The massive generational group of Millennials will accelerate the seismic shift to passive fund management as they seek to grow and protect their wealth, costing the jobs of more stock-picking professionals, according to investment specialists.
Jay Pelosky, principal of New York-based Pelosky Global Strategies, said the Millennials' greater experience with technology compared with Baby Boomers, distrust of so-called "experts" since the 2008-09 financial crisis and debt burdens from university education, meant they were attracted to low-fee automated investing such as exchange-traded funds (ETFs) and robo advice.
"There will be a much greater and sustained move towards passive investing in part because of the Millennials," said Mr Pelosky, a former Morgan Stanley global strategist.
"If they think about active management, it's not going to be about stock selection, it's going to be about asset allocation such as how much they have in equities versus emerging market bonds versus industrial metals.
"That's where some of the advisers will go to, because it enables you to charge a fee."
There would be "huge ramifications" for financial analysts and fund managers who work in the active investment industry, he said.
Millennials are generally defined as people born between the early 1980s and the turn of the millennium. They are also known as Gen Y or the Digital Generation.
The size of the cohort represents a potential lucrative market for the financial investment industry.
Millennials have grown to recently become the largest generational cohort in Australia, with 4.9 million people, eclipsing Gen X (4.8 million) and Baby Boomers (4.1 million), Roy Morgan Australia says.
In the US, those aged between 18 and 34 in 2015 surpassed Baby Boomers (ages 51-69) for the first time, Pew Research Centre statistics show.
One robo-advising industry participant said Millennials were somewhat of a "double edged sword", because there were more of them, but they had less money than cashed-up Baby Boomers, who typically preferred using financial advisers.
But as they build their wealth, Millennials could become a more potent force in the switch from active to passive fund management.
More Millennials (33 per cent) are invested in ETFs than investors on average (25 per cent), a BlackRock survey published in January said. About 70 per cent of Millennials planned to invest in ETFs in the next 12 months, compared with 52 per cent of overall investors.
BlackRock, the world's largest asset manager, operates iShares, one of the world's largest low-cost ETF providers.
It cut more than 30 staff in its stock-picking division in March and lowered fees, as clients shifted to cheaper index-tracking ETFs.
'Very little faith in experts'
Typically, younger investors are more comfortable relying on software and algorithms to make investment decisions
"They have very little faith in experts," said Mr Pelosky, citing Americans' experience growing up with the September 11, 2001, terrorist attacks and the 2008-09 financial crisis.
Older people are more accustomed to the personal interaction with a trusted adviser.
Mr Pelosky predicted that Millennials would tilt towards "hybrid" robo advisers. This is a face-to-face conversation with a human who gives high-level advice on broad asset allocation, combined with relying on computers to tailor investment decisions.
Millennials have also been raised in an era of more transparency on fees and the performance of active fund managers.
In Australia, a majority of active equity and bond funds in most categories failed to beat their index over three and five years, S&P; Dow Jones Indices found.
In the US, Americans are graduating university with large student debts that total more than $US1.4 trillion ($1.9 trillion) and are entering a jobs market with lacklustre wages growth.
More broadly, Mr Pelosky said the adoption of passive investments would be boosted by lower economic growth and lower market returns, which in turn would force investors to focus on cutting fees.
He said Baby Boomers had driven the growth of active managers such as Fidelity, PIMCO and Janus Capital, whereas now "Gen Passive" would help firms offering indexing, ETFs and robo advisers.
"And now the passive players are big enough to compete with the advertising budgets of the active managers," he said.
Globally, investors are yanking money from higher-fee active managers and parking their funds in passive strategies such as ETFs that ride the ups and downs of select markets.
Active funds in the US recorded outflows of $US340 billion last year, according to Morningstar, and those such as Fidelity, Franklin Templeton and PIMCO suffered withdrawals.
On the other hand, passive fund strategies took in a record $US505 billion, dominated by passive founder Vanguard and ETF-focused BlackRock.
"For the first time you have a full suite of passive options compared to five years ago," Mr Pelosky said, noting the advent of indices that tracked a variety of fixed incomes, commodities and emerging markets.
