Beyond Baby Boomers: The Investable Assets of Tomorrow

Transcription

1 Beyond Baby Boomers: The Investable Assets of Tomorrow Getting to know Gen X and Millennial Investors July 2016 GLOBAL X MANAGEMENT COMPANY LLC. All numbers are approximate.

2 Introduction Global X conducted a retail market survey with a third party vendor, ORC International, in late Q Our goal was to shed light on behavioral differences among generations when it comes to investing. A Common Financial Advisor (FA) Request Many of our clients ask us for insights on how to appeal to younger investors, specifically investors who are in the Millennial and Generation X generations. We believe that our clients are anticipating the greatest wealth transfer in U.S. history from the Baby Boomer generation to their children, mainly members of the Millennial generation. Additionally, Gen X does not receive nearly as much media coverage or attention as the Millennials or Baby Boomers do. However, as Gen X ers enter their prime earning years, advisors are interested in learning more about what makes this in between generation tick. Hearing these common questions and concerns, we too became even more curious about Gen X er and Millennials. When thinking about how to empower our clients, we are determined to provide them with research and insights not only about the markets, but also about the macro environment in which we all operate. After analyzing our survey s data, four clear groups emerged, and we believe that getting to know these easily identifiable different groups will help our clients serve their clients and prospects even better than our clients do today. The following report may look and feel a lot like a consumer segmentation to some, and we recognize that consumer segmentations may not always have clear, actionable insights. Therefore, we have taken the tack of, if a client or prospect walks into your office and he/she is AA years old and has $BBB,BBB to invest, knowing a few of his/her preferences could lead to a richer, better conversation with him/her. Fast Facts: The Survey & The People We Surveyed # of survey respondents 2,250 Minimum level of to qualify for the survey $100,000 Birth Years of the Millennial Generation (only those 21+ years of age) # of Members in the 21+ Millennial Generation 1 ~70 Million Birth Years of Generation X # of Members in Generation X ~60 Million 1 Excludes Millennials aged 16-20, born between GLOBAL X MANAGEMENT COMPANY LLC. 2

3 Getting to Know the Four Groups Millennials (Aged 21-36) The Groups The Builders $ K $270bn1 Adrenaline Techies >$250K $980bn1 Description The Builders have just begun to save and invest financial. Because of this, they: Demonstrate a lack in education about some financial strategies like smart beta ETFs Are extremely fee conscious, prioritizing low fees over other investment vehicle features Do not yet seek out financial advisors services While they continue to build their financial, education will be key so they can further increase their financial IQ. Frequent trading and trading as a hobby imply that Adrenaline Techies may be short-sighted in their quest to quickly grow their nest eggs. Their high comfort level with investing in a variety of financial instruments could imply a degree of overconfidence, which can be addressed with education about financial solutions and the long-term costs associated with frequent trading. They prefer to consume information differently than others, and: Choose often to interact with robo-advisors and apps rather than financial advisors Consume much of their financial information via apps and podcasts They will likely be drawn to tech-enabled investment platforms that use new media communications to share insights Gen X (Aged 37-48) Cautious Consulters $ K Knowledgeable Xs $1,500bn 2 >$500K $5,400bn 2 The Cautious Consulters have a very high likelihood of wanting to rely on a financial advisor to achieve their financial goals. They: Are the most likely to use brokers or advisors Do not like to trade often Are saving for retirement much more than investing for pleasure or short-term purchases Have a low knowledge of and comfort level with specific investment types These characteristics suggest that they want to seek the advice of a financial advisor to guide their portfolios. Advisors can also move towards earning their trust by providing financial education. The Knowledgeable Xs use advisors/brokers rather than technology for their investments and depend on their advisor for financial information. Their higher net worth and longer experience with investing has likely led to much greater knowledge of different investment types. Despite preferring mutual funds over other investment types, they value a few things more (see below) than the other groups, indicating they could potentially benefit from a more ETF-centric portfolio. Low management fees The ability to trade throughout the day Transparency Tax efficiency 1 Source: Equifax, based on estimates. 2 Source: Shullman, Insights Into Luxury Affluence and Wealth (2014), based on estimates GLOBAL X MANAGEMENT COMPANY LLC. 3

