Millennials skip the middleman in financial planning

Rather than pay a financial adviser a hefty commission, those born between 1980 and 2000 are figuring it out for themselves – only natural for a tech-savvy group stung by the recession. But are they missing out on sound advice?

Like many millennials, Dubai resident Rhiannon Davies prefers to manage her investments herself. Satish Kumar / The National

Rhiannon Davies has a problem with financial advisers. In fact, she has a couple.

She doesn’t like them. And she can’t shake them.

After more than a year of telling them she is not interested in their services, they keep on calling. Worse still, they have even visited her at work.

“I have had a financial adviser who has not only bombarded me with phone calls, but has also invited themselves to my office,” says Ms Davies, 34, a lawyer working in Dubai.

“It is not the way I would try to get a client. But obviously that must work if that’s what they are doing.”

Ms Davies, who is from the UK, is not alone in her distaste for financial advisers. In fact, she is typical of her generation.

She is a millennial, one of the largest generations in history, who were born between 1980 and 2000. Study after study has shown that they do not trust fin­ancial planners and prefer to use technology to help manage and monitor their investments. A study of millennials in June by Facebook, for example, found that just 8 per cent of them trust fin­ancial institutions.

And a survey last year by Chicago-based Spectrem Group, which studies investor behaviour, found that a quarter of millennials do not use a financial adviser to manage their long-term savings. A significant portion – 40 per cent – said they will probably turn to a robo-adviser in the near future.

“I personally just feel that fin­ancial advisers use your money to make a commission. They are using your money to make money for themselves; that’s where my wariness stems from,” says a 29-year-old Abu Dhabi resident from New Zealand, who prefers not to be named.

She and her husband make financial decisions without the help of advisers and monitor them online, mainly via mobile apps.

“My husband is British. I am Kiwi. We were in Singapore for six years, so generally our banks are globally distributed. For us it is just ease,” she says, adding that she is not worried about the security of the sites. “They employ people to ensure the secur­ity of your money,” she adds, displaying an attitude to managing her money that is textbook millennial.

Older generations are more likely to be sceptical of a bank’s ability to ensure the security of online and mobile apps – in the same way they tend to be more wary of the security of online shopping – but this kind of trust is typical for millennials. They grew up with technology so they feel comfortable using mobile apps and online banking sites.

“They trust the bank or platform to provide this service in a sec­ure way. They expect to be able to monitor everything online and if a bank doesn’t provide that they are going to lose a lot of millennial customers,” says Steve Cronin, 38, the founder of Wealth, Investment and Saving for Expats (Wise), an independent community providing financial education and support in the UAE.

“I don’t think the traditional model of the grey-haired uncle character advising us on our fin­ances necessarily resonates with millennials. They would be just as happy, if not more happy, to use technology,” he says.

Mr Cronin says there are some great robo-advising sites such as Wealthfront, but it is not available outside the US because of strict anti-money laundering rules. In fact, very few financial technology, or fintech, solutions are available here in the UAE.

“The fintech solutions you might see are for transferring money like TransferWise and Revolut and things like that,” he says.

But banks here are at least trying to cater to millennials.

There are about 37 banking apps available in the UAE from about 54 banks, according to Abdirizak Ibrahim Salah, a co-founder of Trriple, a UAE-based digital payments start-up, which has studied the market.

“The majority cater to mobile banking, but it is an extension of what was being provided by online banking, rather than addressing the needs of the [users]. That’s what we found,” he says.

But some go further. The maj­ority of Mashreq’s customers, at about 50 per cent, are below the age of 36, so it knows how important the demographic is.

Pankaj Kundra, the bank’s head of payments, says Mashreq has introduced a number of “pio­neering solutions” that cater specifically to millennials, such as a Tap n Go mobile payment solution that converts any mobile phone into a credit card to make instant and secure payments.

Not to be outdone, Abu Dhabi Islamic Bank (ADIB) has just announced a partnership with the German fintech financial institution, Fidor Bank, to launch the region’s first community-based digital bank – a platform specifically designed to appeal to millennials. Petr Klimes, ADIB’s head of marketing, says the bank plans to create an online community of customers and non customers who can discuss their financial needs and get advice from experts; and work with the community to shape the future of the bank.

“The platform will launch early next year but the bank has already created an initial community called ADIB 100, which is made up of a group of millennials who live here,” he adds.

Features will include basic products, like a savings account and credit card, and a mobile app through which they can be accessed as well as financing available to customers in 60 minutes.

Millennials say they are open to trying new fintech solutions.

And the Google generation also say they are happy to sift through the huge amount of information online about managing theur money themselves. That is not a bad approach, says Christopher Evans, director at the Collinson Group, a global company with an office in ­Dubai that aims to help companies influence and shape consumer behaviour.

“Technology has driven a lot more power and information to the end consumer, so you can very efficiently do quite a lot of research into which are the best programmes and which are the best banking partners to work with, in the same way you can look at which is the cheapest hotel or flight,” he says.

“Suddenly the customer has a huge amount of information at their hand which gives them a lot more ability to work auto­nomously and not be dependent on a physical relationship with a financial adviser they may have relied on in the past.”

Dubai-based Zoe Allen, a 29-year-old interior designer from New Zealand, has never used a financial adviser. In fact, she is wary of them after a friend was stung by a poor investment product.

“It turned out in the end all of her money was basically going to fees. She had committed to a 10-year plan and now she can’t get out of it. It’s all a mess,” she says.

“I don’t want to invest myself in something I don’t understand. I feel you really need to know what you are doing. If you have a little nest egg you have to protect it. You don’t want to risk it.”

Saying that, she has not ruled out using the services of an adviser. And it seems her generation is in need of some advice.

A study by UBS earlier this year found millennials are not confident when it comes to investments. They are also still haunted by the financial crisis.

More than half, 52 per cent, said they regret selling their investments at an inopportune time, either during or after the crisis. And an even higher number, 68 per cent, say they regret not investing more in the equity market or the stock market during the recovery phase.

“And yet on the other hand, they have not learnt lessons to the same extent as other generations have in response to what we went though in 2008-09 and then coming out of that,” says Sameer Aurora, head of client strategy for UBS Wealth Management Americas.

“So millennials, even today, are more likely to time the market and less likely to view buy-and-hold as a good investment approach, for example, which is in contrast to the other generations. If you look at all the ­other generations, including the boomers, they learnt the three key lessons during the crisis were to stay calm, take a long-term view, adopt buy-and-hold and not respond with their gut. Millennials are almost going down the opposite path.”

But why?

A lot of it has to do with the economic environment they graduated into, say experts.

“They graduated into a recession. It was tough to find jobs. They probably had higher levels of student debt which other generations before them didn’t have,” says Julian Vydelingum, a chartered financial planner at AES International in Dubai.

Mr Aurora agrees. In fact, he says it was almost the perfect storm.

“Our belief, having looked at a lot of millennial research, is that environment and the time during which they came of age has much to do with their thinking, attitude and beliefs today.”

That makes them more in need of financial advice than perhaps any other previous generation. But the question remains: what is needed for them to take it?

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