Washington -- As a younger generation of investors begins to grapple with planning for retirement, advisors and the fund companies that populate IRAs, 401(k)s and other plans should take note of the distinct concerns that millennials bring with them as they weigh their financial picture, industry executives say.

In a panel discussion at the recent Investment Company Institute's general membership meeting, officials from leading financial houses outlined some of the contours of the millennial generation, the cohort that cuts off at the age of 34.

"The approach to take with the younger generation and the mid-career professionals is quite different," says Kara Hoogensen, managing director of product development at Boston-based Principal Funds.


To be sure, any consideration of generational traits runs along general lines. But in the case of the millennials, their experience with the financial sector includes the unifying themes of volatility, crisis and scandal.

Taken together, events such as the dot-com collapse, the fall of the likes of Enron and WorldCom, the housing bubble and the crisis of 2008 have amounted to an "economic post-traumatic stress disorder," says Simon Mendelson, managing director and the head of product management and development in the Americas at Deutsche Asset & Wealth Management.

So it's no surprise, then, that millennials tend to approach the financial sector with suspicion, and many have very little appetite for risk in their investments, according to Omar Aguilar, senior vice president and chief investment officer at Charles Schwab Investment Management, who calls the millennials a "very different class" of investors. "Most of them are very conservative," Aguilar says. "They're more risk-averse than the traditional investor that we have in the U.S."

Hoogensen argues that the most crucial piece of advice that the younger generation can receive is, quite simply, to save. "It's not the product itself. It's not the investment return. It's not the asset allocation that will help someone achieve their retirement goals," she says. "It's saving itself."

She favors workplace policies that make contributing to a retirement plan automatic, if not compulsory, and also encourages employer-matching programs that incentivize higher contribution rates.

More than half of all 401(k) contributions will go into target-date funds, research firm Cerulli Associates estimates, and projects target-date funds will hit $2 trillion by 2019, gathering 88% of all 401(k) contributions.


The panelists also suggest that a complex and fast-changing set of global market conditions argues for advisors and fund companies to recalibrate their investment strategy, though they note that expanding a firm's operations into foreign markets invites new regulatory challenges.

"I think what we need to do is help our clients look globally for opportunities," Mendelson says, citing what he calls a "home-market bias."

"We are way overweight in home markets," he says. "People need to look globally, but people for some reason are afraid to." Mendelson suggests that some of that anxiety might trace to concerns about the health of foreign currencies, or perhaps to more general anxieties about market stability and geopolitical conditions.

He and other panelists also note the forbidding challenges that arise with regulatory environments that vary widely from one country to another.

"We are under the sight of lots and lots of global regulators," he says. "One of the challenges is a massive regulatory complexity."

On the domestic regulatory front, another wrinkle comes courtesy of the Department of Labor, which has advanced a proposed rule that would impose fiduciary requirements on advisors working with retirement plans and individuals planning for their post-work years.

The panelists stopped short of expressing outright criticism of the proposal, though they caution that the rules, in setting a stricter fiduciary standard, could have the adverse effect of limiting the resources firms could make available to lower-income investors, such as advisors or phone-based sales representatives.

"As an industry, anything that can support long-term savings, investor education and access to the retirement system is a good thing," Hoogensen says. "The challenge comes in the potential for the unintended consequences of regulation which could have the potential of harming the exact people that it's set out actually try to help." 

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