There is an immense opportunity facing advisors today. Millennials are finally coming of age, and they are slowly but surely inheriting significant wealth from their baby boomer parents. Money is in motion.
The greatest wealth transfer in history is underway, with $59 Trillion expected to be passed down to baby boomers’ heirs, charities, and taxes, and more than $30 Trillion in wealth set to be transferred from this aging generation to their millennial children. For advisors, capturing this wealth requires finding ways to work with high net worth (HNW) Millennials in a way that is aligned with their wants and needs—which, in many cases, are far different than their parents.
What’s fascinating about Millennials is how differently they think and act than prior generations. Born between 1980 and 1995 and 82 Million strong, they are the first generation to have been born into a technology-driven world. They’ve literally watched the world change in front of their eyes. The fall of the Berlin Wall. The 9/11 attacks. And even the Arab Spring, which they witnessed right on the screens of their iPhones. Not only are they more informed about world events than any previous generation—and more educated—but they now have access to more information about everything around them. Through social media, they know what their peers are watching, buying, and doing. And while wealthier Millennials may not be in control of the money to help make it happen (yet), they have a strong desire to create change in the world. They are focused on making the world a better place—from improving the human condition, to ensuring gender equality in the workplace, to protecting the environment—and the advisor who can help make that happen is likely to win the hearts, and the assets, of these next-generation HNW investors.
ESG: The Key To Attracting HNW Millennials
As part this desire to drive change, HNW Millennials are helping fuel the recent surge in ESG (environmental, social, and governance) investing. And yet the idea of investing according to personal ethics is nothing new. ESG’s predecessor, socially responsible investing (SRI), goes as far back as the 1800s when investors first began steering their investments away from products such as alcohol, tobacco, and firearms. Recently, that type of exclusionary screening has evolved into a “positive screening” approach. Rather than simply avoiding unwanted investments (an approach that can potentially have a negative impact on a portfolio by limiting diversification or returns), this positive screening approach seeks to increase the value of the portfolio by integrating ESG factors into the investment analysis. Using the massive amount of data that is now available, this process can be used to identify ESG opportunities in the market, uncover the underlying risk of those opportunities, and ultimately help drive more informed decision-making.
Studies show that 76% of millennial investors surveyed care more about having a positive impact on society and the environment than doing well financially, but it has also been shown that they don’t necessarily have to make that choice. Consider this: investing in companies with above-average environmental and social scores could have helped investors avoid 90% of bankruptcies since 2008. That’s a powerful testament to the value of governance. And that type of result isn’t limited to governance alone. In fact, firms making investments in material ESG issues outperformed peers in terms of profit margin growth.
That’s great news for Millennials who seem determined to invest in the things they care about most. This is quite a shift from their parents’ generation, of which only one-third believe they can (or perhaps should) express their values through their investments, and the impact on the market is already evident. Demand for ESG in the US is higher than ever, jumping 33% in the past two years to reach an estimated $9 Trillion in 2017. As more and more Millennials begin to hold the “keys to the castle” and start taking control of their family wealth, the data suggests this number will continue to climb. The takeaway for advisors: offering access to ESG opportunities will be an important tool to help attract and retain that wealth moving forward.
Of course, capitalizing on this opportunity requires understanding what matters most to HNW Millennials who are poised to inherit significant family wealth. While they may have a world of information at their fingertips, one thing they don’t feel they know enough about is value-based investing. A 2015 survey of millennial investors revealed that, while Millennials reported an extremely high interest in philanthropy and socially responsible investing, they feel their knowledge in these areas isn’t at all aligned with their passion.
That disconnect is a tremendous opportunity for advisors. HNW Millennials need your help. There’s no doubt that attracting and retaining these coveted clients will be one of the biggest challenges in the coming years, but offering the guidance and tools they need to invest in a way that can help them change the world—while potentially growing their wealth at the same time—is a great place to start.
Learn about how we challenge convention with smarter solutions, visit Oppenheimer Global ESG Revenue ETF (Ticker: ESGF).
The alternate weighting approach employed by the Fund (i.e., using revenues as a weighting measure), while designed to enhance potential returns, may not produce the desired results. The stocks of companies with favorable ESG practices may underperform the stock market as a whole. Because the Fund is rebalanced quarterly, the Fund may experience portfolio turnover in excess of 100%. The greater the portfolio turnover, the greater the transaction costs to the Fund, which could have an adverse effect on the Fund’s performance.
Carefully consider fund investment objectives, risks, charges, and expenses. Visit oppenheimerfunds.com or call your advisor for a prospectus with this and other fund information. Read it carefully before investing.
OppenheimerFunds is not affiliated with Advisorpedia.
[1] Source: Boston College Center on Wealth and Philanthropy
[2] Source: TIAA Survey of affluent investors, conducted online during December 2015.
The survey included 2,206 affluent investors who were U.S. residents over age 21 with $100,000 in investable assets (excluding workplace defined contribution accounts) or real estate; and who consider themselves the decision maker for financial decisions and currently work with a financial advisor.
[3] Source: Bank of America Merrill Lynch, ESG: Good Companies Can Make Good Stocks, 12/18/2016
[4] Source: Calvert Investments, The Calvert-Serafeim Series, June 2016.
[5] Source: MSCI US SIF Foundation, 11/ 2016.
[6] OppenheimerFunds & Camden Wealth 2015 Research Report