4 The Builders Fast Facts Ages $ K Approximate market size ~$270 bn 1 The Builders have just begun to save and invest financial. Because of this, they: Demonstrate a lack in education about some financial strategies like smart beta ETFs Are extremely fee conscious, prioritizing low fees over other investment vehicle features Do not yet seek out financial advisors services While they continue to build their financial, education will be key so they can further increase their financial IQ. How much more likely are The Builders to? (% more/less likely vs. other segments Millennials & Gen Xers, >$100K in ) Use a broker/advisor Get financial info from TV or an advisor Have a plan to save for their children's education Be knowledgeable about Smart Beta ETFs -7% -30% -26% -49% Approaching a Builder will likely require a good bit of trust building as they do not naturally gravitate towards advisors Builders are young and children may be but a twinkle in their eyes. However, the having a baby life stage will be a great time for an advisor to add value to a Builder s financial plan. Smart Beta ETFs may seem complex to a Builder, but the longer-term nature of their potential outperformance could be a good hook to educate Builders about astute financial planning Builders aren t getting their financial information from TV or face-to-face from an advisor. In order to reach Builders, advisors will need to increase the quality of their digital presence. Websites that are crisp, clean and designed with mobile-in-mind will be key. Additionally, social media outlets likely LinkedIn can play a role in targeting Builder prospects 1 Source: Equifax (2015), based on estimates GLOBAL X MANAGEMENT COMPANY LLC. 4

5 Adrenaline Techies Fast Facts Ages >$250K Approximate market size $980 bn 1 Frequent trading and trading as a hobby imply that Adrenaline Techies may be short-sighted in their quest to grow their nest eggs. Their high comfort level with investing in a variety of financial instruments could imply a degree of overconfidence, which can be addressed with education about financial solutions and the longterm costs of frequent trading. They prefers to consume information differently than others, and: Choose often to interact with roboadvisors and apps rather than financial advisors Consume much of their information via apps and podcasts They will likely be drawn to tech-enabled investment platforms that use new media communications to share insights How much more likely are Adrenaline Techies to? (% more/less likely vs. other segments Millennials & Gen Xers, >$100K in ) 136% 125% 38% 38% 43% 28% Use Robos & Apps Trade 10+ times/month Find ETFs appealing Consider including ETFs in portfolio Consider including Smart Beta in portfolio Grow a nest egg It s likely Adrenaline Techies are trading too often; education on thinking for the long-term and appealing to the desire to save on fees will be important for Advisors to address Advisors will need to be tech-savvy and have tech-forward practices to capture Adrenaline Techies Adrenaline Techies see ETFs as a natural fit for their portfolios and style of investing Adrenaline Techies have their nest egg on their brains; appealing to investing to save for this outcome will score points for an advisor Adrenaline Techies do consider themselves savvy investors, and they have likely seen Smart Beta in the financial press. Advisors should be able to converse fluently about Smart Beta and, if appropriate, show Adrenaline Techies how Smart Beta ETFs work into a well-diversified portfolio 1 Source: Equifax (2015), based on estimates GLOBAL X MANAGEMENT COMPANY LLC. 5

6 Cautious Consulters Fast Facts Ages $ K Approximate market size $1,500 bn 1 The Cautious Consulters have a very high likelihood of wanting to rely on a financial advisor to achieve their financial goals. They: Are the most likely to use brokers or advisors Do not like to trade often Are saving for retirement much more than investing for pleasure or short-term purchases Have a low knowledge of and comfort level with specific investment types These characteristics suggest that they want to seek the advice of a financial advisor to guide their portfolios. Advisors can also move towards earning their trust by providing some financial education. How much more likely are Cautious Consulters to? (% more/less likely vs. other segments Millennials/Gen Xers, >$100K in ) 33% 38% Use a broker/advisor -58% -55% Save for retirement Focus on a short Trade as a hobby term purchase -16% Feel comfortable building a portfolio Cautious Consulters are very open to seeking the advice of an advisor and will be more open to working with an advisor on retirement planning; retirement is closer on the horizon for them than for a Millennial, and their level of will demand careful planning Cautious Consulters prefer to consult on a strategy, agree to it and then monitor it without making unnecessary trades/changes; it is likely that a Cautious Consulter would seek the advice of his/her advisor before making any strategic changes to his/her portfolio When creating a portfolio or investment strategy, Cautious Consulters will not feel comfortable doing so on their own; an adviser has a lot of room to add value here Advisors will likely not have to convince Cautious Consulters that shorter term purchases are not the right goal for their 1 Source: Shullman, Insights Into Luxury Affluence and Wealth (2014), based on estimates GLOBAL X MANAGEMENT COMPANY LLC. 6

