The Millennial Movement and Your Data Strategy

THE GAME CHANGERS: DIGITAL MEETS DEREGULATION

I grew up in a middle-class Italian neighborhood during the late 70s and throughout the 80s. It was an amazing time in my life with tons of kids living on the block, the sounds of Sinatra emanating from Mr. Salvadeo’s backyard, and the mouthwatering smell of homemade sauce wafting into the street every Sunday as we played stickball. That was also a time when people saved more than they spent, paid cash for groceries, balanced their checkbooks, and planned to retire at 60 years old with a company pension and social security. Salesmen sold us our insurance policies, vacuums, and encyclopedias as we transacted person-to-person. Overall there was superior work-life balance as things seemed a little slower, human connections were a little deeper, and individual financial responsibility was so much greater. As the economist Adam Smith teaches us, it is in our nature to constantly want for more as we try to keep up with the Joneses. Yet, an old school savings mentality, a cash-based economy, and post-depression financial regulations collectively comprised the spending and lending guardrails that reinforced banking, consumer, and business accountability. It was a good thing.

As the mid-90s crept upon us, the advent of personal computing, wireless technology, and the internet gained rapid traction and ushered in the age of digital financial transactions which enabled what I term “disconnected accountability”; virtual, low-touch, fast and easy. Concurrently, there came a tsunami of financial deregulation as the US government unlocked and left open the banking industry’s cage door; effectively enabling record high balance sheet leverage along with historically high personal debt. As a result, retail banks, mortgage lenders, investment banks, asset managers and insurance companies fused to create monolithic institutions. Evidently, we failed to learn from Japan, which in the 1980s was home to “crony capitalism” and the largest banks in the world. When Japan’s bubble economy and banking system buckled, the impact was (and continues to be) lost decades of economic growth¹. For the US and much of the EU, the coincidence of digital transactions and financial deregulation facilitated a similar unrestricted growth of banks along with unbridled lending and spending. The stage was set for our own bubble economy based on widespread financial maleficence that would impact global economies, generational psychologies, and worldwide demographics. And just like that, a good thing unravels.

OUR SOCIO-ECONOMIC DNA: SETTING THE STAGE FOR SEISMIC CHANGE

I believe that there is a causal relationship between the rise of the digital economy, banking deregulation, the insatiable credit-based consumption of all things, and the eventual collapse of the global markets in 2008. Another vital contributor (or detractor depending upon your point of view) was, and is, the constant upward pressure of quarterly earnings targets provided to us courtesy of the investment banks. This relentless burden to meet earnings goals forces US companies to fiercely wrench as much surplus value as possible from employees and do whatever possible to drive profits without regard for environmental, national, or social repercussions. Ultimately, frenzies around spending, lending, and stock valuations upended a socio-economic value system which had served us well since the post-depression recovery. Our standard of living may have superficially improved, but arguably our quality of life diminished as the middle class contracted and mandatory dual income families worked longer hours to finance their conspicuous consumption and fulfill the investment banks’ earnings prognostications. You can dispute my hypotheses all day long since these are only my musings. However, it is impossible to disagree on how much our world has changed over the past quarter century.

A direct consequence of the aforementioned is a workforce which, for the first time in American history, spans four generations; Silents, Baby Boomers, Generation X and Generation Y (Millennials)². Each of these groups experienced the 2008 global market meltdown and resultant “great recession” from their own vantage points. Within each group, financial outlooks and value systems were reshaped as trust in the financial markets was undermined and the time value of money versus the time value of time was reevaluated. Retirement and investment accounts were decimated, creating an employment log jam as Boomers have deferred retirement and X-ers continue to seek financial terra firma. Millennials witnessed first-hand the financial damage that had been done to their parents and grandparents. This credit-based hangover resulted in a fragmentation of financial needs and social drivers, and has created a serious challenge for asset managers because a one-size-fits-all library of strategies will not resonate across all groups. And while money managers have wisely responded to this by developing custom multi-asset and smart beta strategies, client managers struggle to provide holistic and insightful investment data reports to investors that is critical to retaining assets and enabling the best client experience. More to come on this last point; now let’s segue to an overview of the generations.

GENERATIONAL LANDSCAPE: DIFFERENCES WITH DISTINCTIONS

While my intent here to focus on Millennials, I would be remiss if I did not quickly summarize the Silents, Boomers, and X-ers. These groups collectively created the conditions that gave rise to today’s economic and social challenges. (Is it me, or does it feel like only yesterday that we exuberantly applauded and echoed Gordon Gekko’s line that “greed is good?”)

