A HISTORIC TRANSFER OF WEALTH IS IMMINENT

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1 A HISTORIC TRANSFER OF WEALTH IS IMMINENT Connect With The Millennial Investors Who Will Control It. A new generation is edging into the workforce and slowly taking over leadership positions. At the same time, this group is beginning to inherit the wealth acquired by their families. Coined Millennials, they were born between , represent the largest generation in U.S. history, and as they reach their prime working and spending years, their impact on the economy is anticipated to be transformative. 1 Millennials now represent the largest share of the U.S. labor market and are increasingly becoming today s leaders. 2 They bring a new perspective on nearly everything, shaped by unprecedented access to technology, globalization and economic turmoil. It should be no surprise that their attitudes towards investing are also exceptional. Millennials seek financial advice, but finding an advisor who understands their unique fundamentals could be challenging. Advisors must adjust their tactics, offer a wide breadth of technological solutions and a transparent approach to gain this generation s trust; thereby harnessing their wealth. This article will explore the following areas offering insight to Advisors. DECODING THE MILLENNIAL GENERATION THE LIFE & TIMES OF MILLENNIALS A NEW OUTLOOK ON INVESTING THE NEXT GENERATION SERVICE MODEL 2016 FolioDynamix 1

2 A new generation is edging into the workforce and slowly taking over leadership positions. At the same time, this group is beginning to inherit the wealth acquired by their families. Coined Millennials, they were born between , represent the largest generation in U.S. history, and as they reach their prime working and spending years, their impact on the economy is anticipated to be transformative. [1] Millennials now represent the largest share of the U.S. labor market and are increasingly becoming today s leaders. [2] They bring a new perspective on nearly everything, shaped by unprecedented access to technology, globalization and economic turmoil. It should be no surprise that their attitudes towards investing are also exceptional. Millennials seek financial advice, but finding an advisor who understands their unique fundamentals could be challenging. Advisors must adjust their tactics, offer a wide breadth of technological solutions and a transparent approach to gain this generation s trust; thereby harnessing their wealth. DECODING THE MILLENNIAL GENERATION It s no surprise that financial advisors are beginning to turn their attentions to Millennials. They are impressive for many reasons, the first of which is their sheer numbers. They represent a group of 77 million [3] young Americans. As they come of age, they are showing themselves to be savvy, independent and far more conservative and skeptical than one might assume. [4] These change-makers sharply differ from previous generations and to partner with them, it s important to understand the unique factors that impacted them at an impressionable age. Millennials recently surpassed Generation X as the largest generation in the U.S. workforce with 1/3 of all employees represented by this generation or 53.5 million [5] Millennials expected to inherit and invest $36 trillion over next 45 years [6] Only 16% of Millennials work with a financial advisor, about half the rate that Baby Nearly 2/3 have attended college vs. ½ of Baby Boomers [7] Boomers do [8] 2016 FolioDynamix 3

3 THE LIFE & TIMES OF MILLENNIALS Millennials came of age in a time of economic turmoil, ingrained in digital connectivity and access to information on a global level The public gained access to the World Wide Web [9] 2003 LinkedIn is launched 2004 Facebook is launched 2006 Twitter is launched 2008 Lehman Brothers files for Chapter Madoff Ponzi scheme revealed 2007 U.S. enters The Great Recession [10] 2007 U.S. housing crisis deepens [11] 2007 Apple releases the iphone 2009 Unemployment rates hit peak of Great Recession at 10.2% [12] 2009 Eurozone debt crisis [13] 2016 Wells Fargo pays $185 million in fines for illegal activity [14] A NEW OUTLOOK ON INVESTING Millennials came of age during the perfect storm of ubiquitous digital access and a global financial crisis. These experiences shaped a new breed of investors. Having grown up in a time of rapid change, millennials have markedly different priorities and expectations from previous generations. [15] There are several key differentiating factors one must appreciate about this group when seeking their business: Cash in the Attic. Growing up during the Great Recession influenced Millennials to become fiscally conservative, comparable only to those who lived through the Great Depression. [16] They watched as wealth simply disappeared from their parents bank accounts and changed lives. These experiences have contributed to an overall investment approach that is heavily focused on wealth preservation. Millennials commonly hold the belief, If I invest, I will probably lose, unless I m extremely careful. [17] Totally Transparent. Having witnessed the aftermath of the collapse of Lehman Brothers and the Bernie Madoff scheme, this generation of skeptics is committed to fiscal integrity. A Merrill Lynch survey found that only 19% of Millennials agree with the notion that advisors have their best interests in mind. They simply lack trust of the financial industry. In fact, according to a recent survey by Goldman Sachs, only 18% of young adults trusted the stock market as the best way to save for the future. [18] They require total transparency when monitoring their investments and a deep understanding of their financial strategy FolioDynamix 4

