First, video killed the radio star. Now, a new generation of millennial investors are killing long lunches, golf days and all those other engagement strategies that were big in the eighties.
Here’s the thing: the number of millennials in the workforce overtook Gen X in Australia and the United States way back in 2015. They now represent a third of the workforce in each country.
According to the Brookings Institute, 75% of the workforce will be millennials by 2025.
This is the same demographic group that has the highest percentage of smartphone ownership and interacts with their smartphone more than anything or anyone else. In fact, according to Nielsen “more than 74 per cent feel that new technology makes their lives easier and 54 per cent feel new technology helps them be closer to their friends and family… Given their fluency and comfort with technology, millennials have more of a positive view of how technology is affecting their lives than any other generation”.
As this generation begins to assume middle and senior management positions, their capacity to invest is becoming increasingly material. They are highly informed, tech-savvy and perfectly comfortable conducting all manner of transactions – from booking flights and consuming media to ordering a pizza and issuing invoices – completely digitally. This is a group that avoids speaking to customer service people because, frankly, they are busy and can probably do it quicker themselves online.
So when it comes to providing investment services to this demographic, they don’t want long lunches and golf days, they want frictionless access, transparency of information, and efficient transactions they can access on their mobile device.
What does this mean for the investment management industry?
Over the next few years, investing through digital investment platforms will be mainstream. Capital raising for private companies, property development deals and other alternative assets will be done effortlessly on a smartphone. The introduction of retail crowdfunding legislation means that access to these projects is no longer reserved for the super-rich and highly-connected. This opens up a massive potential group of new everyday investors to the private capital markets and makes digital investment platforms a fundamental part of the capital stack for new projects.
As proof of what is possible, in the UK, where retail crowdfunding legislation has been in place for four years, approximately 24% of all venture capital investment is now done digitally. In terms of the fundamental drivers, Australia is a comparable market and is likely to follow suit.
Until now, investment management firms have focused almost exclusively on providing financial advice, investment and portfolio management services to ‘high net worth’ and ‘ultra high net worth’ individuals in a high-touch and resource intensive manner.
The industry has struggled to properly engage with the next generation of investors, and as a result, has failed to unlock the power of a consolidated group of mass affluent investors (the ‘crowd’). When you group the smaller investment amounts of people who don’t quite meet the salary or asset thresholds to qualify as a wholesale, a compelling new pool of capital begins to emerge.
The rapidly growing fintech sector is making wealth advisory, wealth creation and wealth management opportunities available to the everyday investor, efficiently and cost-effectively using technology to deliver traditionally high-touch services. The aggregation of these investors has become simpler and more efficient than ever before.
Today, any investor can log in to online investment platforms and in three clicks invest relatively small amounts of money into meaningful projects like renewable energy startups, sustainable housing projects and companies creating naturally sugar-free food and beverage products from anywhere and without ever speaking to a single human being. No golf day required.
Over time, digital investment platforms will become the gateway for significant volumes of investment capital and the custodians of important consumer relationships with the next generation of investor.
For the boards of traditional investment management firms, the impact of digitisation on the industry cannot be ignored.