An astounding level of wealth is set to be transferred to younger generations in the ‘Great Wealth Transfer’. But with that transfer, many of those receiving wealth are expected to change their wealth management provider.
Indeed, loyalty levels are not high. The Capgemini World Wealth Report 2022 estimated that up to 80% of those due to inherit wealth intend to switch to another wealth manager.
The first generation born into the digital age, wants choice and instant results, and is likely to use digital tools as the norm, according to the report. It goes on to say that “more than half (53%) of the millennials surveyed in January 2022 said they had changed primary wealth management firms in the past year. Of those who had switched, 57% went to a firm they had done business with for over a year, and 43% went to a new provider. Millennials changed firms due to high fees (46%), lack of transparency (39%), and slow service (33%)”.
This is a risk for wealth managers – their focus needs to be on smoothing wealth transfer and making sure their proposition is appealing to those receiving wealth. In doing so, they can retain their business and perhaps increase their share of wallet. In addition, this enables them to attract new clients too.
The investment proposition will obviously be key. But just as important will be the delivery of the service. Younger generations have different expectations when it comes to the service proposition as well its delivery. Today’s new generation of high-net-worth individuals (HNWIs) is digitally savvy and accustomed to managing their lives online. Many of them rely on the offerings of big tech brands such as Google, Amazon, Meta, and Apple, as well as FinTechs. Thus, they also expect their wealth management service delivery to be more in line with a Netflix kind of experience than with traditional quarterly face-to-face advisory meetings of yesteryear. While conversations with their adviser should still be easy to access, younger clients want to be in control of their wealth and learn more about its management. They also expect to be able to access information and data easily and receive a personalised service with tailored insights.
Hence, fundamental to successful wealth management is understanding and adapting to clients' evolving needs and preferences. In practice, this means knowing how and when they want to engage and what they perceive to be relevant and exciting insights. Further, everything needs to be easily accessible and convenient!
According to a 2019 report by Forbes, next generation wealth managers are characterised by three drivers of success:
- Delivering a client experience enhanced by digital services and personalisation
- Using real insights based on AI and analytics
- Tapping new markets with mass customisation and alternative investments
The role of technology in delivering success was already important and amplified sharply by the pandemic. Into 2023 that is ever more relevant as new habits have fast become everyday expectations.
Technology will be key
In essence, wealth managers need to deliver their service in a way that fits the needs of digital natives.
For a start, the wealth manager's role when serving the upcoming generation is to equip and empower them with knowledge and education around the wealth management process. Technology provides the key to delivering easily consumable and understandable information that promotes financial literacy.
The new generation of clients also wants to be more hands-on and requires their wealth manager to be able to tailor and customise services to their specific needs and goals. The adviser should understand their specific financial situation and provide customised advice that aligns with their unique objectives. Based on risk tolerance and preferences, they expect a customised investment portfolio.
Overall, everything should be transparent and straightforward. Information about the fees and charges associated with their investments should be clear and concise and they wish regular updates on their investment performance. All this can be supported by technology.
Another important sphere where technology plays a major role is in the delivery of the wealth management service. Young clients are used and more likely to use digital platforms and mobile apps to manage their finances. Wealth management firms must, thus, be able to provide quality and consumable digital services the client wants to engage with. Those must be easy and intuitive to use so that their use becomes a habit. Crucial to this is UX.
The wealth manager’s reward for an approach with integrity, transparency, and communication at its core is client loyalty and even advocacy. Clients will likely share their positive experience with their peers.
Young customers are often willing to share their data in exchange for tailored and seamless experiences or services. And a natural extension to this is embedded wealth management, where the wealth manager’s service is seamlessly embedded into apps and websites of non-financial firms – similar to integrating payments or buy-now-pay-later options into buying processes. For financial services providers and wealth managers, such approaches enable greater visibility and an extension of their reach. Offering regulated wealth management services to non-financial firms and their customers at the point of need, offers enormous opportunities for traditional wealth management providers to successfully reach out to younger customers.
A solid Cloud-based wealth management platform provides the perfect foundation for this – enabling wealth managers to efficiently collect and analyse data and to quickly transition to a cutting-edge digital presence that meets the needs of young and tech-savvy investors. While a modular design allows to easily extend the solution as well as the corresponding service offering, APIs provide the flexibility to connect and extend the solutions with third-party services. This modularity and flexibility can save wealth managers costs and time-to-market, ultimately also with a positive impact on client satisfaction and retention.
Wealth managers recognised this and are reacting. There have been moves to integrate accounts and build more sophisticated mobile apps. Making the best use of analytics and AI to segment clients is high on the agenda. Indeed, this looming market horizon positions technology as the great enabler of wealth management’s most potent promise of value.
