Wealthy Americans have distinct generational approaches to financial decision-making and management, with baby boomers setting a financial standard for millennials, according to data released by SEI.
The survey, which focuses on Americans with an average USD27.7 million of investible assets, reveals that wealthy millennials can learn from their older counterparts when it comes to what influences their investment decisions, priorities and goals, as well as how they measure investment performance.
Successful individuals and families often rely on several sources for advice before making difficult financial decisions.
Roughly one-fifth to one-quarter of all respondents feel most confident with a do-it-yourself approach, making their own tough financial decisions; while two-thirds turn to either their families or a wealth adviser.
However, the data shows that there is a significant shift away from family and toward wealth advisers as these Americans age. Fifty-seven per cent of wealthy millennial respondents feel most confident getting advice from family, compared to only six per cent of baby boomers. Meanwhile, 58 per cent of baby boomer respondents feel most confident getting advice from a wealth adviser when making financial decisions, compared to just 8 per cent of millennials.
“It’s not surprising that millennials rely primarily on trusted family members after experiencing the post-2007 economy in their early years of financial independence,” says Michael Farrell, managing director of SEI Private Wealth Management. “Millennials need to learn to trust and verify professional advice and therefore, understand the difference between biased and unbiased advice in order to successfully navigate complex financial decisions.”
Wealthy millennials and baby boomers fall on opposite ends of the spectrum with regard to their focus on short- versus long-term goals. Despite millennials having the longest investment horizon, the survey found that they are the generation least likely to focus on long-term financial goals. In fact, only 28 per cent are committed to long-term goals, while nearly 38 per cent are concerned about short-term performance. Baby boomers, on the other hand, are not concerned about short-term performance and are instead focused on long-term goals (52 per cent); only 12 per cent are concerned about short-term performance.
“There is a level of instant gratification and a false sense of control when you focus on short-term goals, and we see that manifest itself in the approach wealthy millennials take to investment management and measuring performance,” says Jeff Ladouceur, director of SEI Private Wealth Management. “The reality: focusing on the short-term is not the strategic way to manage your wealth for a number of reasons, and these survey results point to the complexity of financial decisions for both millennials and baby boomers.”
When it comes to defining goals and priorities, there is a distinct difference between wealthy millennials and boomers. An overwhelming 71 per cent of baby boomers ranked a comfortable retirement as one of their top three priorities when it comes to setting investment goals. Wealthy millennial respondents were most likely to cite having a better lifestyle for themselves and their families as a top-three priority (49 per cent).
“This divergence in priorities is reflective in how each generation measures its investments,” says Farrell. “Boomers are thinking longer term, while millennials are thinking more about their immediate future. The level of wealth these respondents have amassed might suggest that prioritising retirement isn’t necessary, but it is critical to plan for the unexpected and invest toward long-term goals, as well as short-term priorities.”
When asked what factors hold them back from reaching their financial goals, baby boomer and millennial respondents cited a lack of confidence in their investment skills as the top reason (37 per cent and 41 per cent, respectively). Furthermore, only 29 per cent of millennials and 27 per cent of baby boomers take full responsibility acting on their personal investment plan through a do-it-yourself approach.
“Wealthy baby boomers understand their personal wealth management limitations and the value of trusted advice – particularly given the influx of new financial technology and solutions,” says Farrell. “Meanwhile, wealthy millennials lack experience and, often, the guidance of an advisor. It is important for individuals, regardless of their generation, to find a trusted source for data, support and education that can be applied to their own financial situation.”
The digital survey was conducted among 282 ultra-high-net-worth individuals. Forty per cent of respondents were younger than 35 years old, 43 per cent were between the ages of 35 and 59, and 16 per cent were over the age of 60.
