How Will Millennials Invest Their New Wealth?

Over the next 30 to 40 years, $30 trillion in assets is expected to pass down from baby boomers to their heirs. According to Accenture, this represents the greatest intergenerational wealth transfer in history.

This shift already is beginning to have profound effects on the economy. Millennials, who will soon overtake boomers as America's largest generation, tend to support and invest in companies in part on the basis of values, shifting the criteria that determine which publicly traded companies prosper and which ones lose market share.

Millennials have distinct experiences and priorities that shape their spending and investment habits. Finance industry professionals will need to forge a deeper understanding of this next generation of investors and design programs to meet their specific needs.

This generation cares deeply about the environment and tends to spend and invest in companies that make sustainability a priority. After witnessing corporate scandals throughout their lives, they expect and demand transparency. And, having come of age during an historic recession, millennials also are highly wary of the stock market's unpredictability and take far fewer risks when it comes to investing.

Corporate Responsibility

In 2015, the United Nations outlined a number of Sustainable Development Goals that it aims to reach by 2030. The goals, known as SDG, address issues such as poverty, inequality and climate change. The UN is encouraging investment in businesses that align their products and practices with these goals.

To help investors identify companies with sustainable business practices, the United Nations also has backed the environmental, social and governance (ESG) criteria, a set of standards for a company's operations. ESG includes guidelines for employee and customer relations, responsiveness to climate change, and involvement in the communities in which a business operates.

To spur investment in sustainable companies and those with humanitarian missions, the New York Stock Exchange published the Principles of Responsible Investing (PRI) to advance the integration of ESG into analysis and decision-making. Today, PRI is a global initiative with more than 1,600 members, representing $70 trillion in assets under management. The increasing pressure on businesses to comply with sustainability practices, as well as millennials' deep concern for the environment, will no doubt have economic implications for decades to come.

Honesty and Transparency

In a Label Insight survey, 94% of respondents said a brand's transparency would engender their loyalty, and 56% said they would be "very likely" to stay loyal to that brand for life. Transparency was ranked as even more important by mothers 18 to 34 years old, 86% of whom said they would pay more for product transparency, compared with 73% among all respondents.

Millennials have witnessed several incidents in which a lack of corporate transparency severely backfired. Volkswagen's 2015 emissions scandal revealed the extent to which the company attempted to conceal business practices that were harmful to the environment. It prompted widespread condemnation and deep public mistrust, as well as billions of dollars in associated losses. And Facebook is still reeling from multiple data security breaches, exacerbated by the company's repeated failure to own up to them.

Technology and social media also play significant roles in this demand for transparency. Digitally native millennials have high expectations when it comes to communication and information sharing. A survey by Sprout Social found that 81% of respondents expect businesses to be transparent on their social media accounts, but only 15 percent felt that most brands currently live up to this standard. Whether on social or other channels, millennials are more likely to expect executive leadership teams to be honest, open, and accessible to consumers.

Peace of Mind

Coming of age or entering the job market around the time of the 2008 financial crisis has made many millennials particularly cautious about investing. According to Deloitte, less than 30% of millennials' wealth is invested in stocks. In contrast to previous generations, they prefer investing in physical assets and they demand simple, clear and straightforward investment vehicles.

The report also revealed that millennials frequently consult their peers about investing decisions, and personal recommendations significantly influence their buying decisions. What's more, 82% said they value face-to-face meetings with financial advisors before making investment decisions.

As a group, millennials are less familiar with stock trading than previous generations and will need some amount of hand-holding and reassurance from wealth managers and financial advisors. Millennials also express a preference for financial institutions that make it easy to access educational materials about investing and allow them to manage their stock portfolios online.

As millennials gain more wealth, their preferences will be broadly felt across the economy. The momentum of the ESG standard shows that concern about sustainability is not just a fad; it is a movement that companies need to take seriously if they hope to survive and thrive in this new economic environment. Millennials' skepticism of the corporate world will force executives to hold themselves to higher standards of openness and honesty. And, although this generation is somewhat gun-shy when it comes to the stock market, the right tools and products from wealth managers will help this information-obsessed generation grow better equipped to make smart investment choices as they acquire an increasing share of the world's disposable income.

Paul Heald is CEO of BrightTALK.