Millennials will change your business – the question is how

The largest generational cohort, understanding millennials and their preferences should be a priority. How can financial institutions enhance their appeal?

As employers, financial institutions should adjust to millennials. Technology plays a major role in the lives of millennials, and firms should use this to their advantage. But they also need to be mindful that individuals require a ‘digital balance.’ Many human resources departments will be supportive of giving their employees access to cutting edge technology, yet it is becoming increasingly common for millennials to push for device-free meetings to reduce workplace distractions.

Encouraging millennials to be innovative within organisations is key. One major pension fund in Australia has a graduate scheme which purposefully ring-fences millennials from legacy businesses, encouraging them to come up with ideas unconstrained by the traditional operating model. This has yielded huge successes, including the development of an industry-leading app that is now seen as a benchmark of excellence. This app is not exclusive to millennials, but has won praise across all age demographics. Compared to traditional product development processes, such innovations often come to fruition more quickly and are deployed in a more cost-effective way.

The move to ESG

What sort of products should be marketed towards millennials? Strategies tilting towards an environmental, social, governance (ESG) agenda are popular among younger investors, who are looking for positive impact returns. These investors recognise that responsible investing and return generation go hand-in-hand. An increasing number of organisations, including Theam, a specialty asset management subsidiary of BNP Paribas Investment Partners, have recognised this trend, and are launching ETFs that provide investors with exposure to baskets of securities and indices with low-carbon footprints.

A growing recognition of investors and managers alike is that ESG enhances risk management, and supports the ambitions of long-term, sustainable investments, in delivering superior risk-reward outcomes. BNP Paribas Securities Services, the first global custodian to be a UN PRI (Principles for Responsible Investment) signatory, launched a comprehensive ESG Risk Analytics solution in 2016. It was tested with a leading institutional investor – UniSuper – to provide detailed analytics at the company level and promoting a flexible, intuitive understanding of ESG risks in investor portfolios and benchmarks.

UniSuper uses ESG Risk Analytics for identifying risks in a portfolio, as well as, engaging with managers to understand how they are managing their ESG risks. UniSuper feels that this level of ESG integration helps them focus on quality investments, and also drives engagement moving forward. It provides UniSuper with an opportunity to help the company improve its practices, and ultimately become a more sustainable long-term investment.

Robo-advice: all hype?

Realistically, retail investors cannot be treated as unique. Through algorithm-based robo-advisors, fund managers could present them with advice that appears to be unique. Interestingly, robo-advisors are not widely seen as a strategic opportunity. 41% of the respondents to a recent BNP Paribas poll of leading asset managers and asset owners indicated that they are developing a robo-advice product, while 47% said such an approach was not important. Sceptics repeatedly state that the earliest robo-advisor models were launched more than a decade ago, and a number of current providers are struggling to make money. Some organisations highlight that their clients prefer a customised approach towards wealth management, which robo-advisors do not yet provide.

Will innovation come from distribution?

Winning investment business from millennials is altogether a new challenge. Distribution will have to evolve with its audience. China’s Yu’e Bao, a money market fund launched by Alibaba subsidiary Alipay, raised USD 93 billion in 18 months. The simplicity of the investment process whereby capital can be allocated through a smartphone has helped enable its success. Yu’e Bao is a simple money market fund, and its only differentiator from its competition is the platform by which it was distributed: it is not necessary for firms to radically reinvent their products, but rather the way they are distributed.