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How can we better engage with Next Gen Investors?

6 minute read

According to The Financial Reporter, a huge intergenerational transfer of wealth is currently underway. Baby-boomers, who have tended to keep their wealth in property and assets, are beginning to pass their assets to their children and grandchildren. Indeed, research from EY teams suggests that Gen Z and millennials in the US alone could receive $30 trillion over the next 20 years. This amounts to one of the largest transfers of wealth in history and will have far reaching implications for those working in the financial industry.

This transfer of wealth raises the big question of how can we connect with this new generation of investors? How can we build next generation customer engagement and nudge good customer financial advice? And how do we influence 2.5 billion next generation wealth and retail investors used to social media and gaming? In the not too-distant future, many financial advisers will be dealing with a significant cohort of younger investors which will necessitate understanding a new collection of attitudes and preferences. Given this, there are a number of important trends for us to consider as we think about how we might engage with this next generation of investors.

One of the first things to consider is the growth of Cryptocurrency. Gen Z are more comfortable betting on Cryptocurrency than older generations. According to a recent survey by Capitalize, 56% of Gen Z and 54% of millennials say they are including Cryptocurrency as part of their retirement strategy. That’s compared to only 20% of Gen X and 14% of baby boomer survey respondents who said they are investing in Cryptocurrency to help them save for retirement. Moreover, 59% of Gen Z and 46% of millennials believe they can become millionaires by investing in Cryptocurrencies, according to a survey by the research company Engine Insights.

So, what is it about Cryptocurrency that is attracting so many young people? One factor could be the psychological differences between buying and investing. We know that young people love to buy stuff and get immediate gratification from it. And buying Cryptocurrency can give them that same feeling. Companies like, Coinbase, are tapping into these psychological differences by giving their Gen Z customers instant money rewards for engaging on their Cryptocurrency exchange platform. As such, we need to be thinking about how we can mimic that same psychological feeling around investment. The other psychological trait at play could be confirmation bias. With confirmation bias, people do not interpret facts neutrally. Instead, they seek out information that supports their existing opinions. This could explain why, despite the recent crashes in Cryptocurrency, the buzz around it still remains.

The second thing to understand is the fact that Gen Z are looking for connected experiences and gamification. We know that Gen Z are now actively looking for financial advice on social media, for example on Tik Tok and Instagram, but they also want this to be a connected experience with their friends as they do so. One example of this is Shares which is focused on making investing a social activity. Users can start conversations with their network, and learn from their friends, as well as connecting in with the wider community. In this respect, the platforms are providing social proof in that we tend to look round to see what others are doing. And on Shares, investments can start with just £1.

We also need to be thinking through how we can adopt gamification tools. And one example of this approach is Wizest which has been built around gamification. It borrows tools from dating apps and Fantasy Football apps. It matches you with the advisors that are most suited to you, it has expert leader boards, and you can also earn rewards and win prizes as you go along your investment journey. And these are the types of functionality that we should be using in our businesses.

At the same time, consumers are increasingly making purchase choices based on ethical and sustainability considerations. Customers are looking for investors who reflect their values and engage in more sustainably driven initiatives. In a recent EY survey, 60% of respondents say they are likely to switch to brands that are more environmentally friendly. They are particularly interested in ‘impact investments’ where their investment decisions are based on the impact those investments will have on the environment and society. In addition, customers are increasingly driven by ‘intentional consumerism’, where their purchase decisions are based on the values they hold, such as diversity & inclusion and sustainability. This is particular the case with Gen Z. The EY Future Consumer Index has recently shown that 43% of global consumers want to buy from businesses that benefit society, even at a higher cost.

For financial advisers, the changing preferences of their customers and clients means they will need to educate themselves on ESG and ‘impact investing’ and be prepared for a generation of customers and clients with different priorities. In addition, the recent UN Climate Change Conference 2021 (COP26) has created strong pressure for investors to consider ESG (Environment, Social, & Governance) in their risk management.

One company that has picked up on this trend is Tumelo. Tumelo is an investment app on a mission to help build a better future by influencing powerful companies to behave more ethically. Tumelo offers everyone the opportunity to be an engaged, ethical investor, starting from as little as £1. Members specify the causes that matter most to them – whether that’s gender equality, sustainability or supporting new technology – and Tumelo uses that information to build personalised, positive investment portfolios. In this way, Tumelo’s members can use their money to help generate social or environmental impact, as well as securing returns.

However, while we should consider these trends and think through how we can respond to them, we also need to be careful with demographics and how we bucket up our audiences into Gen Z, Millennials, Baby-boomers and so forth. It is important to remember that not all young people are the same. For example, much like the older generation, our own customer research at EY Seren indicates that a large proportion of Gen Z still prefer the traditional face-to-face way of discussing financial options. This is why, at EY Seren, we use customer research and customer data combined with tools such as mindsets and archetypes to gain a deep understanding of the values, needs, goals, feelings and behaviours of Gen Z investors to help ensure EY our clients are able to connect with and cater to the needs of the next generation of investors.

How can EY teams help?

EY Seren is a specialist design and innovation consultancy. Together with our EY colleagues, we solve the genuine problems that matter for customers, employees, and society at large. Our work is rooted in helping businesses make better choices and solve their most pressing problems. EY’s wide-ranging team of professionals work collaboratively to focus on transformations including digital claims technologies and systems, data and analytics, operational transformation and execution, customer experience, future visioning and new proposition development, ESG, workforce advisory, actuarial and risk consulting.

For further information, please contact , WAM Sector Lead.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organisation or its member firms.