The Ontario Securities Commission (“OSC”) recently released a research study on the investment habits of millennials, entitled “Missing Out: Millennials and the Markets” (the “Study”). The Study was conducted online between May 5th and 12th, 2017 among a representative sample of 1,585 Ontarians, 18 to 36 years old. It finds that 80% of millennials are saving, but less than 50% are investing.
Many millennials, like myself, first entered the job market right around the time of the 2008 financial crisis. This was a scary time to start investing. It was a period in which enormous investment banks collapsed and financial institutions had to be bailed out. In 2011, the market experienced another slight downturn. Many were wary, despite cheap investment opportunities.
In recent years, markets have performed much better, with many benchmark indices currently sitting at or near all-time record highs. Yet the majority of millennials in Ontario still do not invest. Rather, the Study finds, millennials have other priorities such as paying off debt or buying a home.
Key Highlights from the Study:
- 80% of millennials are savers. Of those who have savings, over 70% set money aside every month or with every pay cheque.
- Only 47% are investing. Of those who invest, 42% have portfolios worth less than $25,000. Mutual funds (42%) are the most commonly held product.
- 59% stated that a lack of understanding about investing was a contributing reason for not investing. Only 14% reported being “very” familiar with investing.
- Just 13% of millennials have a formal written financial plan to meet their financial goals.
- Millennials have other financial priorities: planning for retirement was the top priority for fewer millennials than buying a home, supporting immediate family, or paying off student debt. Although incomes are rising, the cost of tuition, rent and other expenses are rising faster.
The full survey results can be found here.
What this means for investment professionals: Millennials make up the largest component of Canada’s labour force (approximately 37% as of 2015), and hold close to a trillion dollars in assets. If millennials are saving but not investing, that has big implications for financial advisors and portfolio managers.
Sixty-seven percent of those who do not invest say they are planning to start within the next five years. That is a potentially huge opportunity for the industry.
However, many millennials do not trust industry professionals and institutions. Thirty percent of those surveyed reported not trusting big banks or investment firms with their money. Only about 50% of those who invest currently work with a financial advisor, and only 16% work with a portfolio manager.
The main reasons cited by millennials for not working with an advisor were the high cost of fees, confidence in their own skills, and the belief that their portfolio was too small.
Nearly 40% of those who invest currently use online discount brokerages. With all sorts of easy-to-invest websites and apps popping up, this number is likely to increase in the future.
The Study suggests that financial technology (“Fintech”) tools that help narrow down investing options and find opportunities to invest smaller amounts could, in time, play a key role in encouraging millennials to invest. Millennials have an appetite for using technology and enjoy the “do-it-yourself” approach.
However, the Study also finds that Canadian millennials have been slower to adopt Fintech than millennials in other countries (22.5% worldwide, as opposed to only 14.9% in Canada), and that Ontario millennials continue to use traditional advice channels.
The Takeaway: If millennials continue to show aversion towards investing, there could be long-term effects on the financial industry, and the economy as a whole. Governments, regulators, and private players in the industry may need to adjust to slower market activity.
My personal belief, however, is that as we millennials continue to mature and accumulate wealth, our desire to invest will increase. To capitalize, the Study suggests that advisors and portfolio managers need to gain the trust of a group that is predisposed against them. Financial institutions may also need to look for creative, technological ways to cater to a generation that is comfortable getting its investment advice online.
Financial professionals have plenty of incentives to analyze the results of the Study (and others like it), in order to gain long-term insights and figure out how they can address millennials’ concerns about investing.