Investing for beginners: Reaching millennials using big data

Financial Services Writer

Investing for beginners is a complex subject. As a result, millennials often seek investment advice from a variety of sources, some more reliable than others. According to iQuantifi, 71 percent of millennials go to family for advice, 45 percent go to friends and 24 percent turn to the Internet. Financial advisors are one of the least-used sources among this cohort. To combat this, wealth managers targeting millennials and looking to gain their trust must use data analytics to understand, build trust with and engage with these young investors, who make up the largest generation in US history, according to the Pew Research Center.

Using analytics to segment prospects

FSS-Investing-for-beginners_Blog.jpgSmart financial advisors are using analytics to identify the best millennial prospects. They can then leverage the data-driven insights to communicate effectively and create lifelong clients.

To identify the best millennial prospects, banks should gather data that provides initial indications of high net worth:

  • Transactional data
  • Income and account balances
  • Behavioral data, such as Web browsing behavior
  • Demographic data, such as age and family status

For instance, a millennial who has a high balance in deposit accounts may be a profitable client, but browsing and transactional history that reveal repeated luxury purchases may also indicate a mass affluent client.

TD Ameritrade uses this type of strategy to segment millennials into three categories: mass affluent, potential high net worth and high net worth. According to the bank, 65 percent of the high net worth millenials use financial advisors, compared to 40 percent of the mass affluent and only 33 percent of the potential high net worth category. As wealth managers focus on investing for beginners, they may want to use data analytics to identify millennials in the high net worth category; this group will be the most receptive to their services.

Gathering critical prospect information from social sites

The US Census reports that there are more than 83.1 million millennials in the US, and the group is more diverse than previous generations. Targeting this cohort with a one-size-fits-all strategy will not give potential clients the personalization they crave. Financial professionals can augment account, browsing and demographic information with social media data. CNBC explains that millennials increasingly go to social media to have financial discussions, making these sites a treasure trove of information for advisors.

Wealth managers should look for analytics solutions that are comprehensive enough to consider structured data from credit reports and account balances, as well as unstructured data from such social sites as LinkedIn, Facebook, Instagram, Pinterest and Twitter. There are also financial advice forums where personal information is freely shared.

Tailoring messages by financial know-how

To provide value to wealth managers, analytics should point to keywords and phrases that identify prospects with high potential lifetime value. This information will help financial advisors pinpoint the best prospects and communicate with them at their level of financial knowledge. This is an important consideration when marketing to millennials: A study from Spectrem Group shows there is a strong correlation between the wealth of investors and their financial knowledge. As their wealth increases, investors place more importance on their advisor's services and less on financial information from family and friends.

First-time investors, however, may have varying levels of financial knowledge. If analytics shows that a group of prospects discusses stocks, bonds or the like online, advisors should use this knowledge to trigger tailored marketing messages and guide relevant conversations. If another group of prospects is searching for basic information, like college loan types, they likely have less financial knowledge; communication should start at a simplified level.

Australian financial planner Eleanor Dartnall, the Association of Financial Planners' 2014 Adviser of the Year, segments her clients based on their practical financial knowledge, Zurich Australia reports. Only 5 percent of financial advisors use segmentation based on financial literacy, but Dartnall has found success with the strategy. This segmentation approach, combined with an overhaul of her client review process, led her client referral rate to increase from 2 to 88 percent and her overall client retention rate to improve to 100 percent.

By using analytics to obtain a better understanding of millennial investors, advisors can target the best prospects and start building relationships using a much better base of knowledge. Learn more about leveraging analytics for wealth management in a complimentary, customized workshop.