TIAA-CREF Asset Management Attracting Millennials · Understanding the Millennial mindset For...

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TIAA-CREF Asset Management Attracting Millennials How to appeal to America’s largest generation of workers. Practice Management | Value-Add Programs

Transcript of TIAA-CREF Asset Management Attracting Millennials · Understanding the Millennial mindset For...

Page 1: TIAA-CREF Asset Management Attracting Millennials · Understanding the Millennial mindset For years, plan sponsors and retirement specialists have wondered what kind of impact Millennials

TIAA-CREF Asset Management

Attracting MillennialsHow to appeal to America’s largest generation of workers.

Practice Management | Value-Add Programs

Page 2: TIAA-CREF Asset Management Attracting Millennials · Understanding the Millennial mindset For years, plan sponsors and retirement specialists have wondered what kind of impact Millennials

Understanding the Millennial mindsetFor years, plan sponsors and retirement specialists have wondered what kind of impact Millennials would have on the workplace. The time for speculation is over. Millennials have already arrived in overwhelming numbers at companies throughout the country. Discover the key ways this generation differs and gain valuable insights into how they think about the world, their work and their finances.

Table of ContentsWhy Millennials matter so much ............ 1

Socialized to care ................................ 2

Video-gaming the markets .................... 4

Constantly connected ............................ 6

Earning their trust ................................ 8

Conclusion .......................................... 9

Key resources ..................................... 9

Millennials are now America’s largest generation.

Boomers have long dominated discussions about retirement planning. But now it’s time to pay attention to Millennials. While many older adults still picture this generation as teens and college students, the oldest Millennials are already 36 years old. In 2015, Millennials became America’s largest living generation at 75.3 million strong.1 And Millennials are not finished growing in size: Immigration is adding more headcount to this generation every year.

To encourage these new workers to participate in their defined-contribution plans, plan sponsors and retirement specialists must discover how to:

W Prepare for the mammoth demographic shift this generation will unleash.

W Build trusted connections with these tech-savvy works.

W Seize the opportunity to make them the best-prepared generation of retirement-plan participants ever.

Finding the right approach starts by understanding what Millennials care about and what makes them different.

1 in 3is a Millennial—making them the single biggest generation in the labor force.4

American workers

Just the facts

A new generation of participants is here.

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Why Millennials matter so muchThe importance of Millennials goes beyond sheer numbers. Millennials command significant assets, which are growing rapidly as they continue to work, save and invest. Millennials also stand to inherit more than $30 trillion in financial and non-financial assets that will pass from Baby Boomers.2 Despite these advantages, their future financial security is far from certain. Most Millennials have little saved for retirement, and half have failed to enroll in their employers’ retirement plans.3

Culturally, Millennials see the world in their own way. Because of their experience with the Great Recession, they innately distrust large institutions and have different ideas about how to manage their money. Millennials have also been socialized to care about the environment. This drives their interest in green products and responsible investment.

Most importantly, technology has had a profound impact on Millennials. They’ve grown up in a constantly connected world, and this affects how they expect to interact with everyone and everything. They’ve been online, playing video games and multitasking most, if not all, their lives. This has led them to treat many aspects of their lives—including their investments— in different ways than previous generations.

of the eligible Millennials participate in their defined-contribution plans. 3

Only half Today, Millennials control

$1.5 trillion in financial assets.5

Attracting Millennials 1For Financial Advisor Use Only. Not for Use With or Distribution to the Public.

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2 Attracting Millennials

76% of retirement plan participants under 35 say they’re “interested” or “very interested” in responsible investment options compared to 64% of participants overall.10

Socialized to care Driven to invest responsiblyMillennials are concerned with purpose, meaning and environmental impact to a far greater degree than their elders. Millennials are more likely to support stricter environmental laws, attribute global warming to human activity and favor green energy development and tax incentives for hybrid vehicles.6

They’re also more willing to pay a premium for “green” products.7

When it comes to financial matters, they want their investments to align with their principles. As a result, Millennials demonstrate far stronger interest in responsible investment (RI) than other generations. Ironically, though, 71% of them say they are unfamiliar with the RI options available to them.8

Opportunities for plan sponsors and advisorsAdd responsible investment options to investment menus.More than 50% of Millennials say they would take a pay cut to find work that matches their values, while 90% want to use their skills for good.9 Adding RI options to an investment menu can reflect positively on an employer and offer the sense of meaning that Millennial workers are seeking.

