Millennials have built a certain reputation for making unconventional life choices. They pick experiences over material goods. They choose vacations based on Instagrammability. And when it comes to investing, they sometimes pick an online stock broker based not just on commission rates, but on the people who work there.
"I was deciding between TD Ameritrade and Fidelity, and I thought it was cool that Fidelity has a woman CEO and that she was wanting to get more women in the industry," 29-year-old Jodie Navarre told Investor's Business Daily. "I thought that was neat."
The Denver resident, who works in software sales, recently flew the broker coop, so to speak. Most of her family, including her, had held Raymond James accounts with the same advisor, but Navarre — one of the 232 millennials who participated in IBD's 2018 Best Online Broker survey — wanted to take the reins over her trading decisions.
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That prompted her to look for a new brokerage even though she "loved" her advisor at Raymond James. Fidelity's executive management nudged the scales in its favor.
See, the thing is: as much as millennials make headlines for their (purported) affinity for things like avocado toast and Unicorn Frappuccinos, the next generation of investors might actually be more exacting than most when it comes to which broker gets the pleasure of holding their money.
Show Me The Money — And Social Responsibility
Navarre's interest in what lies behind the curtain doesn't appear unusual. It's a mindset that extends to the way millennials invest in funds and equities, and brokers are taking notice.
"There's no question you're seeing (the) emergence of a lot of environment, social, ESG-related portfolios," Head of Merrill Edge Aron Levine told Investor's Business Daily, referring to environmental, social and governance investing, a philosophy that looks for value beyond a company's financials. That could mean paying attention to its attitude toward carbon emissions, philanthropy or labor practices.
"I think ourselves and many others have either rolled (out ESG products) or are in the process of it, because there's no question there is a demand," he said, adding that Merrill Edge has seen "huge receptivity" for its research tool's new ESG-scoring feature.
Best Online Stock Brokers For Beginners
Younger investors also harbor curiosity about up-and-coming brokerage firms.
Of the 18- to 34-year-olds surveyed by IBD and polling partner TechnoMetrica (4.6% of the 5,052 respondents), TD Ameritrade (AMTD) and Interactive Brokers (IBKR) were the most popular picks, with one out of four respondents calling either company their main broker.
But a solid 10% of surveyed millennials rely primarily on Robinhood for their trading needs — significant market share for a free-trading brokerage app launched in 2013 by two Stanford roommates. (Contrast that with the 1% of 45- to 54-year-olds and 0.4% of 55- to 64-year-olds who call Robinhood their main trading squeeze.)
"Most of my friends are more familiar with Robinhood than traditional brokers," said 34-year-old Brian Schleiker, a survey participant from the San Diego area who works in medical device sales and has been investing for the last decade or so. "I think they've done a really good job promoting themselves to millennials."
As for his own preference in brokerages, Schleiker has pretty much tried them all at one point or another, holding accounts with E-Trade, TD Ameritrade and Fidelity over the years. He even had a Charles Schwab (SCHW) account for about a week, in an effort to sample all the online brokers' different features.
For the last two-plus years he's been happy with Interactive Brokers, but also has a "small account" with Robinhood and a presence on Acorns, the millennial-friendly app that rounds up credit card purchases to the next dollar and invests that spare change in the market.
Heavyweights in the online brokerage industry might want to watch where the young money in search of the best online brokers is going: a full 16% of millennials chose "other" — possibly platforms such as Acorns — when asked about primary brokers.
That means they're not trading on TD Ameritrade, Fidelity, E-Trade, Schwab or any of the 19 mainstream options provided on the survey. Only 9% of Gen Xers in the 35- to 44-year-old category and 3% to 4% of the 45-and-up respondents are trading through lesser known brokers.
The next question, then, is how legacy players are stacking up in satisfaction levels.
Across the board, millennials were collectively less satisfied with their brokers than their baby boomer peers, and almost always less satisfied than Gen Xers, in the 14 areas including commissions and fees, trade reliability, site performance, customer service, research tools and investment and retirement planning tools. They were slightly less likely to rank their brokers "excellent" or "very good" and slightly more likely to rank them "fair" or "poor" out of the five-scale rating system vs. their older counterparts.
