Australia’s housing affordability crisis and a new report revealing investors aged under 35 are more risk averse than their baby boomer counterparts could be giving clues about the next big trend in the investing habits of millennials - and it proves they can have their smashed avocado and eat it too!
Why millennials and fund managers are the perfect match
By FSC Media Manager Mark Smith
Australia’s housing affordability crisis and a new report revealing investors aged under 35 are more risk averse than their baby boomer counterparts could be giving clues about the next big trend in the investing habits of millennials - and it proves they can have their smashed avocado and eat it too!
With many young adults resigning themselves to the reality of being locked out of the housing market by ever-rising prices, a growing number of them are instead investing in other assets.
This trend is demonstrated in a recent ASX and Deloitte Access Economics survey, which found the proportion of 18-24 year-olds who are investing has doubled from 10% to 20% in the last five years.
The FSC recently hosted a roundtable discussion for media in Sydney, to mark the launch of its new consumer-facing guide, The Value of Professional Funds Management: How Fund Managers Help to Grow Your Wealth.
This guide is designed to help ordinary investors understand the role of investment managers within the superannuation system, as well as the benefits of investing in the funds they manage.
The panel included FSC CEO Sally Loane, Aberdeen Asset Management managing director Brett Jollie, Wellington Management managing director Aisling Freiheit and BT Investment Management head of investment products Dan Campbell.
They concluded that managed funds could become the natural choice for this growing legion of risk-aware young investors - all they need is jargon-free information and quality digital access.
“There is a well-documented gap in the financial knowledge of many Australians, including a limited understanding of the role that fund managers play in helping people accumulate wealth for retirement,” Mr Jollie said.
Digital demand by millennial investors
At $2.7 trillion, the Australian funds management sector is one of the largest pools of funds in the world, largely owing to our world-class superannuation savings system.
However, despite its size, there’s still little penetration in the direct-to-consumer market – relatively few mum and dad investors own investments in managed funds.
“Australia is one of the few advanced economies where investors have not yet cottoned on to the benefits and returns available in managed funds,” Ms Loane said.
“Financial services generally is a black box for too many Australians because of the complexity of the products, the technical jargon we use and the layers of regulation we bind around everything. Researching investments can feel bit like learning a new language.
“But once you understand how it works, you see it’s actually easier than buying a house.”
This ease of transaction is likely to appeal to the new wave of millennial investors who, in the Uber-ised economy, demand digital platforms for all the services they consume.
Advantages of managed funds
There are exciting products available for these millennial investors.
From ETFs available directly from the stock exchange, to impact investments and global equities – these examples allow young investors access to sectors and assets that would otherwise be too hard to invest in.
There are many advantages of managed funds compared to other types of investment, including:
- they provide access to a diversified portfolio of assets that are not always accessible directly;
- they offer ease of tax reporting and other regulatory requirements;
- fund managers have greater access to company research and the ability to rebalance portfolios when opportunities shift.
It’s possible to access many managed funds with an investment as low as $500 and there is flexibility to contribute as little or as much as one can afford thereafter. Dividends or bond coupons provide an ongoing income, just like an investment property.
There’s an obvious advantage too, in the short amount of time it takes to buy and sell managed funds (less than 24 hours) compared to the often arduous task of buying and selling a property.
Wellington’s Aisling Freiheit adds that the access managed funds provide to international assets is really important, especially for providing exposure to industries that are sorely lacking in the Australian listed market such as technology or healthcare. BTIM’s Dan Campbell adds that the mix of assets in a portfolio is always likely to be the biggest driver of returns – professional investment managers are experts at selecting the right combination of assets.
Aside from the diversification and risk management benefits of enlisting a professional fund manager to look after investment portfolios, Australian investors get the additional boost of paying less than their global counterparts.
FSC research shows local fees were between 12 and 20 per cent lower across asset classes as compared to the US, UK and Japan.
Younger investors looking to ESG and Impact
Smart fund managers are recognising that younger investors will make up an increasing portion of their client bases.
Some are becoming increasingly focused - just as millennials are - on engaging with companies that consider environmental, social and governance factors.
Fund managers take their role as stewards of Australia’s savings seriously, and assessment of these factors is now fully ingrained in the analysis they carry out in determining a company’s valuation.
Some funds even go one step further - targeting a positive social or environmental impact, as well as positive returns, which is highly appealing for today’s investors.
“As large shareholders we have the ability to engage businesses actively in how they are addressing these factors. It’s about being good corporate citizens,” says Brett Jollie.
“If companies are not demonstrating sustainable practices, if they are not treating their staff well enough or implementing positive environmental policies then, over the longer term - those companies won’t be successful.”
A sustainable future for the sector
Australia’s $2.7 trillion superannuation system has provided the right ecosystem for world-class fund managers to develop and operate in. The onus is now on the industry to engage with this new client base.
“Understanding how we build our businesses for the customer of the future is something we’re all thinking about,” says Mr Campbell.
“That’s probably something we haven’t done as much of in the past due to the disintermediate nature of the industry. But the next generation isn’t going to seek to invest in the same way.”
The direct-to-consumer market has grown to roughly 11% of the total $2.7 trillion invested with fund managers as distribution frameworks have innovated with the help of technology.
As the millennial investor group becomes more attuned to how fund managers can help them grow their wealth fund, managers and younger investors may find they are the perfect match.