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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.
The $100 trillion wealth transfer from older to younger generations is set to reshape the wealth management industry, as younger investors plan to move their money to new advisors, according to a new report.
A new survey from Capgemini shows that 81% of “next generation millionaires,” or those set to inherit large wealth from their families, plan to replace their parents’ wealth management firms. Most cited poor digital offerings or a lack of services and products.
“We were staggered when our research came back with that number,” said Kartik Ramakrishnan, CEO of financial services at Capgemini. “What that generation looks for is different from what that previous generations have looked for.”
Understanding the next generation of inheritors will become increasingly critical to wealth managers as a historic transfer of wealth gets underway. According to Cerulli Associates, more than $100 trillion is expected to flow from baby boomers and older generations to heirs and spouses. A majority of the transfers (over $60 trillion) will come from millionaires and billionaires, representing the top 2% of households by wealth. And most of the flows will be in the U.S.
The firms that can best attract, retain and cater to the future of wealth will be best positioned for the future. More than two-thirds of wealth-management executives surveyed by Capgemini said they were focused on engaging the next generations.
Yet the gap remains wide. A majority (58%) of executives surveyed admitted it was “challenging” to build relationships with the next gen. Beyond age differences, the new breed of inherited wealth (those born between 1965 and 2012) are dramatically different from boomers when it comes to investing, priorities and lifestyles.
Here are five of the top priorities of the next generation and how wealth managers can best adapt:
1. Embrace risk
Young investors traditionally take more risk, given their timelines and age. Yet even adjusted for age, millennials and Gen Zers like to live further out on the risk curve, with meme stocks, stock options, cryptocurrencies and other more speculative asset classes.
While the chief goal for wealthy boomers is wealth preservation, the next gen seeks aggressive growth, according to the Capgemini survey. The flood of online investing videos and explainers have also given younger investors more confidence taking risk.
“It’s a combination of both age, risk propensity and awareness,” Ramakrishnan said. “It’s the ability to find out more, to learn more, to get better knowledge of how they could invest.”
2. All about the products
While older investors lean toward stocks and bonds, younger investors want more crypto, private equity and overseas investments. Fully 88% of investors say the next gen has more interest in private equity than baby boomers.
Capgemini said younger investors believe strong returns can no longer be driven by just stocks and bonds, and that private equity and other alternatives can provide better long-term growth. Private equity is also becoming more widely available through lower minimums and third-party asset managers.
While young investors want more crypto, two-thirds of wealth managers surveyed by Capgemini say they don’t have investment options for emerging asset classes, including crypto.
Young investors are also more likely to venture overseas with their portfolios. A majority of millennials and Gen Zers say they want “enhanced offshore investments,” according to the survey. Of particular interest are the new wealth hubs around the world, including Singapore, the UAE and Saudi Arabia.
The next generations “are more global,” Ramakrishnan said. “They have traveled more. They understand global dynamics. That enables them to be interested and get some of the returns that they’re seeing in in these in these markets.”
3. Live the digital life
Young investors are digital natives, yet wealth management firms have been slow to adapt — still leaning on in-person meetings or phone calls for many client interactions. While 78% of baby boomers prefer face-to-face meetings over video calls, millennials want mobile apps that allow them to access and trade their portfolios.
“This is not a ‘let’s sit down with you once a year and walk you through how your portfolio is doing,’ or once a quarter and walking through your portfolio is doing,” Ramakrishnan said. “This is an active engagement channel and with consumable nuggets of information that they should get.”
Two-thirds of millennials say they expect advanced digital offerings from their wealth managers. Nearly half complain of a lack of services available on their preferred digital channels.
Aside from useful content in short “nuggets,” next generation investors want real-time access to all their financial information in one place, according to the report. They also want “intuitive tools for decision making and secure transaction capabilities,” according to Capgemini.
4. Educate don’t denigrate
More than two-thirds of baby boomers want the next generation of inheritors to receive financial education to manage their inheritances responsibly. Yet many of the education programs from wealth management firms aren’t proving effective. Some say the programs are too dry, or talk down to younger investors, or feel outdated.
“It’s not just putting out these huge reports that talk about the impact of interest rates and what is happening with the market,” Ramakrishnan said. “That’s hard for people to consume. It’s got to be something that’s simplified, that that people can pick up and something that’s actionable.”
Josh Brown, the CEO of Ritholtz Wealth Management, which has built a large following among GenZers with its podcasts, blogs and social media, said young clients want more authentic, personal communications.
“”The new generation grew up following people, not companies,” Brown said. “The winners in today’s world are the firms that marry personalities and people the audience cares about with great products and services. We figured out years ago that it’s make someone into a fan first and those fans become your potential clients.”
5. Managing a lifestyle
Along with tailored investment strategies, young investors are looking for a broader range of services related to their wealth. Estate and tax planning are key, along with philanthropy advice, according to Capgemini. They also want a growing list of concierge services, from luxury travel and bespoke experiences, to advice and insights into luxury purchases, including fashion, beauty, jewelry, wine and spirits.
Despite their youth, next generations are also looking for quality advice on medical care and wellness, along with education advisory (i.e., admissions). Goldman Sachs, for instance, partners with a London-based concierge to offer medical concierge support, in-home consultations with doctors and education advisory.
Cybersecurity advice is also a fast-growing service for wealth management firms.
“It’s that ability to get something that may be exclusive, that they may not be able to get otherwise,” Ramakrishnan said. “The next generations are more experience-driven than product-driven. So it’s not about just buying luxury goods; it’s luxury experiences, tailored experiences. Those are the kinds of partnerships that the wealth management firms can provide that will make and increase loyalty among that customer.”