4 Constantly Connected. Millennials have never existed in a world where the internet wasn t in the palm of their hand. [19] They naturally turn to online communities to connect with everyone from handymen to potential spouses. As the first generation of digital natives, they are accustomed to instant access to price comparisons, product information and peer reviews. [21] Not only do they expect the ability to access their investments and financial advisors activity online, but they crave it. Scholarly & Savvy. Almost two-thirds of Millennials have attended college compared to almost one-half of Baby Boomers. [22] Robust schooling, in addition to unprecedented access to information inherent in the Digital Age, equips these young adults to make more independent, smarter decisions than ever. They are natural researchers, adept at culling information, parceling out what is valuable and conducting thorough background checks on everything and everyone they come in contact with. More than 80% of Millennials are on social media, where they spend an average of four hours a day. [20] THE NEXT GENERATION SERVICE MODEL Millennials unquestionably represent a major opportunity within the market. This generation of skeptics lack financial guidance. In fact, a study conducted by Merrill Lynch found that Furthermore, advice from advisors is desired, but it must be personal, adequately focused and communicated appropriately. [23] The right tools and business practices are already in place to appeal to Millennials. Advisors must, however, tailor their approach to secure this next, largest generation of investors as clients. 72% of UHNW Millennials report being selfdirected in their investing 41% having no financial advisor of any kind The Right Marketing. Big brands and slick marketing materials do not impress Millennials. [24] They have already witnessed the fall of some of finance s biggest brand names. Iconic brands do not carry the weight with them that it did with prior generations. [25] This can be advantageous to many financial advisors who can differentiate themselves by creating and promoting their own authentic, personal brands. Millennials identify many of their service providers using a six degrees of digital separation approach. It is imperative that advisors build a strong digital footprint using mediums such as LinkedIn. Social media provides prospective clients with a sense of who an advisor is both personally and professionally and also illustrate mutual connections, valuable information to Millennials. They heavily rely on these networks as a source of information and advice. [26] Source their advisors through personal recommendations. [27] Over 75% In fact, most say they would have no objection to using their parents financial advisors. Networking via common contacts and social media is viewed as natural and organic. [28] Personalized contact, albeit via digital communications is also welcomed. Advisors would be well-served to develop a robust menu of online tools such as , Skype, etc. to communicate with their Millennial prospects and clients. Advisors must adapt to engage on their terms FolioDynamix 5

