Investment firms must keep up with millennials
Major demographic trends will shape the next 25 years
The emergence of the millennial generation and the impact of artificial intelligence (AI) are two of the major long-term challenges and opportunities facing the investment community over the next few years.
The world is set to witness three important demographic trends that will shape the next 25 years.
First, there is a massive growth in global population to about 9.6 billion from about 7 billion today.
Second, we will see a big growth in the older generations, with those over the age of 65 set to double to 1.3 billion by 2050 while old-age dependency ratios will rise to more than 25 per cent from less than 12 per cent in 2010.
Third, the world will see the growth and impact of millennials as a socio-economic group become meaningful.
Individuals born after 1980 will constitute the largest age demographic in the world at more than 2 billion, versus 1.4 billion Gen Xers and 1.2 billion baby boomers.
By 2020, they'll account for around half of the global workforce - 75 per cent by 2025 - and they'll inherit the largest intergenerational transfer of wealth we've ever seen with more than US$30 trillion of global wealth to be handed down.
Millennials currently make up 58 per cent of the population in Asia and 25 per cent of its workforce.
One of the many consequences of this demographic shift is that millennials' purchasing power is likely to overtake that of baby boomers as soon as next year as many of them begin to reach the peaks of their careers and their earning power.
Millennials are quicker to use new technology than any previous generation. They also see the world differently: They are price-sensitive and nervous about debt, they spend 24 hours a week online, they value experiences over ownership.
Perhaps due to the size of their student loans, and their witnessing of the Global Financial Crisis and the impact it had on their parents' savings, they tend to be financially risk-averse and less trusting.
And yet they are also better team builders, leaning towards co-decision making, equal relationships and cooperation rather than authority rule by a single entity.
A millennial is also better educated than any generation before and that education is spread wider and deeper among social groups than before. Today, for example, the world has a better-educated female population than at any other time in history.
MILLENNIALS CAN'T LIVE WITHOUT INTERNET
The incredible revolution in access to information and globalisation of intelligence is one of the most remarkable developments of the past 30 years.
Artificial Intelligence (AI) expert Ray Kurzweil, an MIT computer scientist and senior executive at Google, expects that US$1,000 will, by 2020, buy the equivalent processing power of one human, and expects computer power will surpass the processing power of all human beings by 2040.
AI will be able to deliver content, offer on-demand customisation and respond to feedback - all with machine learning and using digital interaction with clients rather than in personal meetings.
This "Robo-Advice" is currently small at just 0.01 per cent of the total advice market but it will target a millennial generation that will be worth US$10 trillion in the next few years.
With price-sensitive, digital-minded millennials quick to adopt any new technology, it means the investment world needs to change. And change fast.
Given the millennials' interest in content, technology and lower reliance on the conventional sources of advice with regards to wealth management, the delivery and tailoring of such a new service will be important.
Ultimately, we believe the impact of technology changes are underestimated by most. While it is natural to expect linear shifts in many areas, technology is a field where changes are set to take place on an exponential basis.
We will also witness profound changes in other critical areas: Consumers (and the shifting power of brands), technology (and new computer science applications), energy (the impact of the concept of AI-enabled localisation versus distributed energy), "health-tech", protection from digital warfare, and new forms of finance, to name a few.
The author is chief investment officer at Eastspring Investments. This article was published in The Business Times last Thursday.