7 Knowledgeable Xs Fast Facts Ages >$500K Approximate market size $5,400 bn 1 The Knowledgeable Xs use advisors/brokers rather than technology for their investments and depend on their advisor for financial information. Their higher net worth and longer experience with investing has likely led to much greater knowledge of different investment types. Despite preferring mutual funds over other investment types, they value a few things more (see below) than the other groups, indicating they could potentially benefit from a more ETF-centric portfolio. Low management fees The ability to trade throughout the day Transparency Tax efficiency How much more likely are Knowledgeable Xs to? (% more/less likely vs. other segments Millennials/Gen Xers, >$100K in ) 17% 15% 12% 14% -45% Use a Robo or an investment app Get info from an advisor Be knowledgeable about ETFs Be knowledgeable about Smart Beta ETFs Feel comfortable building a portfolio Knowledgeable Xs are much less likely to use technology to drive their investments; they value advice from an advisor and are strong targets for advisors seeing to grow their business and add value to clients with >$500K of Coming of age in the age of ETFs, it is not surprising that Knowledgeable Xs are aware of what ETFs are as well as how they work and the benefits they can potentially provide Knowledgeable Xs know about and understand Smart Beta ETFs; it is possible they have already had conversations about this type of ETF with their advisors Armed with more experience than their younger Millennial counterparts and more than the Cautious Consulters, Knowledgeable Xs understand how to build a portfolio; however, it is still likely they will seek professional advice to do so 1 Source: Shullman, Insights Into Luxury Affluence and Wealth (2014), based on estimates GLOBAL X MANAGEMENT COMPANY LLC. 7

8 Key Takeaways The Groups Key Opportunities & Challenges for FAs A Path to Establishing Trust Millennials (Aged 21-36) The Builders $ K Adrenaline Techies $270bn 1 >$250K $980bn 1 Challenges Opportunities Challenges Opportunities Need greater financial education Haven t planned for near term events like children s education High sensitivity to fees Not accustomed to getting financial information from advisors/brokers Need more disciplined investment approach Are focused on growing their nest eggs and need guidance Have a do-it yourself mentality Highly likely to use roboadvisors and apps Demonstrate a commitment to educating clients on financial concepts Can help this group plan for upcoming expenses like children s education Increase expertise in and utilize digital communication methods, such as social media, , Skype, and apps Educate investors on potential pitfalls of over-trading to quickly build nest egg Use smart beta ETFs to demonstrate potential advantages over plain vanilla roboadvisors and apps Build technology-enabled platform and communicate via new-media, such as podcasts and apps Gen X (Aged 37-48) Cautious Consulters $ K Knowledgeable Xs $1,500bn 2 >$500K $5,400bn 2 Opportunities Challenges Opportunities Challenges Are highly likely to use an advisor/broker Are focused on long term investment goals like saving for retirement Will require extra handholding in explaining portfolio construction Will be hesitant to make changes to their portfolios Are not drawn to roboadvisors or apps Rely on financial advisors/brokers for information Prefer mutual funds, but want features common in ETFs Likely to be already entrenched with an advisor/broker Create long-term, low-turnover portfolio strategy for achieving retirement goals Educate investors to build their financial knowledge and comfort levels Avoid short-term, high-risk trade ideas Reinforce the benefits of ETFs and convert mutual fund portfolio to one based on ETFs Provide clients with high quality insights on a regular basis Demonstrate your firm s and your value add vs. other firms and other advisors/brokers 1 Source: Equifax (2015). Based on estimates. 2 Source: Shullman, Insights Into Luxury Affluence and Wealth (2014); Based on estimates. GLOBAL X MANAGEMENT COMPANY LLC. 8