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Wealth managers risk misjudging millennials

Wealth managers risk misjudging millennials

There are many clichés in the world of finance, and the thought that millennials prefer digital wealth management over face-to-face advice is one that has gained a lot of traction over the past few years.

However, speaking at a recent Pimfa event, Young Money founder Iona Bain (pictured) warned wealth managers not to overestimate young people’s preference for digital services. A hybrid model, she argued, was the way forward.

She stressed that the poorly understood digital market, the continuing need for face-to-face conversations and the absence of collaborative spirit among advisers are driving young people away from digital platforms.

Bain said: ‘The digital market is very poorly understood. Not that much research has been done other than by Pimfa. Their millennial forum initiative is the first time the market has tried to get to grips with this generation.

‘The upshot is the trade-off between convenience, access and cost. Younger people may be willing to pay more to gain convenience, but at the same time, there will be young people who can’t afford stripped-back advice and fall through the gaps. It’s a very tricky minefield for a would-be investor to navigate.’

She added: ‘It’s exacerbated by an industry that doesn’t come together to provide trustworthy information. There should be more of a joined-up effort that doesn’t necessarily lead to a product sale but plugs that information gap that would be in everybody’s interest. That might be expecting too much, however, and I wouldn’t hold my breath.’

Bain expressed her belief in the value of a hybrid model and noted that although the great migration to digital is possible, it has not happened yet.

She said: ‘I’m a believer that for those with more basic needs, a digital platform will suffice. Wealth managers have to devise something usable for that market.

‘For those who are more advanced, they aren’t that different from other generations. You only have to look at stats of [the] take-up of robo [advice] and digital challengers to see that we’re not at the point of across-the-board adoption.

‘I’m not saying it won’t happen. The marketing of start-ups might not have hit the mark or robo could be a slow burn. Whilst this tech isn’t well known or trusted, young people might overcome their reluctance.’ 

Beating the buzz words

Simon Badley (pictured below), managing director of Iress contested the usefulness of terms like millennial and robo, and said digital platforms should never be made with just one age group in mind.

Badely said: ‘So-called robo advice services are not and should never be viewed as exclusive to young people. People of all ages engage with their finances in different ways.

‘Good technology, properly deployed, smashes through false marketing constructs like the terms millennials and robo advice. Both of these terms have been made up to try and capture the zeitgeist, not to help people make better financial decisions. They are not helpful.

‘I think it would be an error to build a digital proposition with the expectation it would only be relevant to young people.’

Bain echoed Badley’s criticisms, saying: ‘Robo is an awful misnomer that doesn’t convey what those services are.

‘Advisers want to distance themselves from that term. Nutmeg moving into financial advice shows that limiting yourself to that digital ghetto doesn’t work. Their target audience isn’t as gung-ho about online services as they thought.

‘Young people would prefer to be knowledgeable. Educating young people about equities and other classes is hard, but you can’t skip that.’

Convenience is key

Legg Mason gathered responses from 17,000 people across all ages in its global investment survey in August. The firm approached 1,000 people in each of the 17 countries they polled.

In total, 6,339 millennials between the ages of 18 and 36 were surveyed.

It found that 59% of 18- to 24-year-olds ‘would like to manage all my personal finance, including banking and investments, in the same app on my smart phone or mobile device’. Even more 25- to 34-year-olds – some 72% – agreed.

James Verner, head of alternative distribution strategies at Legg Mason, said: ‘Convenience and level of interest in having information in one place is higher among millennials compared to older groups, which isn’t surprising. Moneybox and Nutmeg definitely appeals to that audience.’

Badley argued that a predilection for digital-based advice is mostly dictated by wealth.

He said: ‘The way people interact with advice has less to do with age and more to do with other things like accumulated wealth and the complexity of the financial solution required. Technology frees advisers up to do the things that matter for their clients.’

Verner agreed, adding that an exclusively digital approach would be a mistake.

He said: ‘I think, from the millennial point of view, they need advice at key life moments. Giving them an online platform and expecting them to get on with it would be a mistake. Our survey found that 61% of 18-24s and 69% of 25-34s said the human touch can never be replaced by a machine.’  

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