High-net-worth millennials enjoy growing influence in the management of their families’ portfolios, but few are fully satisfied with their investment objectives. They have strong opinions, but are hungry for advice and don’t seem particularly excited about getting it from a computer.
A recent report published by asset management firm OppenheimerFunds, in partnership with Campden Research, looks to cast some light on the investing identities of the young and wealthy. The study surveyed HNW millennials with a focus on three main topics: investment acumen, investment behavior and relationship with advisors. The respondents skewed slightly male — 56 percent were men — and largely fell between the ages of 21-36 with family net worths ranging from $35 million - $1 billion and individual net worths running the gamut from $25 million to $500 million.
Despite their youth, and against conventional wisdom, many millennials are entrusted with high-level advisory and administrative roles within their family offices and are comfortable managing significant investments. Two-thirds of respondents have a say in decision making for their families’ portfolios.
However, this high level of engagement belies widespread concerns about investment objectives and deep personal doubts about preparedness to make such decisions. Of those who actively participate in investment decision making, only 21 percent are fully satisfied with the current objectives of their families’ portfolios. Part of that lack of satisfaction may be due to lack of investment knowledge. They may not be getting what they want because they don’t know how to approach getting it. Only 32 percent of millennials rate their values-based investment knowledge highly, with roughly a quarter deeming their knowledge either poor or very poor. That being said, there is a continuing hunger for investment knowledge, with 42 percent claiming they would like to learn more about the area.
The other potential reason for this discontent is that millenials simply have differing philosophies on investment than previous generations. The respondents displayed a preference for slightly (though not recklessly) risky investments. Millennials’ allocations lean towards U.S. equities, real estate and cash — in that order. Combined, these three asset classes account for 57 percent of the average UHNW millennial portfolio. As far as investment goals, the respondents largely fell into two camps. 41 percent are looking for balanced income and growth, while 37 percent want to maximize capital appreciation by sacrificing liquidity and assuming a level of risk.
Ned Dane, Head of Private Client Group at OppenheimerFunds, notes “UHNW Millennials are increasingly taking calculated risks with their investments while considering the potential long-term implications of these decisions. Advisors can leverage actionable insights like these to encourage multigenerational family dialogues that incorporate evolving millennial viewpoints. They can also bring value directly to millennial clients, for example, by helping them explore alternative investment opportunities and conducting due diligence.”
Though a great deal has been written about millennial disdain for advisors and increasing adoption of technological alternatives, HNW millennials seem not to have gotten that memo. Nearly three-quarters (71 percent) of respondents seek professional advice before making investment decisions. These respondents trust their family office executives, accountants and financial advisors the most when it comes to investment advice. They trust banks and, surprisingly, robo advisors, the least. One anonymous respondent in his mid-30s summed it up: “A computer algorithm has just as much opportunity to make an investment decision as a monkey throwing a dart at a stock selection. At the end of the day, it’s all gambling.” Others had more faith in robos’ accuracy, but simply balked at the fees.
As the great wealth transfer edges ever-closer, advisors’ relationships with and understanding of millennials are becoming increasingly important. The knowledge that young HNW individuals actively want financial advice, preferably from a human being, should give advisors the push they need to attempt to jump that scary generation gap.