Educate Millennials about their responsible investment options.Given the low awareness of RI options among Millennials, consider targeting younger participants with RI-themed employee communications and educational programs. Focus on the modern approach to RI, and ensure that participants are aware that RI does not require sacrificing performance for the sake of principles.

Engage Millennials on the topic of values.RI is a natural conversation starter for engaging Millennials about their personal values. Advisors can use these discussions as a springboard to learn more about participants’ goals and better serve their needs. Employers can leverage these conversations as a form of community-building to help workers find greater meaning in their jobs.

More than 50% of Millennials say they would take a pay cut to find work that matches their values.9

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Responsible investment myths

Attracting Millennials 3

Responsible investment is a niche. Reality: More than 1 in 6 dollars under professional management in the United States is managed according to sustainable, responsible and impact investing principles.11

Responsible investment excludes companies with controversial products and practices.

Reality: Modern RI evaluates potential investments according to criteria which creates ample opportunity for competitive strategies.

Large-cap equities are the only responsible-investment asset class available to most investors.

Reality: RI strategies are available in every asset class and style.

Responsible investment means sacrificing performance.

Reality: TIAA-CREF research shows that RI indexes have delivered market-like returns and risk over the long term.

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4 Attracting Millennials

Compared to other age groups, Millennials are two times more likely to play video games on any given day.14

Nearly half of Millennial investors rebalance their portfolios “several times a year.”12

Video-gaming the markets Getting Millennials on target for retirementMillennials didn’t invent gaming—but they’re naturals at it. Their multitasking, interactive mindset leaves them well suited for today’s fast-paced digital world. But when it comes to investing for long-term goals like retirement, that multitasking mindset has given them itchy trigger fingers.

Millennials tinker with their investments too frequently. When faced with a downturn, they’re three times more likely than Baby Boomers to make major adjustments to their investments (23% vs. 7%).12 This behavior can have disastrous effects on retirement preparedness. But pleading with Millennials to “stay the course” is unlikely to work. A better solution may be to remove the need for participants to adjust their investments in the first place.

Target-date funds offer a “set-and-forget” approach. They radically simplify Millennials’ financial lives, alleviating the need to make complicated decisions about investments, portfolio allocation and rebalancing. Once the fund is chosen, no further adjustments are required. Sponsors can make the process even easier by using target-date funds as a qualified default investment alternative (QDIA) option, so that participants can avoid asset-allocation decisions completely.

Opportunities for plan sponsors and advisorsIncorporate target-date funds into your investment menu, especially as QDIA options.Target-date funds can protect Millennial participants from the temptation to rejigger their investments. At the same time, target-date funds can also help keep all participants from being overwhelmed by too many choices.

Improve financial literacy and educate participants about long-term investing. Target participants by age and generation. Focus communications to Millennials on the importance of sticking to a plan for the long haul. Evidence shows that engaging employees through targeted, relevant communications and education can increase participation, savings rates and net worth.13

Consider offering personal worksite advice. Advice changes behavior. In TIAA-CREF’s “Advice Matters” survey, 86% of retirement plan participants who received advice took action as a result, including nearly half (46%) who increased their retirement savings. Advice is particularly effective at helping workers stay on track in spite of changing circumstances and important life events, and it can help Millennials avoid switching investments too frequently.

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Target-date fund considerationsGlidepaths. TIAA-CREF recommends a “through” retirement glidepath which continues to

automatically rebalance the mix of investments in the target-date fund for a number of years after the target date. We believe this glidepath is better suited to today’s longer retirements.

Risk-adjusted returns

Millennials care about risk, and they want to work with investment managers who share their concern. In evaluating target-date funds, it’s important to look at how much risk a manager “spends” to achieve their performance.

Fees and expenses

Excessive target-date fund fees can make a significant impact on a participant’s portfolio over time. This is especially true for Millennials. With decades to go before they retire, high fees and expenses can really add up.

Active vs. passive management

Target-date funds—like other mutual funds—are available in active- and passive-management styles. Both approaches are viable options. What’s important is that participants understand the tradeoffs of choosing one versus the other.

