Firms turn their gaze to next-gen investors

25 July 2023
| By Rhea Nath |
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In a nod to the growing cohort of tech-savvy young investors with their own unique financial goals, Australian firms are increasingly finding new solutions to cater to this new clientele.   

A number of firms have embraced digital solutions, such as digital advice, and even white label digital investments solutions to curate diversified, ready-made portfolios for the average young investor.

According to the latest ASX Investor Study, the 25–49-year-old cohort makes up almost half (49 per cent) of the Australian investor population. The 18–24-year-old cohort comprises just shy of 10 per cent. 

Of these younger investors, more than half (63 per cent) have only started investing in the last two years, particularly through the pandemic as their savings were boosted by decreased spending on entertainment and travel. 

These young active investors display a strong degree of engagement with their portfolios, the study found, with 53 per cent reviewing them at least weekly (compared to 42 per cent of investors in total).

This watchful eye on portfolios could suggest these investors are still going through the motions and learning the investment process, the study said. 

“It may also be [that] they want to be on top of what’s happening, potentially with an eye to cash out if they suffer losses, given this is the chief reason some in this age group decided to stop investing in the last 12 months.

However, unlike older investors, they have time to make up any losses,” the report stated.

Moreover, the country is primed for a massive intergenerational wealth transfer in the next two decades, with research by the Productivity Commission noting that about $3.5 trillion in assets will likely change hands in Australia alone by 2050. Younger investors, who currently only have small portfolios, may be flush with cash in the future and be an attractive demographic. 

Firms launching digital solutions

Brad Seymour, chief operating officer of Sydney-based Peak Investment Partners, said the firm has experienced increased demand for digital solutions as it continues to evolve the business.

Peak Invest, launched in November 2022 in partnership with fintech investment platform OpenInvest, offers the choice of three investment portfolios across Australian equities, global equities and emerging companies for a minimum investment of $10,000. 

It allows investors to decide which portfolio style and risk suits them best, while Peak Investment Partners handles the portfolio composition and asset allocation. 

“Our firm is approaching its 20th year and has been built on wholesale clientele, yet as our clients consider wealth transfer, a digital solution must be a viable option,” he told Money Management.

Reiterating the firm’s focus on its high-net-worth wholesale clients, Seymour describes Peak Invest as a low-cost digital solution “which can service retail clients if needed”.

Open Invest has over 30 such partnerships, including stockbrokers Shaw and Partners and Wentworth Securities, and advice firms like Collins House, FMD Financial and Spark Financial.

Speaking to Money Management, OpenInvest CEO Andrew Varlamos said a key target for firms that use OpenInvest’s technology are younger consumers.

“Rather than turn people away, especially young people, by telling them to work hard and come back when they are wealthy, firms can offer them a low-cost online solution,” he said.

“Someone might set up an account with $5,000 and through providing them with a regular feed of content, the firm is providing them with financial literacy, teaching them good habits about investing
and showcasing their services.

“As their wealth grows, perhaps thanks to the transfer of intergenerational wealth, the argument is [that] the firm will become the logical entity to help them. It’s about who was looking after them before they were wealthy, who provided that solution and there is that sense of loyalty. People will remember who helped them.” 

Andrew Coloretti, CIO and director of national dealer group Spark Financial, agrees that its own direct solution, Spark Invest, which offers five investment options across income, balanced, growth, high growth and ESG, fills in the gaps of its current model.

The firm has some 80 financial advisers within its network, who collectively manage more than $1.5 billion in funds under management.

“We’ve been quite digitally engaged, even pre-COVID, and were quite savvy around engaging our adviser network in a hybrid way. Now we have a really powerful hybrid-type model in terms of connectivity and authenticity,” Coloretti said.

“For us to embark on a direct solution, given most of the network is autonomous with their own investment programs, it was about providing a solution that was not part of, or was light, in their current offerings.”

Launched in April this year, Spark’s solution requires a minimum investment of $5,000 and is actively managed by the group’s investment committee. All profits feed into Spark Financial’s profit-for-purpose program, which commenced on 1 July 2023, donating 100 per cent of its profits to nominated charity partners. 

With this, it will provide several mechanisms allowing its advisers to participate in initiatives that positively impact their local communities and drive meaningful change, including those relating to financial hardship, financial abuse and mental health issues.

Coloretti explains the new model has the added benefit of being able to assist young and vulnerable Australians in being better informed about where and how to invest.

“For us, it’s about walking the talk. With a young cohort that is digitally engaged, Spark Invest feels like a natural fit for us to engage, communicate and educate,” he explained.

Digital options for super

It is not limited to financial advice firms either with Verve Super, Australia’s first superannuation fund tailored for women, announcing the release of its ethical investment app with three curated portfolios specifically tailored around the needs and desires of women investors. 

Already managing some $200 million in funds for more than 6,000 members, the super fund said the launch of the investment app is a “logical next step”.

“Virtually every day women were asking us when they could invest with Verve outside of super, so we knew there was huge demand,” explained founder and chief executive, Christina Hobbs. 

The app offers fixed income, high growth and balanced options, and invests some 20 per cent of each portfolio in climate solutions. 

According to the firm, not only is this inspiring for many new investors, but the inclusion of non-listed investments also increases diversification and can decrease risk, which has been highlighted as an important feature for women investors by Verve’s own survey of over 500 women. 

Hobbs describes the app as “super simple to use but sophisticated behind the scenes”. 

One particularly attractive feature of the Verve app is the minimum investment is just $1 which is helpful for those who fear they need large balances to start investing. Also, it does not charge account and investment management fees for balances under $1,000 to prevent small balances from being eroded by fees.

The latest ASX Investor Study reported some 21 per cent of young investors perceive they would need a lot of money to start investing. Almost half (42 per cent) said they were not investing due to a lack of funds. 

Prohibitive costs of acquisition  

However, while the younger audience may be an attractive option, Ignition Advice’s global head of strategy and corporate services, Andrew Baker, observes that so far, the cost of serving the younger segment has been prohibitive relative to its revenues.

This is particularly the case if, like Verve, they are offering a low minimum investment which is far smaller than their full advice counterpart.

“Historically they’ve been harder to acquire and they tend to be smaller, so the revenue they produce is smaller. It’s been very hard to make the numbers add up,” Baker told Money Management.

“So, if you want to serve younger investors, then doing so at scale at low cost is essential as a prerequisite. And to do that, you will need to bring digital advice into this to make it work.”

Reflecting on the firm’s own experience, he believes all age segments are open to serving their needs digitally.

Additionally, irrespective of age and assets, they all display a preference for a human involved when it comes to more significant pieces of advice.

This echoes findings by Vanguard which found the majority of advised clients are disinterested in fully digital advice. They sought automation for portfolio services but appreciated the emotional support of a human when it came to making the final decision.

Its survey of over 1,500 advised clients found the majority believe a human adviser would be empathetic to their personal situation (75 per cent), make them feel like their retirement goals were understood (73 per cent), and develop a meaningful connection (76 per cent).

Baker added: “We can definitely agree that financial advice is coming more slowly to digital than other industries, but if you look at the impact digital has had on other parts of financial services, including the parts younger demographics engage with, many of those have been revolutionised by digital technology.”

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