Pokémon Millennials and the Fintech Lure
As the largest generation ever matures into its economic prime, it got me to wondering about the future of savings, investing, and Millennials.
For financial firms pursuing Millennials, the right approach for capturing this coveted cohort can be as elusive as tracking and luring the virtual creatures of Pokémon Go.
However, it turns out that—with patience and skill—like Pokémon Go, the Millennial market is very much attainable, and those financial firms that challenge and stretch themselves to obtain them as clients emerge stronger, sharper, and more robust from the pursuit.
In the same way that major events like the Great Depression and World War II impressed upon the mindset of The Greatest Generation and shaped their character, the early dot.com bust and the financial crisis of 2008 and its fallout (think: foreclosures, economic downturn, unemployment) and even the burden of student-loan debt were the collective crucible that forged Millennials into (wait for it)…conservative investors.
According to a Deloitte white paper titled Millennials and Wealth Management: Trends and challenges of the New Clientele, the aggregated net worth of this generation—which comprises those born between 1980 and 2000—is predicted to more than double, from $19 to $24 trillion between 2015 and 2020.
They’re also the largest generation ever: As of 2015, there were 92 million Millennials. Compare that to 61 million Gen Xers and 77 million Baby Boomers.
Millennials are currently the largest client market. Period. According to the Deloitte white paper, three major factors will drive their wealth growth:
- They’re “about to enter their prime earning years”
- “Many want to be entrepreneurs,” with potential for exponential increases in assets
- They are poised to “inherit the wealth of their Baby Boomer parents”
Among the research reports’ other key psychographic findings are that: Millennials don’t view wealth alone as a success marker. Not surprisingly they’re very tech driven, and frequently cross reference peer and media recommendations before acting on a financial advisor’s recommendations. Yet, intriguingly, “82 percent would appreciate more personal meetings with their investment advisor.” They also expect more communication and transparency from their financial advisors.
This blend of tech and high touch has informed the recent wave of Fintech (financial technology) startups, most of which employ the bullseye trifecta for attracting Millennial consumers: lower costs, ease of use, and variety. Many Fintech offerings are driven by algorithmic trading techniques, apps (rather than websites), robo advisors, social networks, and mobile messaging—which make for cheaper and disruptive asset management solutions.
Of greatest interest to me were the following trends:
Micro-investing: Through popular apps like “Acorns,” users can save very small amounts of money regularly—by rounding up credit and debit-card purchases. If a user buys a cup of coffee for $4.50, for instance, it’s rounded up to $5.00, and the difference is placed aside for investing. Once this set aside reaches $5, Acorns will invest the money in investment portfolios the user selected.
Free Stock Trading: Robinhood aims to succeed where others have failed with free stock trading. Their belief, according to their site, is “that a technology-driven brokerage could operate with significantly less overhead”—in large part by eliminating the “fat,” the “hundreds of storefront locations and manual account management” that up brokerage costs.
Social Investing Communities: Bay Area-based Tip’d Off is one of several platforms that enables peers to help each other make stock market investments. Both nascent and experienced investors can swap information and tips. Their platform also lets new investors imitate the actions of investors with a proven track record.
ETFs: According to a recent CNN Money article, on Millennials and ETFs, it turns out that they “love” this investment vehicle—as it seamlessly aligns with so many of their wants and values.
ETFs: are easy to understand; trade just like stocks; low cost; have transparent pricing and no hidden fees; have a low minimum initial investment; and offer instant diversification. For a generation known for its love of transparency, ETFs are perfect, as they’re required to disclose their positions daily. According to a Charles Schwab survey, 41% of Millennial portfolios consist of ETFs, compared to 25% of Gen X and only 17% of Baby portfolios.
This year Global X launched its Millennials Thematic ETF, the first of its kind targeting Gen Y—with an expense ratio under 1%.
However, there are barriers to entry overall for legacy asset managers interested in developing similar Millennial-centric fintech solutions. Theoretically, micro-investing $5 sounds great, but immediately slams into a wall: traditional brokerages offer whole shares—even for ETFs. In addition there are transaction costs involved for each fund purchase.
According to the aforementioned Financial Times article, asset managers like Vanguard and JPMorgan have developed a working group to promote the idea of “fractional trading,” of shares, as well as lower minimum investment amounts as little as under $10 a month. While trading technology breakthroughs have benefited large institutional investors, by lowering trading costs, retail trading hasn’t had similarly paced advances.
Nonetheless, creating from scratch the kinds of apps and platforms developed by upstarts like Acorns and Robinhood is no easy task for traditional wealth managers focused on regulatory and other pressing matters. Therefore, strategic partnerships with fintech startups that complement the technological shortcomings of traditional wealth managers may be the smartest approach.
When it comes to simplifying all aspects of investing, other prospective investors may have desired it, but Millennials demand it. Where does your firm currently stand in meeting that demand?
About Reginald Cash
Reginald Cash has over 9 years of experience and has worked with organizations like Deutsche Bank & UBS. Reginald holds a Bachelor of Science (BS), Economics from Columbia University in the City of New York.