Attracting Millennials 5

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6 Attracting Millennials

Most Millennials scarcely remember a time before the Internet. Netscape and Amazon were founded in 1994.

Constantly connected Millennials are an impatient, want-it-now generation who expect instant access to information—anytime, anywhere. Mobile devices now outsell desktop computers. According to Experian, Millennials spend 14.5 hours each week texting, talking and accessing social media on their smartphones. They spend eight hours on their retirement plan websites, compared to just six hours for Gen X and one hour for Baby Boomers.12

But the truly defining feature Millennials online is the social dimension. Trying to engage Millennials while ignoring their social connections is like trying to engage Baby Boomers without using television or radio: It simply isn’t an option.

Opportunities for plan sponsors and advisorsEngage Millennials using every medium—especially mobile.Online engagement and mobile sites are now mandatory for anyone hoping to connect with Millennials. Give them access to mobile platforms that enable them to learn about, track and manage their investments anywhere. At the same time, use other media to maximum advantage as well.

Use digital media to build community.Your online presence should have a social dimension, not merely provide information or enable transactions. Develop a repertoire of compliance-friendly content that Millennials will find useful, interesting and sharable; snack-sized bites of information work better than heavy meals.

But don’t neglect face-to-face communications.For all the time they spend online, Millennials still value financial advice delivered in person. Consider creating a program that delivers the face-to-face advice they seek, in a workplace setting.

While Millennials have embraced and abandoned a changing lineup of social media platforms, one thing has remained constant: Other people have never been out of reach.

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Keep up with online disruptorsA host of innovative online companies have burst onto the scene with financial platforms built to leverage the way Millennials want to invest. Learn more about them, and ask yourself if you could learn any lessons from these companies’ success.

Motif Investing. www.motifinvesting.com

Motif uses thematic investments which allow investors to follow their personal views. The platform offers professionally built thematic portfolios—or “Motifs”—along with over 100,000 others created and customized by the Motif community. Social tools make it easy to share investing ideas with friends, family and other “Motifers.”

Betterment www.betterment.com

Betterment is an online investment advice service that already claims 100,000 customers and more than $2.5 billion in assets under management. Investors answer questions and then receive a customized investment plan that includes a diverse portfolio of stock and bond ETFs. Every part of the process is fully automated.

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Page 10: TIAA-CREF Asset Management Attracting Millennials · Understanding the Millennial mindset For years, plan sponsors and retirement specialists have wondered what kind of impact Millennials

8 Attracting Millennials

Millennials’ introduction to the financial world came in the form of the Great Recession, the worst global financial crisis since 1929.

Earning their trust Perhaps the most challenging difference between Millennials and older generations is that they want financial advice, but not from traditional experts or authorities. Millennials trust communities rather than institutions. Formal professional credentials often leave them unimpressed. Their single most trusted source of advice is their own parents.15

The power of personal relationshipsWhen looking for financial advice, Millennials also turn to friends and other sources with whom they share a personal connection. The good news is, 40% of Millennials trust their employers for financial advice, compared to 28% of employees overall.16 That advantage puts retirement specialists and plan sponsors ahead of the game in developing a trusted relationship with younger participants.

It’s also important to understand that Millennials will never see an advisor as the sole authority on financial matters, but rather as one member of a larger trusted community. You can earn Millennials’ trust—but it will be won through personal relationships, not automatically granted by virtue of a Wall Street logo or professional credentials.

Opportunities for plan sponsors and advisorsMeet Millennials’ expectations with transparent, honest and educational messages.Overcoming mistrust requires a high level of openness. Younger participants want to know what an advisor or investment manager is doing with their investments and why. Offer education that enables them to feel more in control of their financial affairs.

Be a good team member.Understand that Millennials will socialize the advice they receive and seek out second opinions from parents, family and friends. Instead of fighting Millennials’ communities, become part of them: Create informative, shareable communications aimed at educating family and friends as well as participants, and get the whole team on your side.

Leverage relationships with plan sponsors.Millennials trust in their employers to provide financial advice more than older generations. Let that relationship stand as the centerpiece of engagement and communications. Make sure they feel their employers are staying involved at every step, rather than handing them off to unknown third parties.

