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Make way for Generation Z

The Fund Manager

They’ll soon be two-fifths of consumers, so financial advisers must learn to see the world their way

In today’s world things change fast, and it can be hard to keep up with new trends and the opportunities they bring, especially in the rather traditional world of financial services. Wealth managers and advisers must adapt to how younger generations view the world in order to stay relevant – take note that Generation Z are about to overtake Millennials in number, representing 40% of consumers by 2020 (according to MNI Targeted Media research). 

Attitudes to investing have changed. When asked how they would invest a $10,000 gift, a third of Baby Boomers said they would pay off debt – a figure that fell to 25% for Generation X and 22% for Millennials, according to a LendEdu study. When it comes to risk, around half of Baby Boomers and Millennials recognise global economic instability as a concern, although 40% of Millennials say they would invest more in response to a 20% fall in the value of their investment, compared with 23% of Baby Boomers. In practice, however, younger generations prove less patient in times of volatility, with 15% of Millennials and of Generation X having made quicker, potentially less-considered changes to their portfolios in response to political or stock market instability, compared with 7% of Baby Boomers. 

These preferences are broadly reflected in portfolio composition. Research by Legg Mason showed that in 2018 Baby Boomers and Millennials held around 30% in cash, while Millennials were less inclined toward equities but heavier on alternatives (11%, as compared with 7% for the previous generation). Newer investments such as cryptocurrency are gaining ground, with 23% of Millennials holding the asset class compared with 19% in the previous generation and only 8% among Baby Boomers. However, research also shows that the younger the generation, the less time investments tend to be held (just under two years for Millennials, according to Schroders). Meanwhile, sustainability is becoming increasingly important: Millennial and Generation Z investors are more selective in this context, but they are also willing to pay above the odds and invest for longer if wealth will ultimately reach responsible companies or achieve environmental, social and governance goals, according to Legg Mason.

* There is limited consensus on the years that each generation includes.

There are five generations active in the financial markets, and their diversity of attitudes is influenced by the environment from which each emerged. Baby Boomers have post-Depression and post-war roots – a background that also influenced Generation X, who grew up in a time of transition and then relative prosperity. While Millennials may have been born into this prosperity, they began their careers in the Great Recession of 2007-08, a period that has been formative for Generation Z. The youthful optimism we perceive in recent generations is also likely to be a question of experience and memory: Millennials have never lived in a period of global conflict or in a time before European integration, while most of Generation Z has no memory at all of the 9/11 attacks that launched the War on Terror in 2001.

Differences in investment approach also reflect the amount of time each demographic believes it has left to enjoy life, with older generations often demonstrating a shorter-term outlook designed to preserve accumulated wealth, while younger generations have the benefit of a longer investment horizon during which to create their legacies. 

The Fund Manager

About Simon Gorbutt

Simon Gorbutt

Simon Gorbutt is a solicitor, qualified in England and Wales, and Trust and Estate Practitioner. He is based in Luxembourg where he specialises in cross-border wealth planning for high net worth individuals. Simon is Director at Lombard International Assurance and heads an in-house team providing services to Northern European and US expatriate clients as part of the company’s Wealth Structuring Solutions capability. He is a frequent speaker on insurance-based wealth solutions, a contributor to ITPA and a member of the STEP Benelux Board.

Articles by Simon Gorbutt

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