As competition in the exchange traded fund industry heats up with many market segments filled out, fund sponsors will have to rethink the way they do business to attract younger investors.
“Millennials have dramatically changed how we think about the ETF industry, how we position products, and how we shape the marketing strategies around them. They will continue to influence how we work, interact and invest, and their behaviors will eventually become the norm,” writes Steven Dunn, Executive Director and Head of U.S. for ETF Securities, for Wealth Management.
It is important for firms who want to stay competitive to consider branding, marketing and product development strategies aimed at meeting the millennial generation’s needs.
With over 75 million people, the millennials demographic is the largest market segment in the U.S. and largely remains an untapped source for many financial services firms.
The old way of doing business may not be right for targeting this young investment group as many millennials rely on self-directed platforms and so-called robo advisors based on ETF models. Many new investors are also evaluating funds based on the right exposure at the cheapest price.
“Firms need to also think beyond these basics, and consider the psychology that draws these investors to particular access points and product features, if they want to remain relevant in this space,” Dunn said.
A recent Charles Schwab survey revealed that 60% of millennial investors use ETFs as their primary investment, compared to 28% for all investors.
Younger investors are also more in tune with the markets. Securian found in a recent survey that 42% of millennial investors say they are very knowledgeable about investments, compared to 17% of baby boomers. Older millennials who were affected by the 2008 financial crisis may also take more cautious approach to investment decisions while those who didn’t experience major sell-offs during the dotcom bust and financial downturn may be more risk tolerant.
Moreover, ETF providers should also keep in mind other considerations, such as targeted market exposures like commodities and generational values or social impact of invested companies like those that adhere to ESG principles.
“Firms who launch thematic investment products should carefully consider what issues resonate with millennials and why,” Dunn said. “Many have grown up in a ‘cyber’ world, for example, and connect to companies that tackle cybersecurity issues.”
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