Generation change needs new approaches in wealth management

$32 trillion wealth is forecasted to transfer from baby boomers to Millennials, over the next few decades, meaning that by 2030 Generation Y and Millennials will hold 50% of the global wealth.

This new generation of high-net-worth individuals (HNWIs) who make up the mass affluent market are digitally savvy and have been used to organising their lives quickly and easily online, placing their trust in products and services offered by BigTech brands such as Google, Amazon, Facebook and Apple, as well as FinTechs. And soon they will be (or in most cases, already are) expecting the same digital ease and convenience in managing their investments, possibly looking towards BigTechs to provide it – which is not a comfortable thought for the incumbents in financial services.

The wealth transfer going down over the next decades will disrupt the investment industry, but wealth managers and investment service providers can not just start preparing for changing client behaviour and needs when Millennials will take over the wealth, they already need to be ready. Clients of all ages are more and more engaged in digital services because Millennials strongly influence the older generations in terms of digital behaviour e.g. communication via chat. So, they continuously enhance the digital appetite of older generations too.

These changes appear in wealth management as well and they result in new client expectations that wealth managers need to meet, such as continual, real-time market updates, analysis, background information and education to be available easily and instantly at their fingertips.

On the other hand, the Y generation only has trust towards big banks, and rely on their personal advisors who help them in their investments. These expectations are transferred backwards to the Millennials as well because of their parents being role models for them in wealth handling.

Therefore we can conclude that the future of the industry lies between the two worlds, in the opportunities provided by the hybrid service model, which is the integration of digitalized robo-advice and traditional advice, where the personal touch still exists as it is an important factor for the new generations too.

The gap between what the industry currently offers and what it needs to offer is big. While studies analyzing the digital appetite show that 80% of clients believe some kind of hybrid advisory model would be optimal for wealth management services, the most widespread channel for communication between advisors and their clients are still phone and e-mail.

Investment software provider Dorsum published a two-part white paper earlier this year and they outline their future vision of the market and they stress the urgent need for the industry to build partnerships and allow the pooling of development resources. To match up to the expectations of this market, traditional investment providers should embrace digital technology as a transformational tool, rather than simply aligning tech with existing business strategy. Based on Dorsum’s market analysis, research and regular workshops with banking decision-makers, they have determined that the best way to set up for a future-oriented hybrid (both human and digital) service model is by establishing a flexible microservices architecture investment ecosystem to deliver personalized experiences for its customers.

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