Younger Investors Are a Different Breed, Though Not Entirely, Finds New Survey From the Merrill Lync


Younger Investors Are a Different Breed, Though Not Entirely, Finds New Survey From the Merrill Lynch Private Banking and Investment Group

Many Wealthy Millennials Need Help Preparing for Family Money

NEW YORK--(BUSINESS WIRE)-- Young investors in their 20s and 30s today are not rebelling against traditional investment approaches advocated by their parents. The vast majority are not turning to friends and peers in their social networks for investment guidance. Contrary to these and other stereotypes about millennials, differences between investors in this generation and their parents' generation are more subtle, according to a new survey by the Merrill Lynch Private Banking and Investment Group.

Conducted in February, the Young High Net Worth Insights Survey reveals goals, behaviors and concerns of investors ages 18 to 35 with investable assets of $1 million or greater. The data is supported by qualitative insights from Michael Liersch, Ph.D., director of behavioral finance for Merrill Lynch Wealth Management, as well as private wealth advisors with the company's Private Banking and Investment Group who work with hundreds of wealthy young investors. Survey participants include those who inherited much of their wealth and those who acquired it through entrepreneurial ventures or lucrative professions.

"What we found is a classic perception versus reality scenario," Liersch said. "Clearly there are important differences between this generation and its predecessors - every generation has distinguishing characteristics born of its historical moments. However, our findings portray a younger generation that is ambitious, focused on the future, and that has a strong sense of responsibility to family, community and society. These wealthy millennials are savvy, independent and skeptical; they value expertise, question everything and intend to maintain control of their financial destiny, but admittedly lack a high level of knowledge about investing."

Investment styles and objectives

Most wealthy young investors (83 percent) feel they somewhat or fully understand their parents' approach to investing. Among which, many believe that their investment approach aligns closely with that of the previous generation, though not completely. Compared to their parents:

  • Sixty-five percent approach investing in a similar manner, while 35 percent approach it differently.

  • Sixty-nine percent believe their parents had the right investing approach, while 31 percent believe their parents should have approached investing differently.

  • Sixty-five percent believe their parents' approach to investing still works in today's environment, while 35 percent believe it does not work.

When asked about their investment priorities, survey participants indicated that, while they desire growth, they also understand the need for diversification to reduce risk:

  • Eighty-eight percent are looking to grow their assets, while 12 percent prioritize wealth preservation over growth.

  • Sixty-three percent are willing to take on greater investment risk for the potential of higher returns, while 37 percent would prefer lower investment risk, understanding it may result in lower potential returns.

  • Seventy-eight percent make investment diversification a priority in order to reduce risk, while 22 percent would sacrifice diversification for the potential of increased growth.

  • Forty percent rely on a more traditional "buy and hold" investment strategy, whereas 31 percent regularly buy and sell in the hope of outpacing the markets and maximizing gains.

When it comes to sources of financial and investment information, millennials less often turn to social media or blogs (27 percent) than they do to more traditional media, such as general and business television newscasts (67 percent and 58 percent respectively), national newspapers (55 percent) and magazines (52 percent).

Preparing for family wealth

The research finds that less than half (45 percent) of wealthy millennials believe that their level of knowledge regarding financial and investment matters is greater than that of their parents' (22 percent believe it to be the same, and 33 percent lower). Fewer still (19 percent) would describe themselves as having a high level of knowledge regarding such matters, and 25 percent admit they have very little knowledge (56 percent believe they are moderately knowledgeable).

Lacking financial acumen, or at least a healthy relationship with money or investing, can be especially challenging for young adults who inherited wealth or grew up in families where wealth was not discussed. The survey finds that just 46 percent of younger investors discuss financial matters with their parents. Merrill Lynch private wealth advisors find that adult children in wealthy families will often avoid talking about money in family settings because they are worried that they will somehow disappoint their parents or, conversely, that if they ask too many questions about family money they might be seen as overstepping or entitled.

"Many young adults tell us they feel a tremendous amount of pressure to live up to parents' expectations and to achieve their same level of success," said Phil Sieg, head of the ultra high net worth client segment and solutions for Merrill Lynch Wealth Management. "These pressures are only exacerbated by the fear of making financial mistakes - even among young adults already quite accomplished in their own right, such as professionals with advanced degrees or key contributors to a family business. But when they don't ask and parents don't discuss money, the absence of effective communication can jeopardize family wealth, harmony and even the transfer of certain values from one generation to the next."

Merrill Lynch private wealth advisors have convened numerous focus groups and financial boot camps with the children of wealthy families, where these young adults consistently voice concerns about the stewardship of wealth. Some are growing closer to the moment when they must take on the mantle of responsibility for overseeing their family's investments - while others already have this challenge in addition to managing their own money for the first time.

Selecting advisors carefully, seeking meaningful connections

Contrary to popular belief, the survey found that among young investors not already working with their parents' advisor, half (49 percent) say they would be open to doing so - citing such reasons as the success their parents have had, the advisor's long history with or ties to the family, the quality of their past investment advice and performance, and because they trust the individual. Only 24 percent would be adamantly against working with their parents' advisor.

Though the majority of survey participants work with a wealth advisor today (59 percent), most (72 percent) also describe themselves as "self-directed" investors. This suggests that these wealthy millennials are a generation that wants to maintain command over their money, and who values independence and expertise.

"Today's young adults want to work with wealth managers who can help them devise strategies that are open, transparent, adaptive and ongoing, and that align to their life goals and values," Sieg said.

When asked what factors were important to them when selecting a wealth management firm, the top two attributes were understanding the needs of investors their age and life stage (39 percent) and the ability to communicate in a way that resonates with people in their 20s and 30s (33 percent). Other important factors include the ability to provide values-based investing options (29 percent), access to products and services they cannot get elsewhere (26 percent), access to funding for their own business (23 percent), and philanthropic management capabilities (15 percent).

"For many young investors interested in working with an advisor, financial advice is just one of the things they are looking for in the relationship," Liersch said. "They are also seeking connections to people or to expertise that might help them with their livelihoods or with their businesses. Members of the Facebook and LinkedIn generation tend to gravitate toward an advisor who can help them make meaningful connections and whose network will help them expand their own."

The Merrill Lynch Private Banking and Investment Group's Young High Net Worth Insights Survey is an independent nationwide survey conducted by Phoenix Marketing International in February 2013. Survey participants include 153 investors between the ages of 18 and 35 with $1 million or more in investable assets. All data were tested for statistical significance at a 95 percent confidence level.

Within Merrill Lynch Wealth Management, the Private Banking and Investment Group provides tailored solutions to ultra affluent clients, offering the intimacy of a boutique and the resources of a premier global financial services company. These clients are served by more than 150 Private Wealth Advisor teams, along with experts in areas such as investment solutions, custom lending, estate planning, concentrated stock management, philanthropy and strategies specific to the intergenerational transfer of wealth. Merrill Lynch Wealth Management is part of Bank of America Corporation.

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