Power of recommendation drives Millennials’ financial future
THEY won't get on a plane or eat out without first checking how others have rated the destination on TripAdvisor. Now it seems that Millennials are leaning just as heavily on others' opinions when making important decisions about their financial future.
New research has uncovered the rise of the Recommendation Generation - young people relying on advice from friends and relatives when it comes to managing their superannuation.
In what should be a wake-up call to the financial services sector, the research found that professional advice is still relied upon to some extent by people looking to build their nest eggs, but a mate - or Mum's - thumbs up also carries plenty of clout.
The findings come from a survey of 2000 people commissioned by QSuper in a bid to examine the impact of word-of-mouth on superannuation decision-making.
The research was instigated after QSuper was named Australia's most recommended super fund for the second time by Engaged Strategy, which found that 23 per cent of respondents chose their super fund after a recommendation from a family member, friend or colleague. It was this reliance on informal advice that QSuper wanted to investigate further.
What the QSuper survey reveals is that word-of-mouth is a significant driver of superannuation decisions, particularly among younger people.
More than 75 per cent of Millennials reached out to their nearest and dearest for advice about super, and nearly 60 per cent acted on that advice. The corresponding figures for Generation X are 65 per cent and 55 per cent, and for Baby Boomers, 52 per cent and 43 per cent.
Independent financial educator Nicole Pedersen-McKinnon said the survey results weren't surprising.
"It makes perfect sense that Millennials, who are so attuned to running their life on ratings, would seek real-life recommendations from people they trust the most," she said. "They don't order a coffee or book accommodation without checking what others have to say about the provider. Super is no different."
QSuper CEO Michael Pennisi said the survey showed that a happy customer's advocacy was a key contributor to members joining or staying with a fund - particularly among young people.
"This survey has really lifted the lid on where people source their information and what motivates their peers to make a recommendation," he said.
The biggest driver of the reliance on friends and family for advice is a simple one - trust. People believe those closest to them have their best interests at heart. They've seen their friends and members of their family make their own financial decisions and trust them to pass on their knowledge. The revelations of the recent royal commission have no doubt played a part in pushing people towards those they feel they can rely on when making important financial decisions.
But the survey also found that the rise of this Recommendation Generation hasn't consigned the formal advice industry to irrelevance. While 40 per cent of people overall said they had used word-of-mouth advice to help them make a super decision, nearly one in two people indicated they had also used information provided by the super funds, and 30 per cent said they'd paid for professional advice.
What's more, nearly 60 per cent of people said they would get advice from a super fund when considering decisions in the future, and about half said they would pay for professional advice in the future.
"The fact that they are still seeking the opinion of professional advisers is part of the trend too … it's a form of cross-checking to validate their choices," said Ms Pedersen-McKinnon.
By far and away the main action sparked by informal advice from friends and relatives was to check for "lost" accounts - small super balances held in different funds as a result of working for a raft of different employers. Consolidating these accounts can result in significant savings. Nearly 30 per cent of respondents said they had gone on the hunt for lost accounts after advice from friends.
The next most common decisions were to make extra voluntary contributions (19 per cent), and look into reducing the number of accounts held (17 per cent). Switching superannuation funds was a move undertaken by 17 per cent of respondents, and 16 per cent said they'd changed their super investment options.
Ms Pedersen-McKinnon said the relative importance of word-of-mouth recommendations across all demographics, but particularly for young people, showed the economic significance of trust.
"There have been a few controversial issues involving the financial services industry in the past few years and people are naturally turning to those they trust for advice," she said.
"As the survey shows, they haven't rejected professional help, but are seeking to augment it with client testimonials - that is, what their friends' experiences have been like - before committing their money.
"What this means for the superannuation funds is that they would be wise to maximise their customer service and make their interactions with members as positive as possible if they want to grow their client base, particularly among the young."
Learn more about QSuper here.