Expertise in products that incorporate environmental, social and governance (ESG) factors in their investment strategies is a key way to for financial advisors and ETFs providers to attract millennial clients, attendees at the annual Inside ETFs conference in Hollywood, Fla., were told on Monday.
“There is a rise in ‘impact investing’ and caring about something else besides returns,” said David Nadig, CEO of ETF.com, in panel discussion on the state of ETFs. “Much of the demand is coming from institutions with a mandate for sustainable investing, but millennials also want to bring social responsibility and ethical investing into their portfolios.”
Nadig cited research showing that 61% of investors under the age of 35 feel their investment portfolios should be managed and allocated in a socially responsible manner. This compares with 53% of investors in the 35-64 age group and 29% of investors over 55.
At the same time, Nadig’s co-presenter, Matt Hougan, CEO of Inside ETFs, said surveys show millennials are also attracted to ETFs. Hougan pointed to numbers from a recent survey from New York-based ETF giant BlackRock Inc. that shows 70% of millennials are likely to allocate new investments to ETFs this year compared with 61% of Generation X respondents and 50% of baby boomers.
The millennial generation is becoming increasingly influential. In 2015, millennials surpassed baby boomers as the largest generation in the history of the U.S. They are currently between 21 and 36 years old and many are earning good incomes and forming households, the conference was told in an earlier presentation.
Millennials currently control about US$1 trillion in financial assets, but this will grow to more than US$30 trillion in the coming decades, the conference was told.
“Advisors must learn to talk to the millennial generation about what’s important to them,” said Hougan.
Millennials tend to not be closely connected to the financial advisory industry and don’t put a lot of trust in advisors, he said.
“Millennials like ETFs and ESG, but the problem is that they don’t like financial advisors,” Hougan said. “There is a giant wealth transfer to millennials beginning to take place, and advisors must learn how to work with them.”
Advisors need to shift the way they conduct their practices more toward the way that millennials want to communicate — whether it’s by email or text — and how often they want to communicate, Hougan said.
“You need a communications strategy that goes beyond quarterly updates and a relationship strategy that goes beyond golf,” he said. “And you must take their investment preferences seriously.”
There are a variety of ETFs that trade in the U.S. that focus on ESG factors, but they all have different strategies and portfolios, and advisors need to examine them carefully to assess their focus, Hougan recommends.
In a later panel of CEOs in the ETF industry, including representatives from Vanguard Group, FTSE Russell, J. P. Morgan Asset Management Inc., and Invesco Ltd.’s PowerShares division, the view was unanimous that ESG would become more important to their business in the coming years.
“Millennials want their views and beliefs reflected in their portfolios,” said Ron Bundy, CEO of Benchmarks North America for the FTSE Russell division of London Stock Exchange Group PLC.
Dan Draper, managing director of Invesco Ltd. and global head of PowerShares ETFs, said he expects ESG to be a theme in ETF product development for a few years, and then gradually evolve to become part of the broader investment process for the firm overall.
“Ultimately,” he said, “ESG will be baked in and incorporated into the process.”
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