Education is key to winning Next Gen assets

Millennials may be tech-savvy, but they also know they need help from financial professionals, Corporate Insight reports

By Joyce Hanson

May 6, 2014 @ 12:13 pm (Updated 9:45 am) EST

Tech-savvy Millennials who stand to inherit several trillion dollars in wealth from baby boomers may be eager to use online investment platforms, but the younger generation's need for financial education presents advisers with an opportunity, according to a new report from Corporate Insight.

Educational materials that are both entertaining and informative can help the industry reach Millennials, who admit they lack investment knowledge and want to learn about financial planning, Corporate Insight reported in “The Millennial Shift, Financial Services and the Digital Generation.”

“Firms should encourage them to start investing now to take advantage of the power of compounding interest. Financial education will be critical to this effort, in particular video and interactive features,” the report said.

Social media and marketing can also stimulate engagement and get young adults to take steps to secure their financial futures, Corporate Insight concluded.

But advisers, take heed. The report also warned that while financially conservative “do it yourself” Millennials are willing to pay advisers for investment and planning help, their frugal, technology-driven mindset will likely pressure large firms to cut their fees over the next three decades.

“Millennials are very cost‐conscious, so investment firms (and financial advisers in particular) will need to justify their expenses,” the report said. “Next‐generation investing startups that offer low‐cost managed accounts and investment advice could pose a competitive threat.”

Corporate Insight named low-cost, technology-driven investing platforms such as Square, Betterment, Robinhood and Wealthfront as gateways into the world of investing. And if these firms succeed in retaining client assets when investors hit their peak earning years, major investment firms will experience greater pressure to cut fees and develop more Millennial-friendly service models, the report predicted.

At the same time, the guidance and cheap online trades offered by discount brokerage firms, such as The Charles Schwab Corp., Fidelity Investments and TD Ameritrade Inc., offer Millennials an appealing value proposition that threatens to take market share away from traditional advisory firms, said Alex Filiaci, senior analyst and contributor to the report.

“We focused on the education provided by Fidelity and TD, and both of them are really standouts in putting education into a format that's of interest to Millennials,” Mr. Filiaci said.

For example, he pointed to www.moneyfirsts.com, produced by Fidelity, which offers easy-to-understand lessons for Millennials on subjects such as spending, borrowing and saving.

Mr. Filiaci added that Millennials view themselves as a generation lacking in financial education — which presents an opportunity for advisers who are willing to be transparent in their cost structure, forward-looking with technology and open to lower minimum amounts for starting an account.

“Someone will have to teach them about investments so they don't put all their savings into cash,” he said. “This is a generation where investing on their own will be more important than ever if they don't have access to the same Social Security benefits in 40 or 50 years that exist now.”

(The original version of this article incorrectly stated that www.moneyfirsts.com is jointly produced by Fidelity and LearnVest. It is produced by Fidelity.)

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