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Understanding the rise of the high net worth millennial

Financial advisers therefore need to be ready for the rise of a new client-base with different needs and aims. CEO of Butterfield Mortgages Limited, Alpa Bhakta, explains why...

Understanding the rise of the high net worth millennial

"We shouldnt downplay the priorities and interests of millennial investors, but instead ensure we are ready to meet their demands."
Alpa Bhakta, CEO of Butterfield Mortgages Limited

“The Bank of Mum and Dad” is a turn of phrase receiving regular airtime at the moment. It refers to the phenomenon of young people, often millennials, turning to their parents in times of financial need. It also has some negative connotations, suggesting a generation that is less conscientious than those who preceded it. 

While this is probably an unfair appraisal of young adults, recent research from EY indicates the use of the parental funds is a global economic trend. It is predicted that over the next 20 years, those born between 1981 and 1996 are set to receive more than $30 trillion from their parents via inheritance in the US alone.

With the entire world economy (gross world product) currently valued at $80 trillion, this amounts to one of the most significant transfers of wealth in human history. 

This trend is already borne out in recent research from Deloitte; by 2020, the total net-worth of millennials worldwide will be more than double what it was in 2015. For those who already have a home, and particularly for high net worth (HNW) individuals and ultra-HNW individuals, inheriting their parents’ assets will likely mean receiving and managing a new investment portfolio consisting of stocks and shares. Financial advisers therefore need to be ready for the rise of a new client-base with different needs and aims.

However, the preconceptions some may have of millennials might be short-sighted. Surprisingly, a huge majority (82%) prefer face-to-face meetings when making important financial decisions. The growth of digital communication is not universal and the research seems to suggest advisers are not likely to spend more time video calling, messaging or emailing their millennial clientele, despite them being a tech savvy generation. Further, it goes without saying that millennials’ foundational investment aim is likely to be the same as their parents and grandparents: achieving the long-term growth of their assets. 

What financial investors need to understand is how the kind of advice they are giving could change, as the investment aims of younger investors are much more likely to focus on so-called environmental, social and governance (ESG) “impact investments”. These are investments that somehow contribute positively to society and the environment. 

Research from Deloitte suggests millennials are unlikely to compromise on the prioritisation of these kinds of assets, with two-thirds of them feeling “obliged” to change the world for the better. Further, they are also unlikely to compromise on these values as they age, as three quarters want to be authentic and not compromise their personal values when investing.

While ESG investments are more specialised, they do not necessarily equate to weaker returns. The best performing three ESG funds all gained more than 16% in the year ending July 2019, while those in the top ten places all grew by at least 10%. This impressive growth could be down to the inherent stability of ESG investments, as they are often geared toward long-term sustainability and good business practice. 

The trends influencing millennial ESG investment can be seen statistically and anecdotally. On the first count, research from EY suggests that almost a fifth of assets now under management worldwide are in climate conscious or sustainable investment].

On the second, one need only look to Steph Stephenson, daughter of investor Ron Cordes and head of the Cordes Foundation. After taking over the foundation a few years ago, the 29-year-old has increased the proportion of the fund’s sustainable investments from 63% to 100%, whilst maintaining impressive annual returns of 8%. 

For those in finance, appealing to millennials and doing the right thing for the future can be achieved through a variety of means. However, one of the main tasks for financial advisers will be preparing and self-educating themselves on the needs of the HNW individuals of the future. That’s exactly why we shouldn’t downplay the priorities and interests of millennial investors, but instead ensure we are ready to meet their demands.


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