Millennials, and to a lesser extent Gen Xers, have been rushing into financial markets to capitalise on the steep increase in volatility as they adjust to Covid-19 disruptions. 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, says data and analytics company GlobalData.
Heike van den Hoevel, Senior Wealth Management Analyst at GlobalData, says: “While risk is not an objective measure but dependent on a wide variety of factors, such as experience, education and current circumstances, there is a clear correlation between age and risk aversion, and our proprietary risk index shows that younger consumers are notably less cautious.
“Gen Zers and the vast majority of Millennials would have been too young to be financially impacted by the effect of the 2008/09 financial crisis on investment portfolios. This means that having never experienced a prolonged downturn, younger consumers are more willing to take risk and capitalise on a market rebound.”
In fact, investment platforms are reporting a strong rise in account opening numbers. For example, the Australian Securities and Investments Commission flagged a sharp increase in the number of new retail investors to the market – up by a factor of 3.4 times. Similarly, in Q1 2020, Singapore-based Oversea-Chinese Banking Corporation reported a 104 per cent increase in online trading transactions over Q4 2019.
Many of these consumers will be first-time investors. Data derived from GlobalData’s 2020 Banking and Payments Survey and Life and Pension Survey shows that recent investment account openings have been dominated by the Millennial segment.
Between mid-March and mid-April this year, more than half of new accounts were opened by Millennials. However, this segment only constitutes 35 per cent t when considering all accounts in Asia-Pacific.
Van den Hoevel says: “Considering their age, many are unlikely to be seasoned investors, and given the ongoing volatility, any attempt to time the market for quick profits has the potential to result in significant losses. Should this be the case, these investors are likely to cop their losses and terminate their account, effectively ending what could have turned into an advice relationship further down the line.”
However, on the flipside, the recent spike in account opening represents a significant opportunity, and now is the time to reach out to the Millennial investors segment to create goodwill. New investor support, such as introductory training and education sessions with a particular focus on risk and return, will be critical to ensure the longevity of a new relationship.
Van den Hoevel says: “Our data also shows that younger consumer segments are notably more likely to pay increased attention towards financial literature from their financial services provider after a downturn. This, combined with increased account openings, suggests that now is a critical time when increased customer engagement promises to be most effective in connecting with that desired Millennial segment.”