Some exceptions: millennials were just as likely as 35- to 44-year-olds and 45- to 54-year-olds to rate their main broker's mobile trading platform "excellent" or "very good" (58%), and in fact the 35- to 54-year-olds were slightly more likely to register dissatisfaction with broker apps, ranking them "fair" or "poor."
That translates to less loyalty and fewer word-of-mouth recommendations. IBD survey data point to millennials and young Gen Xers (35- to 44-year-olds) being less likely to recommend their primary brokers to friends than their older counterparts. Both groups also were about equally likely to have switched brokers one or more times in the past five years, with over half citing cost as the main reason for straying. Older investors were more likely to have stayed put.
Still, brokerage firms can take some solace in knowing that more than three of five polled millennials (63%) and young Gen Xers (62%) said they had not changed up their primary broker during that time frame, and only a little more than one in four are currently looking to find a new one.
Thirty-three-year-old urologist and self-taught investor Christopher Taylor has investments through Schwab, Fidelity and to a lesser extent, TD Ameritrade. He likes Schwab the best — "Fidelity's mobile stuff is a little bit buggy" — but says customer service at both "has been really good."
To switch to a different broker, "I would have to be upset with Schwab and Fidelity for some reason," he said. "The fees can't get much lower."
But What About All Those Other Millennials?
Most of the survey participants IBD interviewed had one thing in common: they were pretty much the only ones in their social circles who invested or were particularly interested in investing.
That the majority of 20- and 30-somethings aren't rushing to plunk down money in the stock market isn't exactly news. Only one in three millennials invests in stocks, says an oft-cited Bankrate.com study; a big part of that comes from thinking they don't have enough cash to spare.
"Both my parents taught me a lot of about investing money, and the power of letting your money grow in stocks and mutual funds and things like that," said respondent Navarre. "But I know a lot of my friends live paycheck to paycheck and (that's) not something they could think about doing. Or they might have a 401(k) account with their company and that's kind of about it."
Others thought that a lack of knowledge — or fear of risk — might also be the culprit.
Brian Heitzman, a 29-year-old who works at Wells Capital Management and studied finance in school, feels "fortunate" that he understands financial concepts.
Looking back on a conversation with a friend not long after graduating from college, Heitzman described his pal as "kind of scared of stocks. He didn't want to just put money into something that'll lose value."
"And I'm thinking about it — you're 22, 23, you're not going to be retiring for 40 years, that's the place to be," he said. "So I guess I just feel that a lot of millennials don't see the value or they're scared to take that type of risk, when in my mind, it's a bigger risk not to invest than put your money in equities for the long run."
Even millennials who have money in the market are pretty cautious, though.
"When they do start investing and they are investing, they tend to be playing it safe, overall," said Merrill Edge's Levine, calling the generation "a bit risk adverse."
He attributes the collective hesitation to younger investors having witnessed parents and grandparents struggling during the financial crisis.
Millennial Investing Expectations
At the same time, they are reportedly feeling more self-sufficient. Merrill Edge's own semiannual survey found that 66% of the affluent millennials polled said that they expect to depend on their own savings (including 401(k) and equity investments) in 20 years, an increase from previous years, says Levine. Gen Xers were most likely to cite just their 401(k) accounts (71%) and baby boomers were likeliest to look to their pensions (54%) as their primary bedrock two decades from now.
Younger folks are also investing and saving their money for different reasons.
"Retirement is really being redefined," said Levine. "This idea that a millennial's going to save some huge nest egg — that at the age of 65, I have X amount of dollars that allows me to leave the workforce completely and spend the next 20 years, you know, doing other things? I don't think that's real."
Instead, he says, that traditional notion is giving way to the idea that financial freedom is significant. Millennials are open to working different jobs when they get older, but they're not necessarily bent on leaving the workforce altogether.
Levine said the question millennials are more likely to ask themselves is: "How do I get to a level of freedom where I can choose what I might want to do in a second or third career, and how do I give more, how do I contribute to the community more?"