5 Questions With Michael Ellison
Bill Wreaks recently sat down with Michael Ellison, President of Corporate Insight, Inc. Michael’s company has just finished an important piece of research on the subject of “The Millennial Shift: Financial Services and the Digital Generation”
INTRO With 80 million members, the Millennial generation is the largest in US history. The group's size, coupled with its increasing spending power and social influence, means that Millennials are a huge potential market for financial services firms. However, Millennials' skeptical view of financial institutions and unique digital preferences pose a clear challenge to the industry's traditional marketing strategies and business models. Corporate Insight will highlight how Millennial attitudes/behaviors differ from those of earlier generations, what financial product features Millennials value, which financial brands are effectively targeting this group, what are the most effective ways to use technology to market to and serve these consumers, and how financial firms can use education, “gamification,” social media and other innovations to connect with Millennials.
WREAKS What is “a millennial?” And from a big picture point of view, why do you think that financial services marketers should pay special attention to this generation of financial customer?
ELLISON In simplest terms, Millennials are those individuals born between 1980 and 2000. They are the largest generation in the history of the U.S. at more than 80 million people and they are also the most ethnically diverse generation. They also possess over $200 billion in direct spending capacity and their collective annual income will exceed Baby Boomers by 2018 when they begin to enter their peak earning years. The sheer size of this group alone should put them on the radar of financial marketers, but they will represent unique challenges to marketers, which will require unique solutions.
Millennials are skeptical of financial services firms. Indeed, they’ve been through two market corrections as well as a major housing bust; and their debt load from student loans means it takes them 4 years longer to achieve a median-wage annual income of $42K compared to those born before 1980. Moreover, they are “digital natives” in that they have been raised alongside the Internet and mobile devices (83% currently own a smartphone and 1 in 5 access the internet solely through their phones). So marketers will not only need to craft a unique message that resonates with Millennials’ needs, the distribution of the marketing and servicing will need to change to meet how Millennials’ connect to financial firms.
WREAKS What are some of the key differences that you see set this generation apart from previous generations of financial consumers (i.e.: Gen X, Boomers)?
There are a number of key differences with this group versus earlier cohorts, but perhaps the most compelling is how they view themselves financially. They are the most fiscally conservative generation since the Great Depression and they have dramatically higher cash allocations in terms of their investable assets. Indeed, they are more likely to see themselves as “savers” than as “investors.”
Another key differences is one that probably comes readily to mind to most people: Millennials are more technologically savvy than prior generations. A recent Pew study found that almost a quarter (24%) of Millennial respondents cited technology use as the main factor distinguishing them from other generations – by far the most common answer. In particular, mobile adoption is perhaps the defining characteristic of this generation’s technology habits. The big impact here is that they are more open to mobile-friendly alternative banks and brokerages and startups like Wealthfront or Betterment.
WREAKS Media is now two-way, thanks to social media. Millennials have come of age knowing media as being a two-way street. What effect does this 2-way dynamic have on the way that financial firms can (and should) market their products and services to their customers and prospects (today and tomorrow)? What best practice examples come to mind of firms today tapping the 2-way social media power of social media to gain strategic marketing advantage?
ELLISON The biggest impact social media has had is that it has put significantly more power in the hands of the consumer. Social networks allow consumers to tout or complain about a company’s service instantly and to a broad spectrum of people. Companies that mishandle responses can come across as arrogant or having a tin ear. On the upside, this ongoing conversation that consumers are having about brands – positive or negative – provides the opportunity for companies to gather feedback quickly and we have seen major banks use Facebook and Twitter as auxiliary CSR channels. Established social media sites offer their own marketing programs that provide real-time feedback from people on the platform regarding the message content. Social media platforms have a tremendous connection with the Millennial segment – Facebook has a 90% penetration rate into the Millennial market – allowing for financial services firms to reach a huge portion of the young consumer market.
