Conservative young investors shun advice

Generation Y will present a unique challenge for financial advisers, according to new research that shows young people are more conservative investors than their parents.

Friday, January 31st 2014, 6:00AM

by Niko Kloeten

The research, by investment bank UBS, surveyed more than 4000 American investors, including about 1000 aged 21-36, known as found Generation Y or "millenials".

It found this generation is the most financially conservative since the group that grew up during the Great Depression.

The youngest generation had more than half of its assets in cash (52%), well above the 23% in cash across other age groups, and the recent financial turmoil has been blamed for young investors’ risk aversion.

“Millennials seem to be permanently scarred by the 2008 financial crisis,” said Emily Pachuta, head of investor insights, UBS Wealth Management Americas.

“They have a Depression-era mindset largely because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviours.”

The study also found young investors were sceptical about the merits of financial advice, with only 14% reporting having used a financial adviser for a major financial decision.

“In seeking out a new advice source, they most value experience, trusting the person, and recommendations from friends and family,” the survey said. “Millennials actually worry more than other generations about getting good advice to help reach their financial goals and knowing if they can trust the advice they receive.”

Financial Services Council chief executive Peter Neilson said the results supported the FSC’s own research into investor attitudes in New Zealand.

He said there was a parallel to those who experienced the Christchurch earthquakes buying much higher levels of insurance as a result of the crisis.

“People do respond to current circumstances. Those who have had traumatic financial experiences typically are more conservative afterwards. What we found is people were highly sensitive to adverse events. However, if you told people there were guarantees in place, they were much more comfortable with the risk.”

Neilson said trying to interact with Generation Y was a “real challenge” for advisers, but getting timely financial advice early in life can make a big difference.

“People who make it in life typically establish a savings pattern early on and are very careful with where they put their money.”

Morningstar co-head of fund research Chris Douglas said people were shaped by their more recent memories. “If you think about the last 15 years, we’ve had the tech bubble, the sub-prime crisis, the global financial crisis and you can even go back to the 1998 Asisan crisis. There’s been a huge amount of volatility in the markets.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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