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Attracting Millennials 9

ConclusionIt’s time to invite Millennials into your investing community.Millennials are now the nation’s largest generation—both in the general population and in the workforce. Due to their unique life experiences, Millennials have unplugged from institutions and instead built connections with trusted social communities, including their parents, family, peers and even their employers. They want access to these social connections anytime, anywhere through a variety of media, from mobile devices to face-to-face meetings.

To build sustainable growth, it’s time for plan sponsors and retirement specialists to understand Millennials’ mindset and evolve with the times. With TIAA-CREF’s new Attracting Millennials program, you can start to understand what this generation cares about and what makes them different.

Key resourcesVisit our website or call us today!To locate the resources listed in the online tools section of the challenges and the key resources below, please visit our website at www.tiaa-cref.org/millennials or contact us at 888 842-5433, press 2 for any of these helpful items.

Participant videos: Education for younger investors/participants Obtain a series of participant videos addressing key issues facing younger participants from the basics of investments to budgeting.

Seminar: Millennials: Pact creatures and community seekers Contact us to see how employers can create better retirement outcomes and attract the next generation of American workers.

Worksheet: Get a personal checklistHelps you address the key issues that distinguish the Millennial generation.

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1 “This year, Millennials will overtake Baby Boomers,” Pew Research Center, January 16. 2015. http://www.pewresearch.org/fact-tank/2015/01/16/this-year-millennials-will-overtake-baby-boomers

2 The “Greater” Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth, Accenture, June 2012, p. 1. 3 Retirement Readiness: Bridging the Gap Across Generations, Aeon Hewitt, December 2010. 4 Millennials surpass Gen Xers as the largest generation in the U.S. labor force,” Pew Research Center,

May 11, 2015. 5 Identifying the Emerging Affluent to Start Lifelong Relationships. 6 Pew Research, http://www.people-press.org/2011/11/03/section-8-domestic-and-foreign-policy-views/ 7 Low Income Consumers Drive Sustainable Purchasing, Sustainable Brands, July 21, 2009. 8 TIAA-CREF, Socially responsible investing: Strong interest, low awareness of investment options, 2015. 9 Millennial’s Desire to Do Good Defines Workplace Culture, Society for Human Resource Management, July 7,

2014. http://www.shrm.org/hrdisciplines/diversity/articles/pages/millennial-impact.aspx#sthash.GYpr8kjJ.dpuf

10 TIAA-CREF, Socially responsible investing: Strong interest, low awareness of investment options, 2015. 11 The Forum for Sustainable and Responsible Investing “Report on US Sustainable, Responsible and Impact

Investing Trends 2014.” 12 TIAA-CREF, 2015 Practice Management Study. 13 Financial Counseling, Financial Literacy, and Household Decision Making, Pension Research Council, October

2010. 14 Forbes, The Recession Generation: How Millennials Are Changing Money Management Forever, 2014. 15 Millennials: The Money Survey, Goldman Sachs, June 24, 2015. 16 TIAA-CREF, Advice Matters Survey, August 2014.

For financial advisor use only. Not for use with or distribution to the public.

Investments in socially responsible funds are subject to Social Criteria Risk, namely the risk that because social criteria excludes securities of certain issuers for non-financial reasons, investors may forgo some market opportunities available to those that don’t use these criteria.  

Please note, the target date for lifecycle funds is the approximate date when investors plan to start withdrawing their money. The principal value of the fund(s) is not guaranteed at any time, including at the target date.

Certain products and services may not be available to all entities or persons.

You should consider the investment objectives, risks, charges and expenses carefully before investing. Please call 877 518-9161 or log in to tiaa-cref.org for product and fund prospectuses that contain this and other information. Please read the prospectuses carefully before investing.TIAA-CREF Individual & Institutional Services, LLC, Teachers Personal Investors Services, Inc., and Nuveen Securities, LLC, Members FINRA and SIPC, distribute securities products.

Annuity contracts and certificates are issued by Teachers Insurance and Annuity Association of America (TIAA) and College Retirement Equities Fund (CREF), New York, NY. Each is solely responsible for its own financial condition and contractual obligations.

©2016 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF), 730 Third Avenue, New York, NY 10017.

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