The recently released Intergenerational Report shows the implications of an ageing population with rising health costs and fewer taxpayers by 2060.
Receiving less focus in that report was analysis of the financial power shifting to ‘Millennials’, the recipients of a $3.5 billion wealth transfer from the ‘Baby Boomers’. By 2030, Millennials will earn two out of every three dollars in Australia(1), and will set the tone of later decades in the way Baby Boomers set the tone of the 2020s and decades prior.
Consumers are seizing on record low interest rates to take out a mortgage, invest in shares, start a business or reconfigure work arrangements to support their goals and adapting to changed work patterns, digitisation and higher earning potential. ‘Online communities’ are generating a new type of investor, with live chat apps moving beyond trading apps or ETFs before the parts of the advice landscape occupied by artificial intelligence or machine-based learning are analysed. And while previous generations have made and spent money, consumers last year saved $200 billion and 2.5 million consumers began investing for the first time(2). Crucially, a quarter of new investors were aged between 18 and 24.
Financial advice is, for the most part, facilitating this change. Time will tell what the true economic impact of COVID-19 will have not just on the decisions that consumers make, but how they arrive at those decisions. Confronting the need to lock in the benefits of a world of competition, freedom, and innovation they were born into, Millennials will inherit statistically more wealth and with that, more risk. Informed financial decisions can be the difference in reaping those benefits or wearing the risks before it is too late.
However, a generation inheriting statistically higher levels of wealth than their parents but who have arguably a harder job at making it themselves, are not necessarily more financially literate. Access to information does not equate to being informed, or having sufficient time or focus to invest or be advised. For example, only 35 per cent of Australians aged 25-34 consider themselves ‘well informed’(3) when it comes to their superannuation. Two in three reportedly cannot name the age at which they will be able to access their super fund. This is despite the fact for many retiring in coming decades a good number will have for the first time in our history, two significant assets – their home and their super fund.
The financial advice industry should be primed to step to the fore in this era, however costly compliance is driving advisers from the frontline to the back office. The threat and allure of unlicensed, online advice, or misleading information, is best combatted through sound regulation of professional advice which is both competitive and affordable.
The FSC is committed to removing regulatory hurdles holding Millennials, and indeed all generations back from seeking basic advice on super, life insurance, and investments so that the decisions they make are professionally informed. It’s why we cannot accept an advice process that is primarily driven by checklists and compliance which drives up cost, eroding the strategic value advice offers consumers, and the number of professional financial advisers there are to deliver that.
The FSC’s White Paper will set out the plan our members have for removing those hurdles when it is released later this year.
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(1) Macquarie
(2) Australian Stock Exchange’s Investor study
(3) International Centre for Finance and Regulation
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