Financial media is replete with headlines about the millennial wealth shift—usually weighing in on what this means for investor profiles and products as the millennial generation hits peak earning years. For all this prognostication, there has been considerably less discussion from within our own industry on what this generational change means outside of retail or wealth management segments. As my own kids come of age, I’ve come to a more concrete understanding of the differences in the way millennials (and younger) interact with investments, workplaces, and technology—this has in turn, prompted me to think about how many of the changes we’re undergoing in our industry tie back to this broader trend.
Investors of previous generations leaned heavily on institutions or advisors to dictate their investment plan and profile. According to a recent survey from MarketWatch, 45% of the baby boomer generation gets financial advice from an advisor; only 22% of generation X and 21% of the millennial generation indicated they get advice from an advisor. These stats are clearly meaningful to financial advisors and wealth managers—but could they portend change in investment management more broadly?
Where I’ve seen this play out recently is in the way investors are interacting with their allocation. Rather than rely solely on pre-determined models, many wealth clients are looking to self-manage or reserve portions of their portfolio which creates a challenge when an investment manager uses a proprietary model and needs to keep an account’s risk profile within bounds. This puts the onus on the manager to change models more frequently and flexibly. Downstream, these demands are precipitating a number of technology and operational changes. While institutional investment managers will not have the challenges of maintaining risk models inclusive of client directed assets, other restrictions such as compliance requirements are creating similar operational challenges.
Many front office teams are looking for more robust risk and analytics capabilities and flexible solutions to meet evolving investor preferences and requirements. Longstanding or entrenched solutions are being re-evaluated against new demands and I’ve seen a corresponding uptick in the number of search and selections and new implementations.
Demand for flexibility in investment models goes hand-in-hand with a demand for flexibility in how and when investors access investment information. Much of this change is precipitated by how and when generations raised in the internet age interact with digital touchpoints. The availability of information at speeds unfathomable when my generation came of age has set new expectations for accessibility that extend across all facets of modern life.
About 20 years ago, I attended a small conference with about a dozen leading asset managers. Something that stuck with me from that conversation was a discussion of how reporting for personal assets was considerably more advanced than reporting in the institutional space. At the time, we discussed some of the reasons for this (entrenched processes, lack of incentives to change, etc.) but we certainly did not anticipate the state of the investment reporting would be the same two decades later. I wonder now if the lack of innovation in institutional reporting is due to the expectations of the consumers of those reports—and as the millennial generation begins to fill senior leadership positions, their expectations as digital natives will force a shift.
As a personal anecdote, both of my children work in finance and have sophisticated knowledge of financial products and markets. Even with their access to advisors and institutional knowledge, they both use a robo-advisor for their personal assets. Their ability to see real-time portfolio information, make changes on the fly, query their returns, or find information on complex investment strategies sets the bar high. With this level of information access and ability to self-manage, it’s only a matter of time before the institutional space is forced to catch up.
Access to data has been bolstered by the rise of cloud computing—a technology that digital natives have been utilizing for the majority of their adult lives. Much like the evolution of reporting expectations, the evolution of technology expectations are being driven by generational differences. As the millennial generation begins to take ownership and direction over IT budgets, there will no doubt be new demands placed on vendors for integration, data consumption, and cloud capabilities.
We’re certainly already seeing this shift play out across the vendor landscape as incumbents redesign their solutions with cloud capability in mind and as new cloud-native entrants gain traction. For decades, the industry has heard buzz around Big Tech coming in to erase legacy technology and this has never played out…but I wonder if it simply hasn’t played out the way we expect. Rather than the tech giants creating new platforms, they’re partnering with the vendor community and lending their talent and skill to new implementations and integrations.
This is having a two-fold effect: tech giants are gaining backdoor access to investment management IT budgets and also exposing new skillsets to investment managers. The shift to a new digital era will likely continue to be gradual but as a new generation takes the fore in asset management, IT leaders will be looking to build teams with a nuanced understanding of new technologies, perhaps moreso than deep expertise in investment management.
As a recent addition to Citisoft’s management team, I’m as excited to help the industry embrace these changes as I am to embrace change in my own career trajectory. Observing the millennial generation begin to set agendas and drive transformation programs has sparked my curiosity and excitement about the direction of our industry. I’m grateful to be part of the journey and look forward to helping guide our clients and the next generation in realizing their technology, operations, and data goals.