In a new study, “The Millennial Shift: Financial Services and the Digital Generation,” financial research and business intelligence firm Corporate Insight argues the 80 million members of the Millennial generation must be considered in short- and long-term business planning by financial advisers and others in the money management business. It’s a pressing matter, the firm says, considering more than half of the average adviser’s clients are from older generations, between the ages of 50 and 70, suggesting advisers will need to find new clients to prevent shrinkage in assets under management  (see “Advisers Struggle to Gain Young Clients”).

“Generation Y will be a difficult market for the financial services industry to crack,” explains James McGovern, vice president of consulting services at Corporate Insight. “This is a diverse generation that’s struggling with serious financial problems like college debt and underemployment.”

McGovern says his firm’s research shows Millennials put a high value on transparency and are generally wary of financial institutions, particularly when it comes to ambiguous fees or pricing. They also have very high expectations in terms of online and mobile services that many firms do not meet today, he says.

The study identifies key strategic changes that financial services firms will need to embrace if they want to succeed with the Millennial generation, as follows:

• Millennials and mobile tech — Mobile platforms are becoming the primary means of interaction between consumers and banks, Corporate Insight explains. To satisfy young consumers, banks and financial services firms will need to ensure cross-channel consistency across all electronic platforms, providing the same fundamental experience to all users regardless of the point of access. The branch office experience will also need to evolve, shifting the focus as much as possible from transactions towards education programs and recurring guidance.

• Few assets and low risk tolerance — Millennials have limited investable assets and low tolerance for market risk, the study suggests. They feel unprepared to manage their finances, which explains their high interest in financial education and in getting help from financial experts, Corporate Insight says. Yet, while they want guidance, Millennials are also skeptical of the fees that traditional advisers charge. This poses a threat to existing models of investment advice, while at the same time creating opportunities for “hybrid” brokerage firms and start-ups that provide strong online services and low-cost guidance.

• Wage Problems — Millennials and members of Gen Y understand that Social Security won’t be much of a resource to them when they retire, Corporate Insight says, but current financial realities make it difficult for many of them to save more for retirement. To fight this, plan providers must engage young participants through education and online planning tools. At the same time, providers must encourage plan sponsors to embrace features like auto-escalation to improve the chances that younger participants will meet their long-term financial goals.

• Product misconceptions: While Millennials are the youngest generation, they are also one of the most financially conservative and risk-averse, the study shows. In theory, this should give insurers a competitive advantage over other industry segments when it comes to penetrating this market. Unfortunately, Millennials significantly overestimate the cost of many insurance products, while at the same time ignoring the benefits of some forms of insurance altogether. Insurers must overcome these misconceptions through education, advertising and more prominent and effective quote generation tools, Corporate Insight says.

“Millennials are struggling to reach financial maturity, but that doesn’t mean financial institutions can afford to ignore them,” McGovern says. “This is the largest generation in the history of the United States, one that could inherit tremendous wealth from their parents and that should begin to hit its economic stride in the next decade. Established financial services firms must invest now if they plan to capitalize on this opportunity.”

More information on the study and on Corporate Insight is available here.