As demographic shifts begin to take place, a new report indicates that Betterment and Charles Schwab are leading the way in the wealth management industry in preparing for generational wealth transfer.

GlobalData’s new report Demographics in Banking tracks key trends across technology, macroeconomics and regulation relating to upcoming demographic shifts. The report maps out demographic differences in approaches to financial products and identifies how companies are adapting to these shifts across payments, retail banking and wealth managers.

Due to the largest transfer of wealth in history already being underway, financial services are anticipating and adapting to these shifts. GlobalData estimates that $8.6trn of assets will be transferred to younger generations by 2029. Some of the main macroeconomic themes impacting demographic themes, according to GlobalData are rising interest rates, the gig economy, reshoring, subscription economy and ESG.

In the macroeconomic theme, the report explains how interest rate increases due to persistent inflation in the UK and the rest of Europe present opportunities for banks, however, lending must be prudent concerning credit risks and liquidity. GlobalData identifies that whilst wealth management employees may lack the skills to navigate this challenging underwriting and lending landscape, digital lending solutions such as Goldman Sachs’ Private Bank Select are being utilised to extend lending facilities to third-party advisors.

In wealth management, Betterment and Charles Schwab are leading the way. The report highlights that Betterment’s partnership with Lumity which offers an employee benefits and health insurance marketplace, helps to embed the company in the minds of younger generations who already have savings to invest.

Meanwhile, Charles Schwab has positioned itself well to retain HNW wealth over generations via its Custodial IRA. This is an accountant that a parent can open as a custodian for a child under eighteen who is designated as a beneficiary for the retirement account. By building these relations with heirs to large amounts of wealth, Schwab may be able to retain clients from younger generations.

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Shifting Preferences

GlobalData’s research also highlights that 18-25 research financial products in a different manner to previous generations, they are more likely to choose a provider based on recommendations from family and friends, than go into a branch to find out more information.

Online networks and influencers also play a role in this, with more individuals in these age brackets looking online for this information due to declining trust in traditional media. Gen Z and millennials have a preference for more sustainable investment which may shape financial services as they acquire more assets.

Despite this, younger generations do represent an opportunity for financial services providers as GlobalData research has found that 18-24s are more open to premium features than previous generations, with 39% not wanting to pay for any additional features compared to 59% of the general population. In terms of the function of these premium features, the preference points towards features that would enable consumers to get rewards or cashback.