With finances being an especially touchy subject with Millennials, it can be hard for firms to find a voice that connects with this demographic. Using humor to convey a message is one approach that seems to resonate with Millennials. Humor can make a large firm seem more personable and relatable. The difficulty lies in finding a tone that is entertaining but not trivializing. If done properly, humor can make a boring topic more interesting and relevant to Millennials, resulting in a higher chance of sharing a post and reaching a larger audience. Discover’s “Peggy” campaign provides an example of this technique. Though Discover is no longer using it, one of the more memorable and effective social media marketing strategies was its “Peggy” campaign. The campaign centered around “Peggy,” a customer service representative at a third-rate credit card firm who neglects his customers’ needs and thus pokes fun at the industry’s traditional customer service experience. The Peggy character was endearing and made Discover more approachable, and the firm had individual Facebook and Twitter pages devoted to the Peggy persona.
WREAKS Future transfer of wealth is a concept that not every financial firm has time or resources to devote to today. However, I think you agree that the way in which wealth will inevitably be transferred to this next (millennial) generation should be on every firm’s radar. What should financial marketers be doing TODAY to form relationships with today’s millenials TOMORROW?
ELLISON Millennials stand to inherit several trillion dollars in wealth over the next three decades. Regardless of how fast this gradual transition happens, investment firms need to act now if they want to take advantage of the large, long-term opportunity that Generation Y represents.
Financial advisors that work with Baby Boomers should make a point of meeting their Millennial children now to sow the seeds for a relationship that can survive a transfer of wealth. These Millennials won’t necessarily want the kind of hands-on personal relationship with a financial advisor that their parents have. Many will prefer interacting by SMS, phone, email or video chat in lieu of routine, face-to-face meetings. Advisors will need to embrace these technologies if they want to successfully serve Generation Y. On the positive side, Millennials will likely be less focused on beating the market than earlier generations and more interested in planning for and meeting their financial goals, an attitude advisors should welcome.
Advisors should make a point of meeting one-on-one without the parents around. This will help advisors shed any stigma/perception of just being the “parent’s advisor” (i.e., out of touch and ill-equipped for working with a young client) and will allow them to demonstrate how they will approach the young investor’s unique situation. Many firms that are having success with Millennials are offering these types of free consultations where they get a holistic view of the young individual’s situation and discuss ways to address their financial goals/issues. It’s also a great opportunity to show off your technology platform and savvy – leading RIA’s we spoke with all talked about how they often use iPads during these consultations.
WREAKS Are there certain kinds of firms that are particularly well-suited right now to satisfy the financial services needs of millennials tomorrow? Who are they? What are they doing right?
ELLISON Any firm can be well-suited to satisfy the financial needs of Millennials. The key is they make the choice to do so. By using technology wisely to educate and engage Millennials, by being willing to take a long-term perspective on them and recognizing that Millennials might not be profitable clients overnight, and by understanding they have a lot of sway among peers and parents, successful firms will make the necessary adjustments to the businesses to capture this market.
That said, a number of firms are doing things well, which we capture in our report The Millennial Shift. One group that stands out are the, in my opinion, ill-named “robo-advisors”. We prefer to call them the NextGen Investment companies and are those firms that use technology to simplify the investing process and provide a platform that is easy to use and is much more cost effective. Firms like SigFig, Betterment, FutureAdvisor and others are good examples here.
Schwab provides a good example of a mainstream financial firm offering a good product for Millennials. Charles Schwab Bank’s High Yield Investor Checking Account offers no-fee checking with no account minimum, fee rebates for all ATM transactions and the opportunity to earn interest on one’s checking account. This no-nuisance fee approach and the firm’s strong mobile capabilities make Schwab Bank a very appealing offering to Millennials. And when customers open a Schwab checking account, they also automatically open a Schwab brokerage account. This investment account has no minimum and no low-balance fees. It’s linked to the deposit account and the firm allows for easy online transfers between the two. This approach enables Schwab to position itself as the logical choice for bank customers when the time comes for them to begin investing.
Michael Ellison, CEO, Corporate Insight
Bill Wreaks, CEO & Chief Analyst, Gramercy Institute