Out With the Old, in With the Fintech: How Millennials are Changing the Investment Landscape

By Giancarlo Cueto

They’re risk-averse. They distrust institutions. They want transparency. These are a few of the traits attributed to millennials in a recent Fidelity study. As millennials, or those born between 1980 and 1997, approach their peak earning years, who will manage their hard-earned cash? If history is any indication, traditional portfolio managers, advisors, and brokers would be salivating over the opportunity, given that millennials are now the most populous generation in the U.S. However, the Great Recession dissipated millennials loyalty to history and tradition, opening the doors to the new wave of asset management—Fintech.

Financial technology, or Fintech, is used to describe technology that facilitates and modernizes the delivery and use of financial services. Originally, Fintech referred to technology implemented at financial institutions to manage their operations and processes. But this definition has taken on a new consumer-oriented focus with the rise of the smartphone generation. According to EY’s 2017 Fintech Adoption Index, “one-third of consumers utilize at least two or more Fintech services.” Notably, the explosive growth of Fintech has left some of the antiquated finance giants to play catch up as they lose clients to flexible start-ups aimed at simplifying investing and expanding financial inclusion. Among the key selling points for Fintech start-ups like FutureAdvisor, Betterment, and Wealthfront, are low fees, little to no account minimums, snapshots of your portfolio on your smartphone, and very limited human interaction.

Stefanie O’Connell, the 29-year-old author of The Broke and Beautiful Life, offers some insight to recent trends. “When millennials see baby boomers doing their finances, they worry . . . in their eyes, boomers are the ones who created the problems to begin with.” Some of the industries heavy hitters seem to agree. Back in 2015, BlackRock—the world’s largest asset manager—acquired FutureAdvisor, a robo-advisor start-up based out of San Francisco. “We didn’t think we had enough retail and millennial DNA, [but] if we could find the right firm to bring into BlackRock, we could accelerate our plans,” says Robert Fairbairn, senior managing director at BlackRock. In the end, the fight to manage millennials money will bring either competition or partnerships from the incumbents themselves. In 2015, Charles Shwab launched their Schwab Intelligent Portfolios, a robo-advisor that builds and manages your account. More recently, Goldman Sachs announced a partnership with Betterment, the largest robo-advisor with $10 billion in assets under management, founded by millennial entrepreneur Eli Broverman.

But why the change now? In a survey by LinkedIn and Ipsos, nearly 70% of millennials said they were open to trying financial products and services from nonfinancial brands while only 47% of Gen Xers said the same. This should come as no surprise considering that millennials grew up during peak technological disruption thanks to the likes of Steve Jobs at Apple, and Larry Page and Sergei Brin at Google. Whether this sentiment is a result of more user friendly products or simply trustworthiness compared to big-banks is still up for debate, but millennials certainly seem to lack trust in the financial infrastructure of old.