As millennials enter middle age, they’re no longer the snot-nosed young Turks with aspirations to change the world and few assets to their names, a new report says.
In fact, at certain levels of wealth, nearly three-quarters of North American millennials are using the services of a professional financial advisor, according to Five Financial Truths about Millennials at 40, a recent report from Natixis Investment Management.
In North America, 72% of Natixis’s millennial respondents reported having a financial advisor, a higher proportion than Generation X (66%) or baby boomers (70%).
“We tend to think of younger generations as digital first because they have grown up with digital, and the assumption is that everything gets done with a phone,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight. “As they get older, life is more complicated and their circumstances are less cookie-cutter. Everything relates back to their income, their goals, and themselves, so millennials are turning to financial professionals.”
In its global survey of 2,459 participants with at least $100,000 in investible assets, taken in March and April 2021 and further analyzed in March 2022, Natixis uncovered some key truths about millennials as they age.
Robo-Advisors Aren’t Enough
Only 5% of the North American millennial respondents work solely with an automated investment service like a robo-advisor. While more than half of them prefer to receive advice through digital or online channels, they still want to know that the information is coming from a human being, according to the survey.
“Higher-net individuals will work with advisors, with maybe a robo-advisor as a secondary advisor,” said Goodsell. “Financial planning is on their minds, that doesn’t come from an algorithm.”
Nearly half of the millennial respondents said that they don’t really trust algorithms or AI to make investment decisions. By comparison, of those who work with financial advisors, 92% said they trust their advisor.
The most important components of a financial advisory relationship, according to the respondents, are helping to manage volatility, discussing financial plans with family and having access to someone who listens. Their biggest financial fears are volatility, tax increases and a slow economic recovery.
“Social media isn’t going to guide their financial decisions any more than robo-advisors,” said Goodsell. “Millennials are savvy enough to know you can’t Yelp recommendations for your financial portfolio.”
Millennials Are (Mostly) Risk Averse
Nearly half of the North American millennial respondents, 48%, said risk management is the most important factor when allocating assets. Millennials are most likely to define risk as market volatility.
“For millennials, risk is a very short-term question as opposed to an issue that might be 20 to 30 years out,” said Goodsell. “In that way, they’re actually quite conservative. The expected coming of age for this generation was marked by 9/11 and then their thinking was further impacted by the global financial crisis, the dot-com bust and Covid-19. They saw what parents and/or older siblings went through during these crises and it shaped their sense of risk. The mindset of millennials is more similar to Great Depression-era people versus baby boomers or Generation X.”
While 15% of them define risk as simply losing money, just 12% of millennials define risk as a failure to meet their financial goals.
While 69% of the millennial respondents said they are comfortable taking risks to get ahead, 75% would choose capital preservation over outperformance as an investment objective.
Millennials Want Capitalism to Better the World
Millennials have long been thought of as major proponents of ESG investing, or allocating their assets in line with certain beliefs on the environment, social responsibility and corporate governance. Natixis found that 76% of North American millennials think of investing as a way to make positive impacts in the world.
However, just four-in-10 of these respondents have investments incorporating ESG factors.
“Millennials are stereotyped as having a lot of interest in activism, but when we speak to them they still have return expectations and they want to do well with their investments,” said Goodsell. “For a significant number of millennials, ESG is simply a better, less risky way to invest. It’s not necessarily about saving the world or expanding opportunities.”
While millennials feel responsibility to address big issues in the world, more believe that that responsibility lies chiefly with companies and governments, according to the survey.
Millennials Are Already Worried About Retirement
North American millennials, on average, hope to retire by the age of 59, according to the survey, which means they are increasingly sensitive to certain types of risks.
The biggest risk biting millennials right now is inflation, said Goodsell.
“They have this sense of doom, even though they think they should be financially secure in retirement. We see people saving 19% of their income who already have $250,000 saved away,” said Goodsell. “They’re looking at the world and how it is structured and have a strong desire to retire early, but they also acknowledge that they will likely have to work longer.”
The respondents named the need to delay retirement, rising healthcare costs and a lack of financial security as concerns as they move towards retirement age.
Millennials Were Hit Hard By Covid-19
According to the survey, nearly half of the millennial North American respondents, 47%, said they felt stressed about financial security during the pandemic.
“This survey covered people more affluent than the global average, and we still found that one-in-four respondents suffered a serious financial setback because of the pandemic,” said Goodsell. “Part of it is timing, I wouldn’t discount the increasing complications of life as this generation ages. If they made a mistake when they had $10,000 in assets, they felt like they had time to make up for it. Now, with $100,000 or $250,000 in assets, mistakes are costlier and there’s less time to recover.”
On the brighter side, these respondents also said that the pandemic reinforced certain financial lessons like keeping an emergency savings account, limiting their spending and crafting an estate plan.