Understanding the Environmental, Social and Governance (ESG) concerns of younger investors and women will be key to encouraging more of them to invest and help them achieve their investment goals, research from the Under 40 Leadership Committee at PIMFA, the trade association for the wealth management, investment services and the investment and financial advice industry, has found.
The Leadership Committee, made up of the next generation of wealth management talent, has spent the last eight months creating primary research in collaboration with Savanta to investigate changing attitudes to investing across the generations and how to promote a culture of saving and investments.
The research found several interesting insights that can be utilised across the profession to encourage more investors into the industry through emerging trends around ESG, the use of technology and social media and improving financial education at a younger age.
Findings from the study showed a significant generational divide in attitudes to ESG investing and that while 81% of people across all generations rate ESG factors as either ‘very important’ or ‘important’ drivers of their investment and other purchasing decisions - there was a significant divide among the generations with 72% of investors aged between 18 and 25 saying all, or part of their existing investments should aim to positively impact the environment or society. This compared with just 29% of those aged between 56 and 75 and 21% of those aged over 75 that said the same. Encouragingly, for those already invested, 93% are interested in further ESG investments. With this group, there was much less difference in the drivers by age demographic, with a range of factors showing various prominence, but with awareness, education, and importantly, advice, being the key routes to promote further investment.
ESG issues were also shown to be more important to women than men when investing, with 86% of women across all generations saying it was a factor in their investment strategy. But while women showed an overwhelming desire for their wealth to provide meaning, there was also a significant gap between men and women with respect to their levels of confidence and knowledge when it comes to investment decisions in general, with 37% of women saying they do not invest in anything, compared with 26% for men.
Women also reported having lower knowledge and confidence around ESG investing and said they were less likely to currently invest than men. This could present an industry opportunity in light of the fact that by 2025, 60% of Britain’s wealth will be in the hands of women.
The report also found that younger people had surprisingly high levels of confidence when investing, but that more of their investments were based on unregulated information that was often obtained through social media. Moreover, 40% of investors aged 18 to 25 held investments in new and highly volatile assets, such as cryptocurrencies. This was in contrast with older UK investors who tended to invest in more traditionally recognised investments, with 43% of investors in the 56 to 75 age range and 60% of investors in the 75+ age range holding their investments in Premium bonds compared to just 19% in the 18 to 25-year-olds.
The research suggests wealth managers and professional advisers need to make greater effort to communicate with younger investors to demonstrate the value of traditional investments and regulated advice. One of the recommendations from the report is that wealth managers and advisers work to develop new methods of reaching younger people through social media channels such as Instagram, TikTok, YouTube and Twitter.
Another recommendation is that wealth managers should consider developing and marketing separate products specifically tailored towards young investors and those without significant sums of money to invest.
The vast majority of respondents to the survey (82%) across all generations, genders and across socio-economic groupings said the most effective time to begin learning about investments and savings was at school – this view was especially prevalent among younger investors. This suggests overwhelming public support for the Government to give greater focus to saving and financial planning by incorporating it into the secondary school curriculum to provide an early understanding of terminology, industry practices and the purpose of saving.
The research found the importance of a tech-enabled offering, facilitated by an easy-to-use app with instant access to investments, has never been greater and should be a priority for wealth management firms. Given the vast number of respondents that are yet to use a dedicated investment app, this suggests there is a significant market capture opportunity for businesses that are willing and able to capitalise.
A low-cost professional advice service was also appealing, and family-based advice remains highly influential across the board, with the research showing that for all age groups, over a third (34%) have taken and acted upon advice from family and friends. This was closely followed by a financial professional (28%) or an employer (28%), the internet (24%) and social media (18%).
Liz Field, Chief Executive of PIMFA, commented: “One of the more pronounced effects of the Covid pandemic was the marked increase in interest in all things Environmental, Social and Governance (ESG) and this has largely formed the basis of our research this year. It also highlights a number of key indicators as to how best to address both the ‘advice gap’ and the stimuli required to get different generational groups investing with confidence.
“Of particular interest is how the five basic generational groups differ in their responses to the Environmental and Social categories of ESG but the report also takes a closer look at the differing behavioural patterns of men and women when it comes to their investment decisions.
“What is clear is wealth management industry has two big opportunities firstly to harness ESG investing as a catalyst to encourage more women to invest and secondly, to use ESG as both an educational and a practical tool to stimulate a much broader culture of savings and investment in the wider market, in turn addressing the ‘advice gap’ which is hampering our industry.
“These are just some of the insights and recommendations to come out of this year’s research, more of which can be found throughout the report. I’d like to thank all of our Under 40 Leadership Committee members for their dedication and hard work, their findings are hugely insightful and will be used to feed into various areas of future strategy and work at PIMFA.”
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