Millennials. A generation our industry keeps talking about, and for good reason:
Millennials are poised to hold incredible market power as they enter their prime working years, and they stand to be the beneficiaries of trillions of dollars in wealth that will be passed down by their parents, grandparents and others
1. As a generation that has come of age in the digital era, it's believed that millennials expect to conduct all aspects of their lives, including managing their finances and investing for retirement, using the phone in their pocket. In many ways, they are pointing the way forward for the future of wealth management.
Today, Apex Clearing released its first
Apex Next Investor Outlook, which looks at the holdings of the millions of millennials who have opened accounts through Apex's partners and provides some unexpected insights into how they are approaching wealth management. In a Q&A with
InvestmentNews, Apex CEO Bill Capuzzi discusses the data and trends he's seeing as well as the implications for the future of wealth management.
Q: What is Apex Clearing, and what insights do you have on millennial investing behavior?
A: Apex is a custodian built for the digital age of wealth management. What we care about most is democratizing wealth management by making investing cheaper, faster and more efficient for people everywhere. While we may operate behind the curtain, we've helped dozens of companies from innovative startups to blue chip brands launch and grow digital platforms to reach and serve more investors.
Because of where Apex sits in the ecosystem, we have a unique view into the actions and habits of millions of people flocking to digital investment platforms. In total, we custody the assets of several million end-client investors, nearly 75% of whom are millennials.
How are millennials investing differently from other generations?
Millennials have come of age during a time of technological change, globalization and economic disruption, which gives them a different set of experiences and priorities from their parents and grandparents. As a result, they appear to care about stocks in a different way. For example, they might never look at a balance sheet or read the business pages, but instead, what may matter most is if a company aligns with their values or experiences.
If you take a look at some of the top stocks in the Apex Next Investor Outlook, you'll see what I mean. Take Facebook, for example. The millennials that we reviewed not only held onto Facebook stock when it suffered that huge drop in July, they bought more of it! That tells me that they really put a premium on disruptive and innovative companies, which is why we're seeing millennials put their money behind Chinese companies like iQiyi and JD.com, whose names most of us have never heard of. We're also seeing it go the other way, with millennials showing less enthusiasm for companies that don't align with their values, like old stock market stalwarts such as ExxonMobil or Pfizer. It also means that the number one financial brand among millennials isn't a big bank or insurance giant or a credit card. It's the mobile payments company Square.
What is the biggest change you see happening in the industry today?
On a macro level, there's a convergence of services taking place across the industry. Think of all the different financial apps you have on your phone. One for banking, another for investing, another for your mortgage. In a few years when we look back on this, we'll laugh.
We're moving to a point where one day we'll have just one place to go to see the entirety of our financial lives. A number of fintechs are already introducing multiple services under one roof. For example, Acorns, which started by providing micro investing, now offers wealth management. And SoFi, which began with student loans, now offers mortgage refinancing. What's different about this, versus past efforts by banks and others to bundle services, is the underlying data is more integrated. In the past, services were simply bundled together to look convenient; now it's truly seamless for the user – easier, faster and more efficient.
The point is, we can't think of financial services the way we used to. The new financial experience lives on your smartphone, and it will encompass whatever services millennials need to holistically manage their financial lives.
Based on all of this, what do you think the investing experience will look like in the future?
To me, it sometimes feels like the battle between Netflix and Blockbuster. Digital believers point to the increasing popularity of robos as the precursor for a completely automated, AI-driven future. Although, it's important to remember that millennials have yet to experience huge turmoil in the market, and those are exactly the periods when a good human adviser earns his or her keep.
On the other hand, the status quo crowd will point to the fact that robos currently account for only a very small percentage of investible assets. But I remember my first job as a clerk on the floor of the NYSE and hearing the same kinds of doubts about algorithmic trading. Today, machines manage more than half of all trading activity on an average day.
My prediction is that the share of automated investing will continue to grow but the future will be a hybrid of both high tech and high touch, and we are seeing how that has come to life in other industries. Take Amazon, for example, which has begun opening brick-and-mortar shops, and conversely Walmart, which now has a huge e-commerce operation.
So what does this mean for the wealth management industry?
Based on our review of what and how they are buying, millennials want maximum convenience at the lowest cost. Based on what they're buying, I believe millennials will demand more than what currently exists anywhere today from financial services companies. And based on where they're buying and shopping, I think they want experiences that merge the digital with a human touch.
The big question I see is, who in our industry will step up to meet this challenge? Will industry leadership come from fintech startups moving upstream? Will they, like Amazon, find that they need to add physical touchpoints to keep up with their customers? Or will it come from incumbents like the big banks shifting down? Will they, as we've seen with Walmart, integrate a digital channel into their brick-and-mortar strategy? Or will leadership come from new entrants, including companies like Amazon itself, who are not from our world but who are explicitly designed for the seamless, integrated experiences millennials are demanding?
Change happens when market power shifts. As millennials become a more influential force, all of us need to adapt and evolve or risk being left behind. In thinking about the disruption that will take place over the next 15 to 20 years, I'm sure each of us would rather be like Netflix than like Blockbuster.
1 CB Insights: Millennials Are Driving One of the Biggest Trends in Wealth Tech, March 2018
