Two interesting take-aways from a recent seminar on millennials and wealth … firstly ‘millennials want to pay more tax’ – or at least they want to ‘avoid avoidance’ and, secondly, they are less interested in robo-advice and instead want the reassurance of a ‘flesh and blood’ advisor.
These are both worthy of further investigation.
Are millennials more socially conscious? In a recent Pew Research centre report, millennials were more likely than other generations to agree with statements expressing a desire to make the world a better place and confirming a purpose in life. Other studies have shown that millennials want to be engaged and feel good about the decisions they make – including the firms they work for and those they invest in. They are more likely to identify with a ‘cause’ and feel that their decisions have to have a positive social impact, and may avoid controversial sectors which they may consider ethically questionable – defence, tobacco, oil etc.. So we could argue that a greater need for social responsibility would logically translate into a desire to pay their “fair share of tax” – even if avoiding some tax due was a possibility. The perceived social stigma attaching to tech firms’ and celebrities’ tax avoidance contortions may be colouring this view.
BUT a 2016 report ‘The Millennial Economy’ from EY & EIG (in the US) found that 53% of young adults (ages 18 to 34) said the amount of income taxes they pay is “about right,” compared to 36 percent who said their amount was “too high” and 3 percent who said their amount was “too low.” The report concluded that the older and wealthier Millennials get, the more they feel their tax burden increases, and Millennials may feel relatively comfortable with their own tax burden, but they remain concerned about fairness in the tax system generally. This was apparently comparable to previous generations. So no great Millennial effect then?
Turning to the second of these ‘Millennial insights’ – younger people with money to invest eschew robo-advice for the reassurance of a ‘flesh and blood’ advisor. An element of this may be bound up with the lower tolerance for risk – if we equate an actual financial advisor with lower risk. If not lower risk then maybe there is something comforting about someone who can provide bespoke answers to questions, which feels less risky.
A study from US fund manager Global X, found that for millennials the most important role for an advisor was protecting their investments during a downturn. Millennials investment strategies tend toward the conservative – they have a lower threshold for risk than their parents BUT they are more likely to look for socially responsible investments and take a more activist approach.
However others have argued that the robo-advisors such as Betterment and Wealthfront have disrupted the financial advisory business, and that many Millennials are forgoing traditional financial advisors in favour of algorithmic, low-cost alternatives to managing their money. All very point and click. Very hands-off.
But financial advisors counter-argument is that … ”these robos are asset allocators, not advisors. They aren’t putting together financial plans and following them through a relationship with a client. That part of financial advising — the planning, the relationship — can’t be robo’d away!” (well, they would say that wouldn’t they). But the argument seems to be that the proliferation of robo-advisors is overwhelming and Millennials are turning to financial advisors for clarity coupled with the financial planning they are not getting from on robo platforms
I think the only thing we can say with any certainty- when it comes to Millennials and tax or Millennials and advice … is that this is not as clear cut as it might at first seem – ‘beware Millennial mythology’ – there is a lot of anecdote masquerading as fact, particularly around what people are keen to position as a ‘cultural phenomenon’