Millennials are starting to pop up more and more in financial news because the oldest in that generation (born in the early 1980s) are entering their prime, wealth-building years. This means they are starting to spend more of their savings on weddings, houses, babies and retirement. (Full disclosure: I’m a millennial!)

The entry of millennials into this stage of life presents a lucrative opportunity for financial advisors. Instead of starting with a large asset base that has distributions around the corner (baby boomers), advisors can start with a smaller base—but one that continuously grows. There are some hurdles to overcome, however. Millennials have different mindsets from prior generations, and advisors need to consider these if they are to fully maximize the potential millennials represent.

Evolution Of Financial Products: ETFs

Whether millennials are seen as tech-savvy or tech-dependent, it’s obvious they have embraced technology with open arms (supercomputers, formerly known as phones, are within arm’s reach at all times). This means they can connect with and appreciate the same type of innovation happening in the financial industry through the creation of exchange traded funds (ETFs). These funds utilize the top qualities of stocks (more options to get targeted exposures, intra-day trading) and mutual funds (well-diversified, track a theme/index) to come up with a best-of-both-worlds financial innovation.

Millennials are generally also skeptical and cost-sensitive in nature, making ETFs an ideal option.

  1. ETFs are completely transparent, index-based products, meaning investors will always know what they are holding and can be confident in more consistent exposures.

  2. They cost much less than traditional mutual funds (according to research my firm, CLS Investments, has done, the simple average cost of an ETF is 0.56 percent compared to a mutual fund at 1.15 percent). This allows for lower-cost asset management—one reason for the great success of robo-advisors, which provide easy-to-set-up online retirement accounts with reduced management fees.

  3. Many brokerage custodians, such as Schwab, TD Ameritrade and Fidelity, have created lineups of No-Transaction-Fee (NTF) ETFs on their platforms so investors can trade ETFs without paying per-trade commissions, as they would with stocks.

A recent BlackRock study found millennials are currently invested in more ETFs than the average investor (33 percent vs. 25 percent) and are more likely to invest in ETFs over the next 12 months (70 percent vs. 52 percent).

The popularity of ETFs can be seen in their tremendous asset growth. According to Morningstar Direct, a couple of huge milestones were recently hit: Total assets crossed $3 trillion and the number of listed ETFs in the U.S. is now more than 2,000.  Although the ETF market has grown rapidly over the last decade, it is nowhere near the $17 trillion mutual fund market, so there is plenty of room to run. This type of growth is consistent with other groundbreaking technologies, such as the cell phone, which take time to get everyone on board.

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