Millennial earning power creates a generation gap for wealth managers

That doesn't mean that they are not interested in making money, rather they don't think that is the only function of their investments. They are concerned about environmental and social issues, and they expect the companies they work for and invest in to be the same.

A focus on environmental, social and governance (ESG) issues is no longer a “nice to have" option for one part of a portfolio – Nuveen's 2018 responsible investing survey suggests that 92% of millennials want all of their investments to be responsible.

And as big data research group CB Insights points out, “to attract and retain this next-generation of investors, advisors need to offer sustainability, clean energy, and social impact investing strategies".

The companies likely to benefit from this trend will include those involved in clean energy (such as wind turbine makers Vestas and Siemens Gamesa), transportation (Tesla, Nissan, Renault), digital native brands (social media sites such as Snapchat and Instagram) and e-commerce leaders like Asos and Amazon.

Investing for influence

Integrating the sustainability concerns that millennials highlight across portfolios will form a central part of future investment strategies. Lombard Odier believes that returns will be driven by these factors over the next three to five years.

Changes in climate change, shifts in demographics, increased digitisation in the workplace and rising inequality have all led to changes to the traditional models. Lombard Odier believes that it is vital to invest in companies which stand to make the most out of a 'sustainability revolution'.

In March, the 'Rethink Responsible Capital' symposium held in Zurich by Lombard Odier heard from former US vide-president Al Gore who spoke of the scale of climate change and its threat to the global economy. He pointed to the rapid pace at which entire sectors and countries are already transitioning in response to sustainability challenges, presenting risks and opportunities to investors.

“The profound changes that accompany the climate crisis pose specific financial risks to the holders of potentially stranded assets such as fossil fuels. France for example, has said it is going to outlaw any further exploration. India has said that within 12 years 100 per cent of their new cars will need to be electric vehicles by law," said Mr Gore.

Personally and digitally

Many millennials want to be able to use digital platforms in managing their money as in everything else, but that does not mean they don't still want personalisation. It's just a different type of personalisation from the traditional wealth management model, one that encompasses new options such as crowdfunding and other fintech offerings, as well as more personal recommendations.

Tradition and brand loyalty are not as important to some millennials as to previous generations – for these consumers, brand loyalty has to be earned, not just through quality, value and consistency but also by doing the right thing.

Today's investors are also more keen to know what they're getting and how much they're paying for it – pricing transparency is more important to them than previous generations. "A lot of millennials have a negative perception of financial advisors," according to Deloitte. "To overcome this negative attitude, wealth management firms initially need to focus on the pricing transparency."

At Lombard Odier, sustainability is a key driver of returns. If clients carefully select their wealth manager, they can include companies in portfolios based on solvency, business practices and sustainable business models. By working with a wealth manager who can select the right company, returns will be delivered.

Technology solutions

A new breed of wealth-tech start-ups is offering new digital solutions. In recent years, according to BBVA, the second biggest bank in Spain, "new companies have arrived on the scene offering advice based on artificial intelligence and big data, micro-investment platforms, or trading solutions based on social networks".

Examples include Nerdwallet, which gives users access to a network of expert investors, Kensho Technologies, which offers a machine learning system that allows investors to access financial analysis in everyday language, and Grisbee, a French startup that offers personalized advice and monitors investors' financial health. These solutions, however, do not eradicate the need for the personal touch, which still forms a vital element of any advice.

The same but different

In many ways, wealthy millennials want the same things as their parents when it comes to managing their money – stable, long-term returns that will allow them to pass their wealth on to the next generation. But while the goal remains the same, they want a different approach from their wealth managers – one that is more transparent, digital and values-driven.

They want more control over their investment decisions but “they will still need humans for investing in more complex life situations", according to Accenture, a view which is endorsed by Lombard Odier. This suggests that a hybrid approach combining more technology with human advisors will become more common. According to financial consultancy Capco: "Customers are not comfortable with investing large sums of money (more than $100,000) in a solution that is digital only. When it comes to their wealth, customers seem to want some level of human interaction to help guide them through complex financial decisions and product options facilitated by an exclusively-digital experience."

CapGemini, another consultancy, adds: "Those in Europe and Asia-Pacific (excl. Japan) are most inclined to embrace hybrid services , while those in North America are the least likely."

But the fundamentals of sound investing will remain. Find good companies that are sustainable in all senses of the word – well run, attuned to the ways the global economy is changing and likely to thrive in the years to come. At Lombard Odier, that sustainability will form the central theme of future investment.

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

Read more.