What you need to know about millennials and their investment habits

 

A new generation of investors sets new standards

Millennials are coming of age and changing the way how investments are made. We at Selma Finance wanted to know what kind of attitudes and expectations these future investors have. Here are the 4 key things to know about millennials and investing as covered by Neue Zürcher Zeitung (NZZ) and Helsingin Sanomat (HS).

Here are the key things we learned interviewing 25 young adults about their investing habits, their experience with banks, why they don’t invest and what they expect from an investment service. For the longer overview, you can find the full report here.

1. A fundamental mistrust in banks

“I do not want to meet my bank advisor, I don’t trust him. He is trying to sell me products which are too expensive and not right for me.” 
— Andreas, 29, consultant, Switzerland

Branded by the financial crisis, the fall of Lehman Brothers, subprime mortgages, banker bonuses and bank bailouts, millennials have generated a healthy dose of distrust against the financial profession. And who would blame them. “The North remembers”, and so do they.

Nevertheless, banks are still well trusted as a place to keep your money safe in a secure vault. But their investment products and their bank advisors are having a reputation problem.

A study by Millennial Distruption Index (2014) showed that more than 2/3 of millennials would rather go to the dentist than listen to what banks are saying.

Same mistrust could be sensed among our participants: there were strong trust issues regarding the advices their personal bank advisor would give them. There was also a clear belief that suggested investment products would not fit in their profile, would be too pricy and include hidden costs.

All this has caused millennial investors to take on a more active and controlling role in the relationship with their financial service provider. They continuously cross-check decisions and require high transparency in prices and in product selection.

Google has provided the digital generation with their biggest weapon to cross-check and compare product information.

And this is not all. Among all our participants, Google has taken the number one place to inform oneself where to best invest their money, followed by advice from family and friends and financial blogs. Traditional bank advisors were not mentioned.

2. A portfolio is self-expression

“My investments have to match my values and beliefs. This is a major investment criteria.” 
— Zora, 33, Project manager, Switzerland

“75% of generation Y want to stay authentic and refuse to compromise family or personal values “ — Deloitte Millennials and Wealth Management, 2016

Today’s young adults are known for their profound beliefs and values guiding their decisions. Our interviews showed that those values, motives and beliefs are also affecting and guiding their investment behaviour. Even if it means less profit.

No longer does one size fit all. Tomorrow’s investors are looking for personalized investments and tailored services that provide them the possibility to express themselves throughout their portfolio. This can happen on 3 levels:

  • Personal values & beliefs are unconditionally important. Even if it means less profit. — Particularly ethical beliefs and being conscious of sustainability are influencing underlying investment decisions, defining the basic guidelines of a portfolio.
     
  • Relying on their own professional knowledge, opinions and self-education. Millennials want to cover investment areas, industries and trends they know about and can confidently invest in.
     
  • Specific topics are chosen in order to make an informed bet.

3. Quality of digital experience outweighs the costs

“I switched my online broker because of its horrible online experience, even though the new one is more expensive.” 
— Jeremias, 34, CTO, Finland

Growing up with digital services, mobile apps and online media, millennial investors are setting high standards for their financial services. More than any generation before, they demand good UX, simplicity and directness. While traditional private banking services have so far relied on face-to-face meetings, millennials demand real time access online.

As such, user experience and design evolve into key purchasing factors and are the number one reason to switch financial service providers.

Almost 40 per cent of the investors would consider leaving their wealth manager if it did not offer the online services they required. — Capgemini / Financial Times, 2016

4. Lack of time & knowledge limits the will to invest

I don’t have enough time to follow the financial markets closely. 
— Rico, 33, Head of Sales, Switzerland

A key reason why millennials do not invest is that they think they do not have the right financial knowledge to make good decisions. Lack of transparency in financial products and scattered information give young adults that feeling.

Lack of financial knowledge and the fact that investing “intimidates” them are major reasons not to invest — CIBC, 2015

Beyond that, the biggest reason why our interviewees did not invest was that they did not have the time to follow financial markets. Nor did they have the time to evaluate investment options and products or to follow markets actively. This is why they are seeking trustworthy help and assistance to do things for them or moving to passive investment strategies.

The Major Takeaways

Summing up, millennials are setting high demands for financial service providers, challenging the current standards and resetting the game, with:

  1. Fundamental mistrust in banks, bank advisors and bank products.

  2. Wish for self-expression, such as personalized investments and tailored services.

  3. Considering great digital experience as a key purchasing factor

  4. A lack of time and knowledge that hinders making investment decisions.

Interested to know more how we are going to change the wealth management industry? Sign up for our free beta here or download our full Millennials & Investing report including country specific information for Switzerland and Finland.

 
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