The client base for financial advice is undergoing a seismic shift. Slowly but surely the millennials are on the rise, creating a new market for ‘moral money’. As part of Good Money Week, Rebecca O’Connor (founder director of good-with-money.com) explains how the landscape is changing.
‘There is a direct correlation between age and values: the younger you are, the more values you have. But unlike their parents or grandparents, the millennials – the under 34-year-olds who are becoming the next generation of “values-based” investors – will not lose their principles as they get older.’
This is the view of Amanda Young, head of responsible investment at Standard Life Investments, speaking at an event for Good Money Week on ‘The Rise of the Millennials’. According to Standard Life’s research, 58% of 18-24 year olds agree with the statement ‘I want to invest my money in/with companies that achieve positive social outcomes’, compared with just 27% of the 55+ age group.
The implications for the financial services industry will be profound. The rising tide of ‘moral money’ from the largest demographic group in the UK will involve the application of values to products, as well as more of a focus on transparency and accountability. No hiding behind bland fund titles now – this demanding group will want to know the companies they are investing in, and what those companies are investing in too.
It’s a big shift from the ‘don’t ask, don’t tell’ approach to corporate governance that persists. In a world of demanding millennial investors asking questions and conducting their own CSR investigations, scandals like VW could be less likely; Shell may never have even got the rig to the Arctic, banks that avoid tax would be punished fiercely by shareholders and disenchanted customers.
Not only do millennials want their money to have nothing to do with harmful activities, they actively pursue investments in beneficial businesses, such as renewable energy, affordable housing, water delivery and treatment solutions, sanitation and hygiene, education and sustainable agriculture techniques. No longer content simply to avoid vices such as tobacco, alcohol and pornography, they want to see good conduct also from banks, pharma, agriculture and retail.
What are the big issues? Corruption is the biggest concern, followed by tax. The environment also features strongly.
Millennials still want to make money, though. They just don’t think that having values and making profit are mutually exclusive, in the way older generations were brought up to believe.
Being ‘digital natives’ means that most of their money management is conducted online.
‘There are of course pitfalls to such investment activities,’ says Amanda. ‘For example, “Follow the herd” trading is a danger with communal information sharing.’
But millennials generally aren’t risk-takers – they prefer cash-like investments to meet long-term goals instead of riskier, albeit potentially higher returns. And when it comes to advice, younger people ‘want to work collaboratively with their advisers to create both a trusting relationship and an investment approach that is tailored to meet their specific needs and interests.’
All of this means a challenge for the traditional investment industry. ‘Asset managers will have to articulate what value they add to the investment process,’ says Amanda. Millennials also like new financing models that disrupt large institutions, such as peer-to-peer lending or crowdfunding. But the mainstreaming of ESG (Environmental and Social Governance) in investment may yet be the biggest cultural shift that the investment industry has ever experienced.
To find out more about Good Money Week, visit http://good-with-money.com/.