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Millennials Expect & Deserve Meaningfully Better Advice

By James Wright |2.27.2021

A staggering $3.5 trillion dollars is likely to be transferred to a younger generation in Australia over the next 20 years.  Baby boomers have undoubtedly enjoyed an extraordinary period of prosperity.  They will argue that it has not always been smooth sailing and it has taken hard work, sacrifices and savings, and prudent investment strategies to amass their financial legacy.  Of course, the relative global peace and expansion of trade they have enjoyed, along with the incredible forces of consumer price deflation, lower borrowing costs and asset price inflation, have been very welcome tail winds.

What should now concern the baby boomers is the transition of that wealth and the risk of “shirtsleeves to shirtsleeves in three generations”.  The statistics on the first generations wealth being squandered by the third are simply frightening.  It is estimated to affect some 90 per cent of family fortunes, and in some cases, the money itself disappears, and in others it is the family business that is lost.

The idea that the third generation have an air of entitlement as they have grown up with plenty of money and are a step or two removed from the work ethic and drive of the people who created the wealth is too simplistic.  The natural dilution of assets as they are shared among generations of heirs clearly does play a role.  However more can be attributed to lack of family planning as these sometimes difficult and complex conversations are put off and the beneficiaries are left ill-prepared for the responsibility of wealth stewardship.  It is hardly the fault of the third generation if the parental instinct to protect our children from tough experiences means the lessons, they need on running businesses and investing their wealth are never taught properly.  This truth can equally apply to children in their forties as it does to those in their twenties.

A major issue for the millennial generation is where will they get their advice and who can they trust.  The reputations of many of the organisations that supported their grandparents have been severely tarnished.  In Australia, the Hayne Royal Commission exposed a horrendous array of unacceptable practices, including inappropriate advice and fees for no service.  As a result, the landscape of the advice industry in changing rapidly.

One of the unintended consequences of the regulatory reforms that have been developing since the Hayne findings has been the reduction in adviser numbers.  Nearly 4,400 advisers left the Australian industry in 2019 and there are estimates that towards half the remaining advisers are considering leaving over the next few years before higher educational standards and tougher regulatory rules come into force.  Many organisations are now complaining that the regulatory burden and the cost to serve retail clients is too high forcing them to opt for technology driven robo-advice solutions and a one size fits all approach to financial products sold to ‘non-advised’ self-directed consumers.

Millennials now expect and deserve meaningfully better.  The question for the wealth industry is how to re-arrange itself in the new economy to rebuild trust and support the intergenerational wealth transition.  We need the next generation to understand some important things they are not currently interested in and therefore not good at.  And we absolutely need to listen to them and be respectful of the things they are passionate about.

One of the great benefits of working from home at this unusual time has been the discovery that the corporate and social responsibility section of a Year 9 commerce assignment was worth more marks than the financial modelling section.  Family dinners sharing the wonder of compound interest and the stock market with cashed up and inquisitive millennials probably would not have happened at our house before Covid-19.

What is clear is that millennials have very strong opinions about investing and the sorts of organisations they wish to engage with.  The future for the advice industry is clearly bionic – great technology combined with great people.  Millennials will demand personalised and bespoke advice aligned to their goals.  They will demand access to information across multiple digital channels to access data anytime and anywhere.  Independent, with open architecture and greater transparency, will be a given.   They will want to do their own research and seek the support of their peers.   Artificial intelligence and machine learning will clearly play an invaluable role for advice organisations as they look to provide information and services.  However, human interaction and the ability to connect with millennials should not be underestimated.

Millennials clearly understand the importance of sustainability and renewables in their investment strategy.  There are old world industries which this generation will never invest in.  However, greater access to information does not necessarily imply better decision making.  They still have more to learn on price versus value and risk versus reward.  What is clear is that the advice firms of the future must to be meaningfully better.  They need to be groups that are authentic, look to collaborate and educate, and truly believe in the values of their clients.  They must evolve their services to meet the needs of Millennials and ensure they have the best shot at protecting this financial legacy and growing this wealth for futures to come. They should and must use their voices and influence to reshape the communities in which they operate in order to create a more meaningful society together.