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NextGen investing: How millennials are building their portfolios

Ida Liu, CEO of Citi Private Bank North America joins Yahoo Finance Live to discuss the what the next generation of investors are looking to buy into amid the pandemic and weigh in on the outlook for cyclical stocks in 2021.

Video Transcript

MYLES UDLAND: All right, welcome back to "Yahoo Finance Live" on this Monday morning. We see stocks in the green as we get this trading week underway. Let's stay on the markets and talk a bit about how clients are positioning themselves in this environment.

Joining us now to discuss is Ida Liu. She is the CEO of Citi Private Bank North America. Ida, great to speak with you this morning. Let's talk about your new clients and your younger clients and how they're seeing this environment, what they're making of it, and, I guess, the speed with which it seems, from our vantage point covering markets, investors reacted to the pandemic life, what the future would look like. And just talk us through what those conversations have been like.

IDA LIU: Sure, absolutely. Thanks for having me.

So our next-gen clients, it's interesting. There's going to be about 70 trillion of wealth that's going to transfer to the next generation of wealth over the next 25 years. And 80% of the time, they change advisors.

So we've been super-focused on the full family approach here at Citi Private Bank, making sure that we're advisors to the whole family, not just the patriarch and matriarchs, but the next-gen and millennial. In fact, we have an advisory board with our next-gen and millennial clients so we can hear directly from them what they want from a private bank and a wealth management institution.

And there's a couple of things. Firstly, digital, everything easy. And I think the silver lining of the pandemic is that it's accelerated everything digital. And we're now able to open accounts for our clients in seven minutes versus a couple of days in the past.

And then secondly, I would just say overall as an investment theme, our next-gen and millennial clients are very interested in ESG investments. They're very keenly focused on environmental, social, and governance factors in the way that they invest. And they know that they don't have to give up returns to do good while they're investing.

JULIE HYMAN: Ida, it's Julie here. It's great to see you. I'm curious how much you're hearing from your clients, particularly if you're talking to a whole family and there are sort of younger components of that family, how much they're asking you about these sort of hot money trends that we've been watching, meme stocks and crypto, et cetera, and how you're factoring that into your advice to these folks.

IDA LIU: So Julie, we look at thousands of clients' portfolios globally every single day. And what we notice generally is that clients have too much cash, basically, in their portfolios, 20% to 30%. And they also have concentration. So whether it's a US home bias, a geographical, or a sector concentration, we see that very often in our clients' portfolios.

So what we talk to them about is making sure that they have some exposure to what we think are longer-term investment trends that will benefit in their portfolios. So for example, some of the COVID cyclical stocks, the stocks that have been beaten down throughout the pandemic, think real estate, think hospitality, travel, leisure, and the like that will rebound as soon as the vaccine continues to roll out.

Secondly, we think there's four trends that clients should definitely have in their portfolios. One is Asia and exposure to Asia. Two is health care with the aging population. Three is digitization and the rollout of 5G. And four is exactly what I talked about earlier on ESG.

MYLES UDLAND: And so then, Ida, when you think also about-- and you talked about it a little at the top about the way that the distribution and how the physical footprint of a firm like yours, physical distribution of the footprint of your clients has changed just in the last year.

How is that also impacting business? And how are people thinking about planning for their own location? Are there more sensitive requirements now or thoughts now with respect to taxes? Is that stuff starting at an earlier age than it would have otherwise? That's traditionally a later in life type consideration. But now it seems like a conversation that would come up for those younger members of the household as well.

IDA LIU: Well, it's interesting because a lot of our clients, the vast majority of our clients are very global in their scope and reach. They have family members around the world, businesses around the world. And we have the global client services ability to service our clients globally through one relationship team.

Interesting you point out the fact on taxes, residences, et cetera. One of the expertise that we offer to our clients is the cross-border planning. And that is incredibly important, particularly with the change of the administration in North America, the United States, a lot of our clients have been focused on this because we have a gift exemption that could potentially come down. We have a state tax exemption that could potentially come down. We have transfer taxes that could potentially go up.

So we've been in active conversations, both with the patriarchs, the matriarchs, but also the next-gen clients on how to best plan for all of these consequences.

BRIAN SOZZI: Ida, within Citi, you sit on their Woman's Steering Committee. What are some of the biggest discussions you're having right now as part of that committee?

IDA LIU: Well, it's very timely because today is International Women's Day. And we are celebrating our trailblazing women and our female clients around the World in 100-plus countries. We're kicking it off here in New York. And as you know, we have a female CEO, Jane Fraser, leading the charge here at Citi, so something to look up to.

But we've been incredibly proud of all the work that we have done at Citi around women and women's advancement. We were the first global financial institution to put out our gender pay gap numbers two years ago. And the reason why we did that is because we believe that what gets measured gets done. And so the senior leaders across the organization are very focused on the metrics and making that needle move faster and quicker.

MYLES UDLAND: All right, Ida Liu, CEO of Citi Private Bank North America. Ida, really appreciate the time this morning. And happy International Women's Day to you and the team over there at Citi as well.