Heraclitus may have said it first, but it's as true today as it was in ancient Greece: the only thing that is constant is change. And today's world is arguably one of the most changeable and uncertain versions to date.
Take the political environment. In the last few years alone, the world has been surprised by political events and movements, such as the Brexit vote, the ascendancy of Donald Trump and the rise of populism – defined as political ideas and activities aimed at gaining the support of ordinary people. But one thing has stayed the same: it's the younger generation that is at the forefront of current change, shaping the world of the future – just as their parents and grandparents did, as part of the anti-war, civil rights, feminism, environmental and anti-nuclear movements of the late 20th century.
Talking about this generation
The generation we are talking about is the group commonly described as millennials, the people born between the early 1980s and 2000, currently ranging in age from teenagers to adults in their thirties – some of advisers' current, and perhaps more importantly, future clients. This tech-savvy group has different expectations and values from those of previous generations, particularly with regard to social, environmental and economic issues. They are bringing change through the disruption of traditional financial, corporate and economic activities. They are also demanding a more responsible approach from the organisations they buy from. And these attitudes also permeate their approach to investment.
Investors at the younger end of this spectrum are particularly focused on responsible investment. A Standard Life Investments poll in 20151 found that investors aged between 18-24 had the strongest inclination towards investing in companies that achieve positive environmental and social outcomes. But this view is common across the spectrum: according to a Harris poll2 in the US, 67% of millennials said that if they were to invest in the stock market, it would be very important for them to decide which companies or funds to invest in. Other, more general research from the US3, into what motivates millennials has indicated that the majority of this group view themselves as 'authentic' and are not willing to compromise their family and personal values. This all adds up to a generation that needs a different kind of financial advice.
One size does not fit all
As a result, more and more of advisers' clients will be seeking investment solutions that can address their social and ethical considerations – while still, of course, delivering a return on their investments. They will want to know that their discretionary fund manager (DFM) takes these considerations seriously and is a responsible investor. They want financial advice that fits with their values, and they have strong views on what they will and will not invest in.
It could be well worth delivering what they want: this generation is likely to have money to spend. A study4 by consultants Accenture found that over the next several decades, around $30 trillion in financial and non-financial assets will be passed from the 'Baby Boomer' generation (those born between 1946 and 1964) to the next generations, in the US alone.
Millennials' socially conscious approach is not an isolated 'sea-change' in views. It mirrors the burgeoning of the ESG (environmental, social and governance) movement within the corporate world. ESG may have been a niche term once, but it has emphatically moved into the mainstream, where its criteria are used by investors to assess corporate behaviour and to help forecast financial performance. These are a means of monitoring how companies conduct their business. For instance, what is their approach to employment practices? And do they avoid polluting the environment?
Many companies recognise that it makes good business sense to take these responsibilities seriously. Many will also acknowledge that businesses seeking to have a positive impact on society are those which will survive and thrive in a world where investment decisions are increasingly being made on this basis – not just by millennials, but by investors of other generations too.
Advice for advisers
Clearly, managing a 'new wave' of investors requires a change of approach. But this is nothing new. Advisers are no strangers to change, having already weathered impactful changes in government, regulation and pensions, to name but a few significant developments of the last few years alone. And now, as client bases change, advisers must adjust and adapt their approach yet again, to maintain competitive advantage and continue to provide a first-class service.
So, what is required, to attract and retain a millennial client base? A good first step is to understand the socially conscious approach of this new generation of clients; be fully informed about the drivers of their investment choices; and advise them accordingly.
To sum up, advisers might bear in mind the wise words of Jack Welch, previous CEO of General Electric: "Change before you have to."
To find out more about Aberdeen Standard Capital, email asc@aberdeenstandard.com
- Standard Life Investments YouGov poll (online), 2015
- Harris poll (online), 2016
- Bentley University, 2012
- Accenture: Generation D: an emerging and important investor segment, 2012