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January 21, 2013updated 05 Jun 2017 11:24am

Talkin’ ‘bout my generation

Understanding why, how and where the next generation are engaging with their advisers is a pressing issue for private banks and wealth managers. Alison Ebbage takes a look at the different approaches banks are taking to keep up with the next generation

By Alison Ebbage

Understanding why, how and where the next generation are engaging with their advisers is a pressing issue for private banks and wealth managers. Alison Ebbage takes a look at the different approaches banks are taking to keep up with the next generation


Estimates of the amount of wealth set to transfer down from the generations vary. What is clear, however, is that private banks will have to work hard to ensure that their next-generation heirs remain loyal customers.

Much has been written about this tech-savvy generation wanting a 24/7 service – with bells and whistles – and over the digital channel They are unafraid

Indeed, the June 2012 Pershing report Generation X and Y Investors Are the Future of Your Business, said that 90% of heirs don’t want to work with their parents’ advisers when they finally do inherit wealth; clearly the potential for outflows is large.

It is, thus, crucial for private banks to establish a relationship with the next generation before wealth is actually transferred.

Establishing a relationship early makes for easier identification of current and future needs and a solid proposition.

Succession planning needs to be flawless in terms of involving the next generation early and then preparing them in practical terms to inherit and create further wealth. Private banks are also well placed to help in terms of creating networks of social and professional contacts to work with.

Successful planning

Allie Carr, head of the Wealth Academy at Coutts, points out that 70% of wealth does not actually transfer down.

"The reasons for this are varied, but if you think about how wealth is created and then matures, it has to support bigger extended families, lifestyles become more lavish and expectations rise. So it is key to do the groundwork in terms of how to preserve existing wealth and extend and create future wealth," she says.

Central to this is involving the next generation at an early stage. Talking about technical things like the tax, legal and structures can be a good starting point. The private bank, however, needs to help the family get right to the root of its succession issues by identifying core wealth values and philosophy, or putting together a mission statement for the future.

Sophie Schmitt, senior analyst, Aite says there is often a lack of communication within the family on succession planning. "The softer side of things like the family wealth philosophy can be quite emotive, and the private bank can often serve as a neutral moderator to give everyone in the family a voice," she says.

Bringing in the next generation at a relatively young age and involving them also serves as an educational process as well as building trust, thus lessening the chances of losing a client once the actual wealth transfer has taken place. It is all about laying the foundations for a future relationship.

Another important element is providing the next generation with the advisers of their choice and not assuming that they will want to work with an adviser just because their parents did.

Carr notes: "Often the next generation wants a complete change, and to get away from their parents’ people and work with people with whom they have the right chemistry. Within the bank we try and get them to meet a varied selection of people so that they can find the right advisers and experts with whom they hit it off."

This was echoed by the Pershing report which said bringing in younger advisers would serve to bridge the generation gap and give young investors valuable peer validation and interaction.

Carr adds: "Finding the right adviser is so important, so that they can converse freely and discuss the things that they might not be able to discuss openly with their parents. The actual succession process is incredibly important, and along with the transfer of wealth is the gradual transfer of power. Having the right adviser can make this process much less painful and easier to discuss."

But as well as succession planning, banks need to work with the next generation’s own immediate needs. By helping to formulate short-term plans to address key client issues firms can not only earn trust from doubting young investors, but also pave the way for more robust financial planning in the coming years.

Money K, global head of next generation at Citi Private Bank, comments: "Generation Y are starting out in terms of career and family, and they need a good range of retail products such as insurance, a good credit card with rewards and frequent-flyer benefits, multi-currency capabilities given their global needs, mortgage etc.

"At the same time, they have some investing needs in equity, bond, real estate and foreign exchange markets. Their needs will increase in sophistication over time, but we need to start educating them about wealth management. They need to become comfortable that the bank is for all needs and for all seasons."

Leading the way with philanthropy

Another significant issue is equipping the next generation with the skills and expertise required to manage intergenerational wealth.

Something that can help greatly with this is involvement in philanthropic causes. The link is that by involving the younger generation in philanthropic giving and management, they gain valuable ‘business’ experience and skills that can then be used for generating family wealth at a future date.

The private bank can serve as an important facilitator when it comes to indentifying potential causes and people to work with, and a philanthropic setting can serve as a pertinent base in which to practice entrepreneurial skills, receive expert guidance and build valuable future networks.

This is something that is very popular with the younger generations, who are generally far more interested in the social impact of wealth being actively involved in social enterprise-type schemes, or choosing suitable investments from a family venture capital trust, than merely donating to charity. For the bank, this is another way of building the relationship.

Nice to meet you

Perhaps the most important thing that a private bank can do to facilitate a long-lasting and sticky relationship with the next generation is around networking. In the past this has tended to be a yearly event, but now that social networking is mainstream, banks need to work hard to maintain current touch points as well as adding new ones so that younger clients see the bank as a vital element in creating and maintaining networks for entrepreneurial contacts, financial education, philanthropic interests, investment and interests.

K says: "One huge program we do to meet demand for education as well as networking is a yearly conference for next-generation clients in New York, London and in Asia, either Hong Kong or Singapore."

"This includes not only investment but also trust and estate planning and other more esoteric topics such as art investing and philanthropy. Peer networking is a huge benefit of this program. There are also more subject-specific conferences set up throughout the year, and an active alumni network," he adds.

Online social networking is also gaining in importance. The idea is to offer access to both peer groups as well as experts in various fields from the bank. There is also access to the bank’s proprietary information and research on investment related issues.

Carr comments: "The social opportunities afforded by the private banks are very important. The young wealthy can sometimes feel quite isolated because families are quite private and discrete about wealth, and so meeting other people in similar circumstances is helpful from a support viewpoint.

"Networking on a professional level is important as well and equips the next generation with the contacts and access to expertise that they need, and a chance to work out who they would like to spend time with, and whose experience and style they would like to work with."

Online – a lot of the time

Coutts, and indeed most private banks, also have some sort of online networking offering to compliment the advisory relationship and the conferences.

Online communities look set to gain in importance given the demands of the next generation to access services at a time of their choosing and over a channel of their choice.

Daniel Ellis, managing director, UK head of the investment group at HSBC Private Bank comments: "In the UK, the Retail Distribution Review, (RDR) means that more clients are now paying for investment advice outside pure execution services and so having a portal for information and relevant research to supplement that advice is important additional value that a private bank can provide."

Schmitt says online execution-only trading capability can be a winning proposition.

"Access to the full range of investments including derivatives and alternatives is also important for the next generation in terms of the actual wealth management proposition. For example, ETFs are preferred over mutual funds, and private equity and unique hedge funds need to be on offer too."

Clearly, then, the banks need to meet the preferences of the next generation for their own style of service while retaining their core function as wealth adviser, succession planner and networking facilitator.

Providing these core services in a way that responds to the demands of the next generation is going to be key in retaining clients.K comments: "You have to assume that some in the next generation of clients may defect somewhere else for various reasons.

Loyalty is not guaranteed; you have to keep earning it.

"The onus is on the manager to prove that their offering is good in terms of the investment proposition, the delivery – which is increasingly digital – and the softer propositions like networking."Gen Y are inspired by those with innovation and ideas. As a wealth manager, we must demonstrate that in order to win their hearts and minds."

Keeping up with the next generation’s demands will keep today’s wealth managers on their toes.


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