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Wall Street will soon have to take millennial investors seriously

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The young acquire wealth by inheriting or earning it. Already more than a third of America’s labour force is millennial and they have been the largest cohort since 2016 (even though some are still in education). Bank of America Merrill Lynch reckons that, worldwide, their earning power will rise by nearly three-quarters in 2015-30 as more start work and others gain seniority.

Inheritance flows are set to speed up. The population structure in most rich countries bulges outwards for the baby-boomer generation and then again for their children, many of whom are millennials. Every five years $1.3trn in investible assets, or 5% of the stock, passes down the generations in America. The pace of the wealth transfer will probably double by 2036-40 as boomers die. According to Cerulli Associates, a research firm, millennials will inherit $22trn by 2042.

It is a mistake to assume that millennials will invest as their parents did. Two forces will lead them to seek more control over their assets: changes to pensions, and advances in technology. Consider pensions first. In the 1970s most schemes were “defined-benefit” (db). Beneficiaries were paid a fixed income based on their final salary and had no say in how their pots were invested. Then in 1978 the Revenue Act created the 401(k) plan in America—a “defined-contribution” scheme where savers have more control over where their cash goes. Assets held in such pensions have exceeded those in db schemes since 1995. Where investment firms used to compete to win the mandate for a company’s pension pot, today they are likely to be one of many managers that staff can choose from.

Even as they gain more control over workplace pensions, millennials are using technology to invest in shares and bonds directly. When most boomers began saving a handful of investment firms loomed large, offering high-fee mutual funds. But electronic trading makes it much easier and cheaper to buy and sell directly. The cost of investing $100 on a stock exchange has fallen from $6 in 1975 to less than a thousandth of a penny today. In 2019 the four big retail-trading platforms—Charles Schwab, E*Trade, Fidelity and td Ameritrade—cut commissions to zero as Robinhood, a pioneer of the zero-commission model, gained popularity. A generation reared on smartphones is as likely to trust an app as a well-heeled broker.