Wednesday, October 23, 2013

The Challenge With Young Investors, Part 1

by: Michael Castro, XBRL Production Manager
CompSci Resources, LLC

A year ago, I had the opportunity to go to the Investment Company Institute General Membership Meeting (ICI GMM) in Washington D.C. While the whole experience taught me quite a bit about the mutual fund industry, what has stuck with me the most was a common theme throughout the entire conference: How do mutual fund managers market their products to the younger generation?

This question really surprised me at the time. To me, financial products such as mutual funds did not seem like the most “marketable” things, and if I were to see an advertisement online or a commercial for it on TV, I probably would not think twice about it. But I guess that’s the point.

Reflecting back on that conference, I began thinking: What is the best way for fund managers to market their products to my generation? I set out to define the biggest problems fund managers face when trying to connect with younger investors. Here are the four biggest challenges I see:


1.  Instant Information—It seems like everything nowadays has a mobile app, and this is especially true for banking institutions. As such, consumers have instant access to their bank account balances anywhere they go. However, with instant access at their fingertips, young investors are able to check it daily, or even hourly. Couple this with the fact that many young people today have grown up with a sense of instant gratification, and it is obvious where the challenges lie; seeing big swings upwards or downwards on a daily basis can make many people panic, and sell or buy on a whim.


2.  Lack of Investable Income—Forbes recently wrote an article detailing the challenge of marketing to Millennials.  In it, it states that two-thirds of Millennials earn less than $50,000 per year, making it very difficult for them to find the capital to invest.  Furthermore, many of those in this generation have lived through two large market crashes (2001 and 2008), and thus tend to be more skeptical of investing. This makes it difficult for fund managers to penetrate this demographic with intangible investment products.


3.  Search Marketing—This much is obvious: most 20-somethings lack the capital to hire financial planners.  With the rise in online discount brokers, investing becomes much more accessible to those with lower incomes.  With that in mind, many young investors turn to Google or other search engines to make investment decisions.  The problem for fund managers is how best to attract investors in this demographic to their products.

4.  Investment Goals—According to the ICI institute, the median investor is aged 51. It is no surprise then that the majority of mutual funds are a part of retirement savings accounts. However, at 25, many investors have very different savings goals, such as buying a house, saving for education, etc. While some at this age do begin their retirement savings, many do not. A lack of investment products on the market for this “younger” generation poses a problem for fund managers who are attempting to win these investors over.

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Click here for part 2 in this two-part series.

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