Fund managers should make friends with the millennial investor crowd
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Financial advisors and fund managers should be coveting the new retail investors testing their skills on the ASX, one analytics company says.
Newbie investors have been told off for trying to day trade, watched in bewilderment by the professionals, and been worried at by commentators about the possibility of losses from a second crash.
Heike van den Hoevel, analyst at data and analytics firm GlobalData, says fund managers should actually be using the newfound interest in the stock market to build relationships with a new demographic of investors: millennials, and even some of their successors in Gen Z.
“While there is a potential for steep losses, this also offers wealth managers the chance to reach out to new investors with targeted material to build a long-term relationship with an attractive investor segment,” he said.
“There is a clear correlation between age and risk aversion, and our proprietary risk index shows that younger consumers are notably less cautious.”
Millennials (aged 24-39) and Gen Z (aged 23 and younger) were largely too young to feel the heat of the 2008 financial crisis on their own investment portfolios, meaning most have never lived through a financial crash while having skin in the game.
But from the end of February to the start of April — the period covering the March 23 crash — 140,241 new trading accounts were set up, or about 3.4 times more than normal, according to ASIC data.
Most of these were millennials, driven in by opportunity and a further collapse in bank interest rates.
Matt Leibowitz, founder of US stock investing app Stake, says just over half of Stake’s users are in the 25-40 age bracket.
van den Hoevel says the risk is that a first time investor takes a heavy loss and never trades again “effectively ending what could have turned into an advice relationship further down the line”.
On the flipside, the spike in account openings is an opportunity to reach out to new investors to create goodwill with support, such as introductory training and education sessions.
“Our data shows that younger consumer segments are notably more likely to pay increased attention towards financial literature from their financial services provider after a downturn,” he said.
Stockbroker EL & C Baillieu is doing this already. Stockhead noted a pitch from the company in one Facebook investor group saying it is running educational posts and podcasts on topics such as the basics of investing and how to invest in the current market.
And while van den Hoevel notes few will be seasoned investors, most are not rank amateurs either. Apps such as ETF fund manager Raiz (ASX:RZI), Stake and Spaceship super have attracted younger users and encouraged them to learn about investing.
Raiz saw its funds under management grow consistently to almost half a billion dollars in February, while Stake hit 100,000 users this month.
Dale Gillham, chief analyst of financial services company Wealth Within says investors are much more educated now than during the 2008 crash. The iPhone was launched in 2007 and today data can be downloaded and trades made via a myriad of apps such as Commsec or Selfwealth.
“Now the under 30 do not go anywhere without their smartphone and are learning everything from it whether on the train, in a cab or anywhere we can get a signal,” he said.
“The challenge with this is that whilst you may be getting educated, what these under 30 years olds are learning is very hit and miss especially when it comes to the stock market.”