AMG Funds Study explores Millennials’ investing behaviors and attitudes and investors’ views on robo-advisors
GREENWICH, Conn., April 20, 2017 (GLOBE NEWSWIRE) — From more conservative allocations to higher return expectations, as well as the reasons for seeking financial advice and openness to robo-advising, Millennial investors’ investment preferences are fundamentally different from those of prior generations, according to a recent survey conducted by AMG Funds LLC, the U.S. retail distribution arm of global asset management company Affiliated Managers Group, Inc. (NYSE:AMG). The survey polled approximately 1,000 individual investors with over $250,000 in household investable assets.
“Our survey identified several areas in which Millennial investors, in particular, may benefit from financial advice in order to help achieve their short- and long-term financial goals,” said Jeffrey T. Cerutti, CEO of AMG Funds. “Given the growing importance of Millennials, who collectively represent the largest demographic in the U.S., to the future of financial advisors’ practices, advisors should focus on the opportunity to build relationships with this younger generation of investors and have open, ongoing dialog in an effort to manage their expectations.”
The AMG Funds study revealed five principal areas in which the preferences and positions of Millennial investors diverge from their older counterparts:
- Asset Allocation: Millennial investors appear to be more conservative than older generations of investors in their asset allocation, allocating 30% on average toward equities, lower by nearly one-third than older generations, who allocate 46% to the asset class. On the other hand, Millennials allocate nearly three times as much of their portfolios toward alternatives (17%) than older investors do (6%)
- Return Expectations: Millennial investors expect to earn an average annual return of 13.7%, significantly higher than the 7.7% annual return expectation of Boomers. Millennials also maintain a higher average cash allocation than their Boomer counterparts (25% vs. 17%). In order to meet the Millennial investor’s average annual return expectation and also overcome the drag generated by the higher cash allocation in the average Millennial’s portfolio, the remaining asset classes would need to generate an average annualized return of 18.3%, considerably higher than the 9.8% average annualized return of the S&P500® Index over the past 15 years
- Investment Knowledge: Millennials are more than twice as likely to consider themselves “extremely” or “very” knowledgeable relative to Gen Xers (age 36–51), and four times more likely compared to “Boomer+” investors, or those aged 52 and above
- Investment Horizon: Nearly two-thirds of Millennials define “long-term” as a period of less than five years, while only 21% of older investors expressed a similar view. Millennials are much more likely than older investors to be concerned about having enough money for their retirement years (69% vs. 28%)
- Openness to Robo-Advising: Despite there being several areas where advisors can potentially add value, Millennial investors remain wary of human financial advice; many prefer computer-generated portfolios. Specifically, Millennials are at least twice as likely as the broader group of respondents to believe that advisors recommend generic portfolios as opposed to providing customized advice, and that computer-generated portfolios are less risky and generate higher returns than those managed by humans
Nimble and adaptable advisors may be successful in connecting with Millennial investors through education and advice that focuses on helping them to meet their long-term goals:
- Customized Solutions: The survey findings highlight the need for advisors to develop tailored advice for Millennials, as the return expectations of this investor group may not be supported by their asset allocation. Education, which addresses this disconnect, may help Millennials in planning for their long-term financial well-being
- Innovative Strategies: Millennials seek out professional financial advice for different reasons than older investors. Forty percent cited a desire to enter new investment categories or strategies as the main trigger for engaging with an advisor, whereas a desire to improve results relative to their own investing ability was the prime driver for Gen X investors and Boomer+ investors cited a major life change or upcoming event as the most common trigger. Millennials’ interest in new investment categories may explain the larger allocations to alternatives as compared with older generations
Evolution in Rationale for Seeking Financial Advice
Robo-advisors are better understood, and appreciated, by Millennials
AMG Funds found that the robo-advising trend has piqued some interest among investors, but is neither well-known nor well-trusted by older investors. Again highlighting the bifurcation between Millennials and older generations, and correlating with younger investors’ preference for computer-generated portfolios, the survey found meaningful differences in views on robo-advising between Millennial investors and those in the Boomer+ segment, including the following distinctions:
- 66% of Millennials are at least familiar with robo-advising, whereas only 4% of Boomer+ investors are familiar with the term
- 71% of Millennials find robo-advising to be “very” appealing, and only 12% find it “not very” or “not at all” appealing, whereas a large majority (82%) of Boomer+ investors find this type of investing “not at all” appealing
- 68% of Millennials currently use, or are likely to use, robo-advisors, but only 2% of Boomer+ investors fall into these categories
When asked about the benefits of using a robo-advisor, respondents among the full range of investor age cohorts pointed toward cost (67%), unbiased advice (58%), and the flexibility to engage at a time of their choosing (57%). Advisors may consider reinforcing their value proposition and the benefit of discussing and planning for long-term goals with a human advisor who provides tailored advice. The survey results found stronger responses to negative associations regarding robo-advisors relative to responses regarding the perceived benefits; 81% of respondents felt that robo-advisors use a cookie-cutter approach; 80% believe that computer-generated portfolios do not account for qualitative information; 78% criticized robo-advisors for not offering a dedicated point of contact.
“In today’s evolving investment landscape it is more important than ever for advisors to demonstrate and articulate the value of the personalized advice they provide to clients,” according to Mr. Cerutti. “The AMG Funds study provides several key observations which may help advisors to develop strategies for connecting with Millennial investors and providing advice which helps to set them up for a secure financial future.”
For more information on the results of AMG Funds research, please visit www.amgfunds.com/wealth-trends.
Methodology
The AMG Funds survey was conducted online among affluent investors with over $250,000 in household investable assets, who participate in making household savings and investment decisions. Data was collected from November 28, 2016, through December 7, 2016, among 1,000 respondents age 18 or older through an online consumer panel. The data was weighted by distribution of age and investable assets from the 2013 Survey of Consumer Finance. Percentages may not total to 100 due to rounding.
About AMG and AMG Funds
AMG is a global asset management company with equity investments in leading boutique investment management firms. Through AMG’s innovative partnership approach, each Affiliate’s management team retains ownership of significant equity in their firm while maintaining operational and investment autonomy. AMG Funds LLC is the U.S. retail distribution arm of AMG. AMG Funds provides access to premier boutique asset managers through a unique partnership wherein the investment managers remain truly independent. AMG Funds is not beholden to a single investment approach or a single manager in delivering quality investment solutions. This innovative approach leverages the independent manager’s specific expertise to deliver products that cover the complete asset class spectrum. AMG Funds offers unmatched access to specialized investment expertise by delivering the talents of independent management teams under a consolidated platform.
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