At first glance, you’d be hard-pressed to find any similarities between Millennials and the Silent Generation, which lived through the Great Depression.
Millennials are the most educated generation in U.S. history.1 They grew up in a globalized world with smartphones, the Internet and social media at their fingertips. The Silent Generation came of age without the comforts of modern technology, when radio was the primary source of entertainment, and during a period of global war and economic upheaval.
But in researching the financial perspectives of high-net-worth (HNW) Millennials, we learned the two generations share one key characteristic. After experiencing the effects of cataclysmic market dislocations during their formative years, both generations became broadly more conservative towards investing and uncomfortable with taking on too much risk.
The Silent Generation’s conservatism came as a result of the stock market crash of 1929 and the ensuing fallout. For Millennials, it was the tech-driven market crash of 2000, as well as the global financial crisis of 2008.
HNW Millennials’ View of Investing Risk
Through our research last year in partnership with Campden Wealth, we learned that wealthy Millennials tend to have more cash investments, while exhibiting a general lack of trust in Wall Street after seeing so much wealth rapidly wiped out during the global financial crisis.
One HNW Millennial we surveyed said: “I think I speak for my generation when I say we’re unhappy with the product of Wall Street.”
But there is also evidence that wealthy Millennials are open to taking intelligent risks under the guidance of a financial advisor. For starters, our research shows that wealthy Millennials are actively seeking help from advisors in sourcing deals that align with their values.
A second-generation HNW Millennial from the Midwest put this in perspective, noting: “Deal flow is crucial. I’m always looking for new ways to invest and I expect my advisors to be keyed in to the freshest opportunities―and know what I’d want.”
Additionally, we found that HNW Millennials are looking to have a positive impact on the world through impact investing. And despite their relative youth, wealthy Millennials are already deeply concerned with ensuring their family wealth―and social values―can last for generations to come.
“I’m nowhere close to having children yet, but when it happens it’ll be very important to teach the next generation about our family’s core values and the importance of preserving the family’s legacy,” said one fourth-generation Millennial we interviewed.
But what most HNW Millennials don’t realize is they cannot accomplish their goals without taking on some level of risk. Fortunately, this generation values what a good advisor can bring to the table.
How Advisors Can Help
Advisors can help wealthy Millennials overcome their aversion to risk through education, and by assisting them in building a framework through which they can make informed investment decisions that are aligned with their goals and risk tolerance.
But even as they teach them about how to approach risk with their investments, advisors should note that HNW Millennials are looking to make their own investment decisions. They’re not looking to have products or pre-packaged solutions pushed their way. They may be broadly conservative towards investing, but HNW Millennials possess an innate confidence in their ability to make sound investing decisions after doing their own research.
“Don’t tell me what to buy or how to think,” said one of the Millennials we surveyed. “Give me the framework of understanding and let me find my own ideas.”
It All Boils Down to Relationships
In conducting our research, we surveyed HNW Millennials online and through exhaustive, in-depth interviews. Both the online survey and in-person conversations revealed a number of key takeaways for advisors when it comes to helping next-generation wealth holders overcome their aversion to risk.
First, HNW Millennials will only work with and take investment recommendations from an advisor they trust and have a personal relationship with. Second, it’s imperative that an advisor’s initial interaction with a prospective HNW Millennial client is positive.
Consider the case of Frank, another fourth-generation Millennial from the Midwest. He says he’s willing to listen to the recommendations of two advisors thanks to a positive initial experience with them 10 years ago, when they helped his family seed a venture capital fund.
“The two managers we used for that event have become like consigliere beyond their initial role,” he says. “They had plenty of opportunities to take advantage of us and didn’t.” One of those advisors is in his 40s, and thanks to the trust that’s developed between them, Frank says he can envision working with him for the next 20-30 years.
The message here is clear. HNW Millennials may be broadly conservative towards investing, but they’re willing to take risks under the guidance of advisors they can trust.
This is the sixth installment in our monthly series about issues facing HNW families and their advisors. To learn more about what HNW Millennials want from their advisor, read an executive summary of the Proving Worth study, or gain access to the full report.
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1 Source: The White House Council of Economic Advisors report, Oct. 2014.
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These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.