The Markets October 18, 2016

Millennials Increasingly Saving for Retirement in Mutual Funds

Among mutual fund–owning households, more households headed by Millennials than Baby Boomer households held their funds only through employer-sponsored retirement plans, the Investment Company Institute found.
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Millennials are increasingly saving for retirement through mutual funds, underscoring the role that workplace retirement plans can play as gateways to mutual fund investing, according to a study by the Investment Company Institute (ICI).

The survey found that mutual fund–owning households headed by Millennials made their first mutual fund purchases at an earlier age than Baby Boomer households. Furthermore, the firm found that among mutual fund–owning households, more households headed by Millennials (45%) than Baby Boomer households (34%) held their funds only through employer-sponsored retirement plans.

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Among mutual fund–owning households that purchased their first mutual fund in 2010 or later, 71% purchased the fund through a workplace retirement plan, compared with 56% of those that made their first purchase before 1990.

“Our 2016 household survey shows that savers across all generations continue to rely on mutual funds to meet their financial goals,” says Sarah Holden, ICI senior director of retirement and investor research. “Among the millions of households headed by Millennials, for example, more than one-third owned mutual funds and they have been buying mutual funds at a younger age than preceding generations. Millennials typically are engaged in mutual fund investing through their employers’ retirement plans, a popular entry point for mutual fund ownership.”

The ICI survey also revealed that each successive generation began mutual fund investing at an earlier age. The median age at which households headed by adult Millennials (born between 1981 and 1998) first purchased mutual funds was 23. The median age for first time mutual fund owners for households headed by a member of Generation X (born between 1965 and 1980) was 27, while Baby Boomers (born between 1946 and 1964) were in their thirties when they made their first mutual fund purchase.

NEXT: Baby Boomers Largest Group of Mutual Fund Owners

According to the survey, Baby Boomers account for the largest group of mutual fund owners. Nearly half of the more than 43 million U.S. households headed by a Baby Boomer owned mutual funds, and their mutual fund holdings accounted for half of total U.S. households’ mutual fund assets in mid-2016.  

More than 44% of U.S. households owned shares of U.S.-registered investment companies—including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts—representing an estimated 56 million households and about 96 million investors. Mutual funds were the most common type of investment owned, with about 55 million U.S. households, or nearly 44%, owning mutual funds in mid-2016.

The ICI also reported that three times as many U.S. households owned mutual funds through tax-deferred accounts as owned mutual funds outside such accounts. Almost all mutual fund–owning households (92%) were focused on retirement saving as one of their financial goals.

The majority of U.S. mutual fund shareholders had moderate or lower household incomes and were in their peak earning and saving years, the survey found. Fifty-one percent of U.S. households owning mutual funds had incomes less than $100,000, and individuals between the ages of 35 and 64 headed 63% of mutual fund–owning households.

The survey also revealed a few key insights about mutual fund owners’ demographics including their high rate of Internet access at 92%, and the variation in their willingness to take financial risk over time and across age groups. 

These findings are from a survey published through two different studies “Ownership of Mutual Funds, Shareholder Sentiment, and Use ofthe Internet, 2016” and “Characteristics of Mutual Fund Investors, 2016.

In Practice October 18, 2016

Presentation Matters With Millennial Investors

A new study finds that just 11% of Millennial retirement plan participants feel comfortable managing their investments themselves—yet many in the generation hesitate to pursue advice. 
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The financial services industry is increasingly focused on winning Millennial customers, but most firms still fail to deliver an experience that will resonate with the generation, according to a study released by Corporate Insight.

According to the study, banks, brokerages, credit card issuers, insurers and retirement plan providers are all changing fundamental aspects of their marketing, products and service models “to capitalize on the Millennial opportunity.”

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At a high level, Millennials put a substantially higher rating on the importance of financial education from their bank, retirement plan provider and brokerage firm compared with older generations. Further, the study finds that Millennials are the generation most likely to interact with their providers exclusively via a mobile app rather than through a website alone.

One common misconception, the research warns, is that Millennial’s willingness to embrace technology means they are automatically disinterested in traditional high-touch service from advisers, banks, credit card companies, etc. Overall, half of Millennial investors say they prefer to rely on the guidance of a broker or adviser rather than trusting their own investing decisions, for example. 

“To succeed with Millennials, firms must recognize and respond to their need for financial education and guidance, and their demand for mobile account access,” says James McGovern, vice president of consulting services at Corporate Insight. “Flexible pricing and products, a socially conscious corporate philosophy, and all-around transparency are also important elements of an effective Millennial-focused value proposition.”

NEXT: Learning from other providers 

The research suggests different providers across industry channels can learn from the others’ approaches to meeting the needs/preferences of Millennial clients. For example, banks stand out because they “continue to invest heavily in their mobile experience, recognizing that this is the key channel for engaging Millennials.” Credit card issuers, on the other hand, are finding success integrating credit scores, spending analysis and other capabilities into their digital offerings to target younger consumers.

“Property and casualty insurers are experimenting with new product design and pricing strategies to accommodate Millennials' preferences and budgets,” the research explains. “Life insurers are offering simplified, digital applications to make it easier for Millennials to purchase policies.”

In the wealth management and defined contribution investing domains, Corporate Insight anticipates continued momentum for low-cost digital advice offerings that “connect with Millennials and defend [providers] against fin-tech startups targeting them.”

“DC plan providers have made significant improvements to their mobile offerings but may be missing the mark by focusing on mobile-optimized and responsive designed sites rather than native apps,” the research warns.

Information on obtaining Corporate Insight research, including “Millennials Revisited: Financial Services and the Digital Generation,” is available here. 

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