Ease of access and cost savings are some of the reasons the younger generation in both the US and UK use wealth management apps, finds Moriah Costa.
The financial crisis of 2008 left a bitter taste for many millennials, with many preferring to control their own finances. That is why they are turning to financial management apps and micro-investing platforms in droves.
Hugh Hutchison, a 30-year-old M&A lawyer in London, uses wealth management app MoneyFarm because he can invest a small amount of money while keeping track on his phone.
“I prefer investing through an app, mainly because that way I can keep an eye on my money easily and pull it quickly if I want to,” he said.
Many of these so-called robo advising apps are easy to understand and use. They also allow users to keep track of their finances on their phone. Robo advising is the term given to automated algorithms that invest in portfolios based on individual questionnaires.
These apps allow young investors like Hutchison to think about wealth management and investing, regardless of whether or not they have a lot of money to invest. Hutchison currently invests less than £1,000 but is considering investing up to £7,500.
“I doubt a wealth manager would give me much attention and if he did the cost of it might cancel out any gains I made,” he said.
Young people are more open to alternative financing methods like robo advising, as apps and online investment tools become increasingly popular worldwide.
Jeff Leon, a 30-year-old writer in Washington, D.C., has used micro-managing app Acorns to invest since June because it’s passive and simple. He also uses money management app Mint, which helps users determine where they are spending money and budget their finances.
“I feel that wealth managers are useful in learning about your options, but I'd rather take matters into my own hands,” he said.
While millennials may not have the purchasing power of their parents or grandparents, wealth managers should start gaining their trust, some analysts argue.
“Millennials may have limited funds currently due to high levels of student debt, but gaining their loyalty now will pay off in the future when they have more earnings power,” said Jessica Rabe, a research associate at Convergex Group, a broker and trading systems provider in New York.
People are less trusting of banks and financial institutions than in the past. Shane Brown, a 31-year-old who works at an advertising agency in Washington, D.C., is very distrustful of wealth managers and banks.
“The latest crisis with Wells Fargo is another example, and has made me start looking for other checking and credit union options for daily banking,” he said.
Brown uses a savings app called Digit and just recently started using Acorns. To him the digital platforms are more trustworthy but only because they are independent.
“I think the financial crisis should make us all more guarded when it comes to financial tools, regardless of whether we're talking about tech start-ups or the big banks,” he said.
Millennials want transparency and options from firms, especially after the financial crisis, said Rabe, who is in her early 20s.
“The key to millennials is leveraging technology to ensure that the experience is convenient since they are used to a fast-paced and largely automated world,” she said.
In the UK, however, many millennials are not saving at all, according to the most recent Investor Pulse survey from investment firm Blackrock. Half of 25 to 34 year olds have not started saving for retirement and 21 per cent have no savings.
“Technology is an important tool if we are to help millennials become more engaged and active in their retirement saving,” said Jeremy Roberts, head of UK retail sales at BlackRock.
Fintech is helping millennials manage their finances, such as through micro-investment app Moneybox, he said. The app uses tracker funds from Vanguard, Blackrock and Henderson and invests a client's spare change into one of the three funds, depending on their risk preference.
“People can invest in pence and pounds making investing accessible to young people with little cash to spare,” Roberts said.
Although many millennials are not saving or saving very little, it’s vital that they do, said Daniel Harrison, a senior partner at True Potential.
“With no financial education to guide them, house prices that are both out of reach and stagnant and the security of final salary pensions disappearing, millennials will have to fend for themselves more than any previous generation,” he said.
The wealth manager has a similar micro-investment service called impulseSave that allows its clients to invest as little as a £1. The company also created a free financial education course with Open University as one way to help the younger generation make better financial decisions.
But building the technology isn’t enough to gain millennial’s business, Harrison says. “The relationship needs to be meaningful and open,” he said.
Brown also thinks that education and automation are the best way to reach millennials. He would like to see financial institutions focus less on selling costly accounts “and focus more on giving younger consumers options that fit their lifestyles.”
“Tech is changing the way we think about daily tasks, and financial tools shouldn't be any different,” he said.
1 June 2023
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