This article was first published in the fourth-quarter 2015 edition of Personal Finance magazine.

The financial services industry is having to make substantial changes to the way it operates to meet the demands of the “millennial” generation – people born between 1980 and the early part of this century.

Changes are also being driven by the increasing strength of economically active women and the flood of baby boomers – those born in the wake of World War 2, between 1945 and 1964 – reaching retirement.

The millennials have the money to force the change. Heidi Dreyer, a senior fund manager at Prudential Investment Managers, says many millennials are earning substantial incomes, and with the aging of the baby-boomer generation, one of the biggest inter-generational transfers of wealth in human history is beginning to occur.

The baby boomers, however, want to be sure the money they leave to the millennials is properly managed by them and are turning to financial advisers to provide that education.

What is different about the millennials is that they use technology to get much of their information – in the ways they want and when they want it. So greater use must be made of technology to provide them with financial services, Dreyer says.

United States-based financial adviser Rianka Dorsainvil, who is a millennial, says in an article in the September 2015 issue of the Journal of Financial Planning that technology is part of the DNA of a millennial.

“We grew up on the internet, experienced the evolution of cellphones and MP3 players, and are constantly thinking of ways to make our lives more efficient by leveraging technology.

“We are helping firms become more engaged in social media channels such as Facebook, LinkedIn and Twitter to stay connected with clients.

“Millennials are DIY-ers, and without a doubt, they can start down the path of investing on their own, and, in fact, most do,” Dorsainvil says.

Jordan Weir, a junior trader at Citadel, says millennials are showing themselves to be one of “the most dynamic generations born”.

Weir says: “They have embraced the birth of the Information Age. And they have now come of age. With disposable information at their fingertips, millennials are well versed on the history of investing, from Tulip Mania in Holland (1636 to 1637), to the Great Depression (1929 to 1932), Black Monday (October 19, 1987) and, more recently, the infamous 2008 credit crisis. The inquisitive millennials are more informed than ever.

“Fortunately, the millennials bring to the table a new way of thinking, one that is not far removed from senior generations but that builds on the priceless knowledge handed down and adds a different angle of thought. As a result, the millennials are increasingly seeking role models and mentorships from within their own peer- and age-groups. The days of solely looking to older generations for guidance has shifted.”

Dreyer, who was speaking at a conference of the South African Independent Financial Advisors Association, says millennials are driving change in financial planning that will require the financial services industry to adopt new approaches, and this change will be based on the technology to which they were born.

Dreyer says research has shown that millennials:

* Are technology savvy, independent, sceptical and conservative.

* Have a strong sense of familial and social responsibility. For example, they are concerned about the impact their investments will have on the world.

* Take absolutely nothing at face value. Scepticism is in their DNA. They ask a lot of questions.

* Don’t trust financial institutions.

* Have a high preference for referrals for professional financial advice.

* Want an array of financial advice services, including cash-flow planning, financial plan development and advice on retirement.

* Expect services to be increasingly delivered online. They want more frequent contact with financial advisers, but they favour the use of social media, text messaging, email and video conferencing in preference to phone calls and face-to-face meetings.

Dreyer says this demand for automated advisory services is not a passing trend. He says the financial services industry needs to adapt to provide advice and services on their terms using the technology they use.

Low preference for equities

Weir says the wealth habits of millennials are key to understanding the future of investing. He says that, according to two recent research reports, by bankrate.com and Swiss bank UBS, only 26 percent of millennials are investing in equities. Of the portfolios surveyed, the average portfolio held a 52-percent weighting in cash.

“This may sound extremely risk-averse to the modern-day investor, but it actually reflects a very similar mindset to that of the baby-boomer generation. The baby boomers mainly invested in certificates of deposit, bonds and property, rather than stocks,” Weir says.

He says there is, however, a big difference between the baby boomers and the millennials: the millennials tend to invest in projects and businesses aligned with their personal lives and belief systems. This type of investing is known as impact investing, which is defined as investments made into companies, organisations and funds with the intention of generating a measurable, beneficial social or environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and they can target a range of returns, from below- to above-market returns, depending on the circumstances.

Weir says that, as a result of crowd funding (in which the public can invest in projects or contribute to charities via online platforms), private equity and venture capital firms have silently started moving money away from the traditional banking institutions that have, for many years, been the lifeline to corporates and entrepreneurs.

“The attitude of the millennials may actually represent the beginning of the end for the bankers, wealth managers, asset managers and hedge funds of today. That is, unless they adapt,” Weir says.

Dreyer says other significant demographic changes are having an impact on financial services, including the increasing influence of women, the baby-boomer generation reaching retirement and an ageing world population.

Women power

Women are the largest global emerging market, Dreyer says.

She says women:

* Provide 60 percent of college graduates in the US, out-numbering men since 1981, and this trend is occurring internationally. And far more women than men are graduating with science degrees.

* Had, by 2009, out-numbered men in the workforce in the US and are increasingly taking control of companies.

* Control 27 percent of the world’s total wealth (they have created or inherited their own wealth, or manage their spouses’ wealth).

* Will control 75 percent of discretionary spending worldwide by 2028.

* Own one-third of all businesses in the world, of which nearly half are in developing markets.

* Will inherit 70 percent of the wealth passed down over the next two generations.

Yet women are still retiring with two-thirds of the assets of men, but they live six to eight years longer than men, on average.

Dreyer says the financial services industry has do more to provide for the needs of women, and in a way that women require. She quotes Abigail Johnson, the president of Fidelity Investments in the US, who said that “across the board, women are unhappy with our industry”.

Fidelity’s research shows that many women, particularly younger women, lack confidence in their ability to make financial decisions.

Yet, at the same time, women are becoming increasingly powerful in the US economy, controlling more wealth, often out-earning their spouses, and making more retirement decisions.

Dreyer says research has shown that women:

* Ask more questions than men, and they want clear and simple answers.

* Do not necessarily want female advisers, or pink folders, or ladies’ investment products. They want competent, straightforward and good advice and products that secure money and make it grow.

* Are very cost conscious, as most control household income. They demand value for money.

* Worry more than men and are more afraid of managing money. They are more cautious of market risks and tend to keep a lower proportion in equities. They also worry because, living longer than men, they require more savings.

Dreyer says financial advisers have a major role to play in the financial education of women, explaining how to balance risk and rewards.

Baby boomers

Dreyer says this post-World War 2 generation is now heading into retirement, and baby boomers are concerned that they will not have sufficient money to last them through retirement – and most of them have not saved enough in their working years.

However, many do have sufficient money saved, and the millennial generation will benefit from this.

In many countries the problem is exacerbated by the fact that the current working generation pays the pensions of the elderly.

The average age of the world’s population is rising, and retirees are forming a larger and larger portion of the population. The most extreme example is Japan, where, by last year, almost 26 percent of the population was older than 65, and this figure will be 40 percent by 2014. And China will reap the problems of its one-child policy as it sees its percentage of over-65s go from 9.5 to 26.8 percent over the same period.

In South Africa this is not so much of a problem because people save for their own retirement.

Dreyer says that of every R100 you spend in retirement, R23 will come from retirement fund contributions, R35 from pre-retirement investment returns and the balance from post-retirement investment returns. This makes it imperative that baby boomers keep investing intelligently and allocate assets correctly.

Dreyer says about two-thirds of high-net-worth individuals will expect to manage most or all of their wealth digitally in five years and would consider leaving their current financial adviser if this service is not provided.

High-net-worth individuals under the age of 45 are much more inclined to take advantage of automated advice (67 percent) compared with those over 45 (38 percent).