5 Building a Culture of Trust. It is unsurprising that Millennials distrust Wall Street based on the series of events that swept the industry during their childhood. What many don t realize, however, is that a stream of regulations has been implemented since The Great Recession that is correcting the investment industry. As a direct result of the recent DOL Fiduciary Rule, firms now have an obligation to demonstrate that they are taking actions to provide prudent advice to investors. [29] Investors are more protected than ever. According to FolioDynamix s Sean Mullen, SVP of Business Development, the biggest benefit from the new DOL rule is transparency across the entire relationship of advisor and client. Whether it s being clear about what fees are charged to transparency of investments, everyone is on the same page. The DOL rule requires that transparency and clear communication is front and center between advisors and clients. In fact, I believe that this ruling has fast-tracked transparency to achieve the levels that Millennials have been demanding. Such regulations serve to improve the reputation of the industry and reverse the perception that advisors and financial institutions operate under a veil of secrecy. Communicating the industry s changing culture is crucial to gaining this generation s trust. Digital Solutions. The Iron Man/robo-advisor approach to investing that may alienate previous generations is actually favorable to Millennials. Millennials crave technology and are drawn to new robo-advisors that manage their finances and portfolios online. [30] Digital asset management appeals to Millennials skeptic nature with real-time surveillance of wealth and transparency. Coupled with expert financial advice, this service model satisfies Millennials top objectives. According to a study by OppenheimerFunds, Millennials are bitterly disappointed with the online offerings of advisors. [31] To service younger investors, advisors will need to ramp up their menu of technology solutions, many of which can be secured through third party providers such as FolioDynamix. Such tools allow advisors to service young adults who may not have yet reached their earning potential, with minimal disruption to their practices. Millennials appreciate this entrée to investing and as their investing needs deepen, so can their relationships with their advisors. CONCLUSION Having taken over the workforce, Millennials are beginning to invest in greater numbers than ever, presenting a huge opportunity for financial advisors. [32] Over the next 45 years, they are estimated to invest $36 trillion. 33 These educated, young adults need guidance from trusted professionals. The industry is poised to support advisors to tap into this market with a plethora of online tools and new regulations. The opportunity is clear and the path is open. The time to engage with the Millennial market is now FolioDynamix 6

6 INDEX [1] Goldman Sachs, Data Story Millennials [2] Deloitte, The Deloitte Millennial Survey 2016 [3] Pew Research, Millennials: A Portrait of Generation Next, February 2010 [4] Merrill Lynch Bank of America Corporation, Private Banking Investment Group, Millennials and Money, Young High Net Worth Insights Survey, 2013 [5] U.S. Census Bureau, 2015 [6] Center on Wealth and Philanthropy at Boston College [7] Council of Economic Advisers, 2014 [8] 2016 Wells Fargo Millennial Study [9] Martin Bryant (6 August 2011). 20 years ago today, the World Wide Web was born - TNW Insider. The Next Web. Retrieved 17 April [10] Federalreservehistory.org [11] USA Today, Timeline: Key events in financial crisis, 2013 [12] U.S. Bureau of Labor Statistics [13] European Central Bank [14] Time, Wells Fargo Shows Banking s Culture Crisis is Worsening, September 2016 [15] Goldman Sachs, Data Story Millennials [16] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [17] Merrill Lynch Bank of America Corporation, Private Banking Investment Group, Millennials and Money, Young High Net Worth Insights Survey, 2013 [18] Goldman Sachs, Data Story Millennials [19] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [20] emarketer 2013; Corcapa 1031 Advisors 2015 [21] Goldman Sachs, Data Story Millennials [22] Council of Economic Advisers, 2014 [23] FolioDynamix, Success in the Wake of the DOL Fiduciary Rule, 2016 [24] Money, Millennial Investors are Shaking up the Financial Industry, 2015 [25] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [26] Money, Millennial Investors are Shaking Up the Financial Industry, 2015 [27] Merrill Lynch Bank of America Corporation, Private Banking Investment Group, Millennials and Money, Young High Net Worth Insights Survey, 2013 [28] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [29] Goldman Sachs, Data Story Millennials [30] Scratch, 2014, Millennial Disruption Index [31] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [32] OppenheimerFunds, Proving Worth The Values of Affluent Millennials in North America, 2015 [33] Merrill Lynch Bank of America Corporation, Private Banking Investment Group, Millennials and Money, Young High Net Worth Insights Survey, 2013 For more information on FolioDynamix and how we can help firms thrive in a post-dol Fidicuiary Rule environment, contact DOLSolutions@FolioDx.com FolioDynamix 7