UHNW Millennials and Impact Investing

 

Impact investing covers a broad spectrum of financial offerings, from Environmental, Social and Governance (ESG) screened securities, to donor-advised-funds, to angel investing. While the current impact investing market is growing - with more than one out of every six dollars under professional management in the U.S. invested according to sustainable, responsible and impact investing strategies - this number is expected to exponentially increase in the near future.*

We are on the verge of history’s largest transfer of wealth between generations. According to Boston College’s Center on Wealth and Philanthropy, an estimated $59 trillion will be transferred generationally in the U.S. between 2007 and 2061.** As younger generations take control of this wealth, impact investing will continue to grow in prominence, as suggested by the recent publication of several millennial-focused financial studies and reports.

Proving Worth, one such study conducted by OppenheimerFunds, focused on answering several core questions concerning the world's (soon-to-be) wealthiest generation: 1) what ultra-high net worth (UHNW) millennials value most, 2) how wealthy millennials influence family decisions, and 3) what UHNW millennials want from a financial advisor.

Millennials are dreamers and doers - they not only seek to make the world a better place, but also pursue activities that positively impact the world around them, be it philanthropy or value-based investments. It should come as no surprise then that “ninety-six percent of UHNW millennials who participated in the [OppenheimerFunds] study were interested, or very interested, in philanthropy. A respective 70% and 64% were interested, or very interested, in socially responsible investing (SRI) and impact investing.”***

So, what do millennials value most when evaluating the impact of their philanthropic or investing efforts? According to Proving Worth, rather than focusing on the “feel good” factors, millennials are instead results-driven and look to the long-term. “When assessing different approaches, 96% of participants identified long-term returns as important/very important, while a respective 95% and 91% ranked accountability and sustainability as important/very important.”***

As for millennials’ preferred areas of interest for impact investing, it comes down to basic human rights: education, gender equality, economic justice, water and the environment. Now, in terms of deciding which of the aforementioned areas to pursue, it seems that family and parents still have a considerable influence.

Millennials, both from the Proving Worth study and RENEW’s own Impact Angel Network, have noted the influence of parents and grandparents in shaping their viewpoints on the importance of preserving wealth and creating a positive legacy. Impact investing has therefore become a natural segue from the traditional charity of older generations, by combining the family values instilled in millennials at a young age with what they in turn value most - results and sustainability.

That being said, millennials are not yet making the key decisions regarding their family’s wealth and investment strategies. While 59% are a committee or board member for their family’s wealth management, “only 18% of the study’s respondents make strategic decisions for their family’s overall wealth management.”*** The reason? Millennials lead extremely active lives that are typically centered on their careers. They are more likely to pursue their own interests before becoming heavily involved the family finances. It won’t be long though until millennials are running the portfolios of today, wherein we will see a dramatic shift towards impact investing.

Millennials are some of the world’s most technologically driven individuals. So, when looking for sources of information on impact investing, many would naturally assume they would turn to social media or the Internet. Instead, topping the list of the most trusted sources of information are family, research, professional colleagues, business contacts, and advisors. According to the Proving Worth study UHNW millennials view advisors as “a source of knowledge and advice”, especially when a personal relationship has been established and the advisor demonstrates an understanding of their family and wealth goals.***

The flip side to this coin is that the study also revealed “there is a considerable disconnect between the services millennials want from their advisors and the offerings that are currently available.”*** Millennials are looking for advisors who focus on wealth transfer and deal generation. They are not interested in cookie cutter financial solutions. Rather, as expressed by several participants in the study, millennials seek customized and high-touch financial solutions, a framework within which they can test out their ideas, and a partner that helps educate and develop said frameworks. Financial advisors and wealth management firms of today will need to quickly evolve in order to retain the assets of families that will soon be run by this next generation.

RENEW recommends millennials work with their families and with their wealth managers to create an impact investment plan that all generations are part of building. Follow this LINK for guided steps on how to get the process started.