A new generation of online investment platforms want to get the lion share of millenials’ savings.
A significant share of the millenial generation is today above 30 years old, having now worked for several years and some of them have already started saving. Consequently, many startups are joining the online investment market, trying to cater for the investment needs of the millenial generation. In addition, some of these startups already seem to have demonstrated their proof of concept that this generation has different expectations towards investing.
This is at least what believes Adam Nash, President and CEO of Wealthfront, an online investment platform that mainly offers low cost and easy to set automated portfolios. Launched in 2011 in Palo Alto, the startup already manages around $1.5 Billion in assets. Yesterday, on the first day of DemoFall 2014 in San Jose, California, Adam Nash shared his opinions during a short keynote on the way he perceived millenials see the activity of investing and how Wealthfront managed to build their offers accordingly.
When it comes to investing millenials are expecting something different
For Adam Nash, what millenials are looking for in terms of investment is very different from what babyboomers want. In his opinion, millenials want products that are automated, passive and low cost. According to the investment platform CEO, millenials mainly believe that they will encounter success through their career and that consequently, investing is not something that they are willing to spend time on.
Nash also states that the recent economic slump made millenials more skeptical towards finance and that the belief of a single investor who can defeat the market and make a lot of money on stocks has simply disappeared among this generation. Millenials would thus prefer a passive, secure and diverse portfolio that they do not have to worry about or take care of on a regular basis.
Eventually Adam Nash claims that millenials have become aware and defiant towards big brokerage companies (with the likes of E*Trade or Scott Trade) which have been largely blamed for taking substantial management fees even for their small account customers. Consequently, this generation has become more price sentitive than their elders when it comes to investing.
Recent surveys on millenials seem to back up the idea of a career focused, price sensitive and close to its money millenial generation. Indeed, a quite recent Oxford Economics study labeled Workforce2020 found that contrary to what people tend to believe, millenials value "achieving income goals" and "compensation" more than babyboomers when it comes to job satisfaction.
A rich startup ecosystem
Wealthfront is not the only startup who set out to entice a new generation of investors online by capitalizing on a new investment approach, new ways to present the information, lower fees and well marketed automated portfolios. In the UK, the wealth management startup Nutmeg is fairly aligned on WealthFront marketing strategy. It offers low fee automated portfolios which can be set up in less than 5 minutes by simply answering a quick quizz about customers’ money targets and aversion to risk. In Japan and China, the online platform 8securities raised $18.5 million in two years from various Vcs ( Route66, Leitmotiv PE…) and is also targeting a young generation of investors with low cost automated portfolios. Furthermore the startup aims to bring a social touch to their wealth management platform by enabling their user base to see how other people on the platform are managing their portfolio.
Apart from automated online portfolios, several new startups also believe they can get millenials to actively trade on their platform by using innovative design, seamless user experience and competitive pricing strategies. The startup Robinhood for instance wants to bring to market a zero-commission investing app (It states that by using innovative algorithms and well designed software they are able to cut most of the costs traditional brokerage companies are supporting). The company has received substantial traction recently with investments from the likes of Google Ventures, Index ventures or even Snoop Dogg and famous Hollywood investor Jared Leto. Even though still in stealth mode, the company claims to have around 500,000 people registered waiting to test their new platform.
The American startup Forest also tries to bring in a new approach towards investment. Founded by two young stock market investors, the startup decided to present investing in a different way through illustrations, in order to reach out more to a non-financial speaking population. On their platform, securities and transactions are represented as forest, trees, planting, cutting or harvesting.
A great deal of competition has emerged to grasp the millenial generation savings. Even tough still really small compared to established wealth management and brokerage institutions in terms of assets under management, these startups are bringing significant inspiration for better services in the investment ecosystem especially in terms of design and user experience.