 percent of boomers and 46 percent of the WWII generation).

The survey also found that millennial millionaires aspire to a higher wealth threshold — older generations said they would consider themselves wealthy when they acquired $5 million, while millennials most frequently (38 percent) said they would feel wealthy once accumulating $10 million.

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