The pandemic has lifted the veil on the potential and power of our personal choices when investing. Responsible investments continue to gain prominence and appeal beyond their early adopter Millennial (under-35) audience, as doing good and doing well are no longer seen as mutually exclusive options.
In our 2016 study, The Culture Challenge, data showed that transparency in business performance was perceived to be the top signal point of a responsible wealth management organization (58%), closely followed by transparency in the investment process (56%). Fast forward five years and transparency in the investment process is now the focus for more than three in five (61%) investors globally.
Such shifts in behavior suggest that trust in a wealth manager’s investment process, in today’s uncertain environment, is crucial to confidence in the portfolio decision-making process. As clients continue to adapt to the new investment climate, so must the role of the advisor. Understanding the triggers and values that have brought about these changes in clients will help wealth managers formulate more resilient strategies for 2021 and beyond.
Stepping Up and Speaking Out
Our study finds that since 2016, Millennial clients have moved in the same direction as other generations by focusing more on trust and transparency in the investment process. But they have also stepped up and become more vocal across a range of topics that are important to them.
Millennials tend to have more inclusive ideas about growth, grounded in the belief that well-governed, customer-centric, and people-focused organizations perform better. As a result, relative to other investors, Millennials have a broader frame of reference for what it means to be a responsible organization. For example, they are now more likely to consider customer feedback and satisfaction, the use of screening to identify socially responsible investments, and company statements on culture [Figure 1].
With Millennials now comprising approximately 50% of the global workforce, their voices and views add a sense of urgency to myriad issues they perceive to be important to a sustainable future.
Values Shake Up the Agenda
Conventionally, high net worth clients seek to construct portfolios around life goals and expectations of positive returns. Today, however, more and more investors want to align their portfolios around their values—a crucial conversation many advisors have so far overlooked.
Although valued-based investing is of interest to investors of all generations, Millennials are approximately twice as likely as Baby Boomers (aged 55-75) to use values as a foundation for responsible investing (59% vs. 29%). They are also more comfortable initiating those discussions with their advisors than older generations.
In our latest study, we find that nearly one in two Millennial clients can think of at least one major recent global event or trend that they would like to discuss with their advisor in relation to their wealth. But they are not unique in this, as 53% of Generation-X (aged 35 to 54) investors say the same [Figure 2].
The real generational difference, however, is not that values are important to one age group but not others—after all, 70% of clients overall fall somewhere on the spectrum of wanting to connect their values to their investments. What makes Millennials unique is that they are more comfortable introducing or having these discussions with their advisors, whereas older generations are reticent—even though values are important to them too.
Values reflect pillars of significance to individuals, their families, and wider communities. In volatile environments, they offer purpose and a direction of travel. With the next generation of clients set to receive over $30 trillion of inherited wealth by 2025, advisors need to become more comfortable with initiating these conversations and asking relevant follow-up questions.
With 72% of investors globally interested in learning more about responsible investing—and over a third wanting these investments to be aligned with their personal values—wealth managers have an opportunity to re-define client-centricity and capitalize on the rising interest among all cohorts.
The first step is to understand what is important to clients of different ages and at different stages of their life. To do this, advisors need to tailor each conversation to the individual’s priorities. To make a meaningful difference to the level of awareness and confidence surrounding responsible investing, advisors need to strengthen their monitoring and company profiling data.
For example, Millennials are paying more attention to operational and reputation risk, asking for more insights on company supply chain practices, labor treatment, as well as carbon emissions. At the same time, Gen-X and Baby Boomers are more focused on governance areas such as management profiles, executive pay, corporate social responsibility (CSR) efforts, and even political contributions [Figure 3].
As the profile of the average investor continues to evolve, so will the meaning of client-centricity and the role of the advisor. Wealth managers therefore shouldn’t be waiting for clients to bring up values-based conversations.
Although Millennial clients are most vocal about aligning their values to their portfolio choices, it’s a conversation that is worth having with all generations. Advisors need to recognize and act on generational similarities, as well as differences, so that what clients value and what advisors think clients value remain aligned.
Priorities will vary by age, life stage, and person, so having a wide range of reliable and trustworthy data points is critical to doing this well. Millennials may have led the way with responsible investing, but overall, this is a mainstream shift in how many clients now expect to be able to invest.
Senior VP, Senior Director, Wealth Management and Digital Solutions Strategy and Product Development
Mr. Greg King is Senior Director, Wealth Management and Digital Solutions Strategy and Product Development at FactSet. In this role, he focuses on the allocation of resources for all areas of the Wealth Management business; from market research and product development to implementation of a parallel sales and marketing plan. Mr. King moved to London from the U.S. in 1999. Prior to leading FactSet’s Wealth Management Strategy, he spent eight years as Director of Workstation Solutions for the EMEA and APAC regions, and before that, was Vice President, Institutional Sales in FactSet's UK Investment Management region. Mr. King earned a degree in Economics from Boston College and is a CFA charterholder.
The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.