September 28, 2022
  • September 28, 2022

Financial experts reveal how baby boomers, millennials and Gen Z differ in

By on August 27, 2022 0

Research shows Gen Z and Millennials are more open to automated financial services than their boom counterparts

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In 2008, robo-advisors debuted, offering financial services with little or no direct human supervision. With low fees and simple online access, it’s no surprise that young investors have flocked to these digital platforms. In ten years, robo-advisors managed more than $700 billion in assets under management.

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This amount should continue to increase. In a previous Deloitte report, by 2025 at least $16 trillion in assets should be managed by robo-advisors, surpassing the world’s largest asset manager, BlackRock, which holds about $10 trillion in assets. dollars of assets under management.

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With the use of robo-advisors expected to grow, are older investors using them or sticking with human advisers? And are young investors missing out on the investment opportunities offered by advisors?

A report by MSCI Inc., an American financial firm, described millennials flocking to robo-advisors “more than any other generation of investors.”

A 2019 report from Visual Capitalist also showed that 67% of millennials considered recommendations made by artificial intelligence a staple of any investment platform, while Gen Xers and baby boomers were more hesitant, 30% considering computer-based recommendations to be integral.

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Robo-advisors are easy to access

Beyond reliance on automated investing, ease of use is an attractive feature of robo-advisors. Stephen Preston, a 37-year-old fintech executive, has a robo-advisor who manages his child’s RESP account at Wealthsimple for his future education.

Other than that, Calgary-based Preston, vice-president of Exempt Edge, describes himself as an “anomaly” when dealing with his other investment portfolios. It’s simply because he likes to research and discover the latest trends on his own.

Although he has a home-grown approach to investing, Preston has friends and colleagues who regularly contribute to their portfolios through robo-advisors.

“It is easy to create accounts and transfer funds with robo advisors. It (the robo-advisor platforms) has very user-friendly interfaces that have been designed very well,” he said.

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However, he acknowledges the generational gap when it comes to integrating technology to drive investment.

He says his parents would prefer to trust a human finance adviser despite “a lot of ups and downs when it came to finding advisers who acted in their best interests.”

Different methods for different needs

Daniele Farinaccia, vice president of Prospr by Sun Life, also says that customer needs are “changing rapidly.”

Sun Life recently launched Prospr, a hybrid advisory solution, with a digital platform and a team of certified advisors. The focus is on millennials with a family income of around $120,000.

“Customers expect every interaction to be a simple, fast, and seamless experience fueled by innovation and technology,” says Farinaccia.

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Farinaccia also finds that there is a generational difference between those who use robo-advisors and those who have a human advisor.

“In general, we see a clear distinction in the expectations and use of technology by millennials compared to their boomer predecessors,” he adds.

Farinaccia’s customers under 40 covet technology and 24-hour access to information.

Younger clients, who are happy to meet and work remotely, also “tend to be well informed before speaking to an advisor, rather than relying on an advisor to explain everything,” he added. .

Different user profiles

The appeal of robo-advisors isn’t just driven by comfort with technology among millennials. Traditional investment companies tend to cater to customers with at least $250,000 to manage. In contrast, platforms such as Wealthsimple and Nest Wealth allow users to sign up without any minimum deposit. Minimums for other services, such as BMO SmartFolio, are $1,000.

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The difference in minimum requirements is more attractive to younger (or newer), less wealthy investors. As a result, robo-advisor clients tend to focus more on growing money than what can be used in the near future.

“In terms of the investment choices themselves, they tend to be more time-of-life oriented,” Farinaccia added.

“For a younger cohort, they are more focused on paying off their debts, their day-to-day expenses, buying a house and raising their children. Intuitively, they are less focused on retirement planning and inheritance.

Who invests in traditional alternative assets?

Although millennials or Gen Z score higher in their digital use, that doesn’t mean they benefit the most.

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“I see younger generations not actively investing in alternative investments besides crypto,” Preston says. “Crypto is a very big alternative asset class with millennials and younger generations, but traditional alternative assets like private equity, I don’t see younger generations investing in those products as much.”

Alternative investments are all investments that are not traded on stock or bond markets, including assets such as wine, art, baseball cards, or commodities such as precious metals and real estate.

According to RBC’s Investigative Unit (EIU) with its findings released in 2019, Millennials and Generation X – who are between the ages of 41 and 55 – investors are more likely to explore alternatives over the next five years. , including hedge funds and private equity, and new asset classes like cryptocurrencies versus baby boomers.

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Alternative investments require a relatively high minimum deposit. That’s why it’s easy for high-income earners to invest almost half their money in alternative investments, according to a survey by global investment firm KKR, while most investors are turning to shares.

But there is a caveat, with some of these investments, financial advisors are required.

“Most of these investments are sold through advisors. So if you don’t use advisors, you won’t have access to those types of private or alternative investments,” says Preston.

Robo-advisors are not the answer for everyone

Ultimately, robo-advisors have lower fees, can maximize tax efficiency, and offer advice based on real-time data. But they aren’t perfect either.

“AI also has some drawbacks,” says Farinaccia.

“If a customer wants to understand their holistic needs, AI can be a great tool, but it alone cannot provide the trade-offs between life, health and wealth,” he explained.

“In these cases, it’s always best to contact an advisor to discuss your personal situation and tailor a solution to your individual needs.”

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.



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