• Silents (born between 1925 and 1946): Silents are considered to be the most loyal workers. They are highly dedicated and the most risk averse. Their values were shaped by the Great Depression, World War II, and the post-war boom years. Silents now consist of the most affluent elderly population in US history due to their willingness to conserve and save after recovering from the financial impact of the postwar era.²
• Baby Boomers (1946 – 1964): While Baby Boomers are the least likely to look at their financial situation as stressful, having to postpone retirement ranks highest among their financial concerns. A recent AARP survey of 2,001 people born in this era revealed that 63% plan to work at least part-time in retirement, while 5% said that they never plan to retire, either because they like working or because they need the money to replace lost retirement savings from the 2008 crisis. Obviously, it is tough for the younger generations to move up the career ladder when the prior generation refuses to retire.²
• Generation X (1965 – 1979): Gen Xers are the least financially secure and Generation Xers are often considered the “slacker” generation. They fall behind in wealth accumulation, are less likely to experience income mobility, and carry more debt. This generation is stretched thin. They need benefits that can help them be strategic about planning for retirement and address their immediate needs.²
• Millennials (1980-2000): With significant gains in technology and an increase in educational programming during the 1990s, the Millennials are also the most educated generation of workers today. Across the income spectrum, Millennials spend the least on “luxury” purchases and are likely to save for them instead of putting them on credit. In fact, Millennials dislike credit cards as they use debit or cash 45% of the time compared to 27% for credit cards.³ Additionally, research has shown that the Millennial generation is the most ethnically and racially diverse in US history. A major influence from their Boomer parents is a willingness to work hard and set goals to achieve the lifestyle they want. They also share many of the common values of patriotism and family from the Silents era.²

THE MILLENNIALS: DRIVING THE PUCK’S DIRECTION

The generational shift in wealth we are currently experiencing (measured over the 55-year period from 2007-2061) is significant as $58.1 trillion is expected to move from one adult population to another. Historically, wealth transfers from one generation to the next have resulted in 90% of heirs changing advisors, presenting both an opportunity and a major threat for wealth management firms.⁴ Do not lose sight of the fact that the Millennial generation, as those before it, will represent our future captains of industry and CEOs. Thus, institutional managers, along with wealth managers, need to understand the needs of Millennials as much as anyone if they are to best serve their clients and retain the assets.

Millenials comprise what I term the “walk away culture.” They are “social capitalists” that will walk away from employers and from investments that conflict with their core values rooted in work-life balance, fair distribution of wealth, and the betterment of all things environmental, social, and governmental (ESG). In fact, Millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes. Separately, US Trust found that 76% of high-net-worth Millennial and Gen Z investors have reviewed their assets for ESG impact, while Morgan Stanley found Millennial investors to be twice as likely as others to invest in companies that incorporate ESG practices.⁵

Financial accountability ranks high with Millennials as they leverage technology and online platforms for financial advice and tracking.  Financial apps and portals have changed the game as they connect people to their investments like never before. You can just look down at your phone and connect with your portfolio in a matter of seconds. You are so much more connected to your money than someone who balances their checkbook once a month. A 2015 survey found Millennials were the group most willing to change their bank just for a better mobile app experience. ⁶ They are automating it all including savings, investing, credit card payments — you name it. The supporting bedrock for all of these applications is data: transaction, risk, compliance, and performance. If Millennials are the metaphorical puck, asset managers better get ahead of it!

“A fully integrated investment reporting experience is solely and wholly reliant upon the all-inclusive representation of the client’s investment data and how their assets support their business, life and core value goals.”

 

END GAME: PRIORITIZE YOUR DATA AND REPORTING STRATEGY

It is clear that the primary enabler to all of the aforementioned is a comprehensive investment data strategy. Any data strategy requires the seamless fusion of investment accounting data across every asset class and instrument, spanning all systems and affiliates. Data accuracy, completeness, accessibility, and timeliness, coupled with reporting configurability, all serve as the underpinnings to progressing up the data maturity ladder and reaching what I’ve termed the Integrate Stage. And as asset managers struggle to keep client AUM in their active strategies, it boggles my mind how many defer the priority of data integration and client reporting. If they do focus any attention or funding, they completely undermine the value of their investment by selecting the cheapest or most “convenient” platforms. These are the same asset managers that spent millions of dollars over decades for enhancements to alpha generating applications for investors and traders. Yet, they delay or penny pinch the client data and reporting platforms that are critical to retaining the alpha-based AUM for which they work so hard to attain.  A fully integrated investment reporting experience is solely and wholly reliant upon the all-inclusive representation of the client’s investment data and how their assets support their business, life, and core value goals. There is no better way to combat fee and revenue compression than to retain assets via a best-in-class investment reporting platform. This need cuts across every generation, but is especially crucial for Millennials and beyond. Meeting this need via the execution of a comprehensive investment data and reporting strategy is a matter of survival for asset managers. It can no longer be deferred or discounted.

There seems to be a shifting in the balance of power as Millennials demonstrate that we are taking back ownership and accountability of our financial futures, both business and personal. Arguably this is for the better as it brings us closer to a successful pre-1990s value system when cash was king, personal debt was sensibly managed, and appreciation for family and community was priority. Obvi, that’s totes a good thing. Now, if they could also bring back Sinatra and stickball!

References

1. http://www.thebubblebubble.com/japan-bubble/
2. https://www.amanet.org/articles/leading-the-four-generations-at-work/
3. https://www.usnews.com/news/national-news/articles/2018-04-26/millennials-spend-more-on-debit-purchases-than-credit
4. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/strategy/us-cons-disruptors-in-wealth-mgmt-final.pdf
5. https://www.cnbc.com/2019/02/13/influx-of-young-investors-can-revitalize-sri.html
6. https://www.cnbc.com/2015/04/22/for-millennials-banking-is-all-about-the-apps.html