How to Lure Millennials
Gen Y investors pose some interesting challenges to the financial services industry, and some firms may find they need to adapt to serve these clients, a study released at the end of April found.
In “The Millennial Shift: Financial Services and the Digital Generation,” Corporate Insight highlighted how millennials’ attitudes and behaviors affect the way the financial services industry appeals to them. It laid out the specific challenges for banks/credit unions, investment firms, retirement plan providers and insurers and gave tips for these sectors to appeal to young clients.
“Generation Y will be a difficult market for the financial services industry to crack,” James McGovern, vice president of consulting services at Corporate Insight, said in a statement. “This is a diverse generation that’s struggling with serious financial problems like college debt and underemployment.”
McGovern noted that millennials put a high value on transparency and aren’t always trustful of financial institutions. They may also expect more online and mobile services than firms currently offer, he said.
Furthermore, millennials aren’t under any misconceptions about why financial services firms are in business — to make a profit — and Corporate Insight noted that motive isn’t a “barrier to entering a relationship with a financial institution. What is a barrier is any perceived attempt to take advantage of consumers by hiding fees or upselling them on products or services they don’t need.”
Following are strategies that four different types of financial institutions can use to help reach milliennial clients.
Read more: Credit unions should get mobile ...
Millennials are far more likely to interact with their bank through a mobile platform than in person, Corporate Insight found. Banks and credit unions will need to make sure their customers and members can access their account regardless of the device or platform they are using.
Gen Y bank customers also want simple, free checking and, failing that, they want to know what they’re paying for.
“Banks are notorious for nuisance fees, charging customers for actions outside of their control (e.g., receiving a wire transfer),” the paper noted, suggesting that banks and credit unions be very clear about what they charge.
According to the Millennial Disruption Index, the four biggest banks were among the 10 least-loved by millennials, and about a third even said they don’t think they’ll need a bank in the future.
However, Corporate Insight referred to a survey by UBS that found Gen Y consumers see themselves as savers more than investors, which gives retail financial institutions an edge over investment firms when it comes to securing younger consumers as customers.
Read more: Breaking psychological investment barriers ...
Speaking of investment firms, Corporate Insight concluded that where millennials are concerned, this segment “faces perhaps the biggest challenge of any financial services industry segment covered in this study.”
Various studies have found millennial investors tend to be conservative, calling them everything from a “lost generation” to “scarred” investors. In addition to being risk averse, they doubt Social Security will be much help to them when they get to retirement, yet many aren’t saving enough.
Firms should focus on “breaking down the psychological barriers that exist between millennials and the financial markets,” according to the report. They may be far away from the level of assets many firms are used to dealing with, but Corporate Insight noted they stand to inherit a few trillion dollars over the next 30 years.
The report found that millennials want guidance, but cost is a major factor for cash-strapped consumers. Hybrid firms that offer easy access to guidance, relatively low-cost managed accounts and strong mobile and online services can serve Gen Y investors well.
Read more: Retirement relationships are low-tech ...
As noted earlier, few millennials are saving enough for retirement and even fewer actually know how much they should be saving. Although retirement plan providers already have “millions of millennial customers,” Corporate Insight noted those relationships are usually with an employer rather than the millennial.
The report found that despite millennials being generally regarded as highly focused on technology — “tech-savvy” and “digital natives” were the two most common terms used to describe millennials in the report — plan providers are worse than banks and online brokerages for website design, navigation, functionality and overall user experience.
Mobile is another area plan providers are failing millennial customers. Corporate Insight noted that most major providers do offer apps for Android and iPhone, but they usually only provide basic account information; few allow users to make transactions that way.
Read more: Women as primary household breadwinners ...
It’s a tough road for insurers trying to get new business from debt-ridden millennial investors with little disposable income. Corporate Insight suggested property and life insurers take a cue from auto insurers — which haven’t struggled as much to win young consumers as drivers are required by law in many states to have auto coverage — and offer quote tools to quickly show young consumers the cost of a renter's or term-life policy.
The report also suggested that this segment stands to gain the most from targeted marketing strategies that take into account the fact that women are more likely to be primary breadwinners for households in this generation than older ones.
Simple demographics are another challenge, though. Millennials are delaying home buying and starting families.
Originally published on ThinkAdvisor. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.