As the “Great Wealth Transfer” is beginning to gain momentum, high net worth individuals (HNWI) are preparing or have already begun the process of shifting their accumulated wealth to the next millennial and Gen-Z generations. According to Cerulli Associates, a total of US$68.4 trillion in wealth across the next 25 years from 45 million households in the US alone will be transferred to subsequent generations. The transfer of wealth towards a younger demographic precipitates a fundamental shift in expectations and preferences; failure to address and satisfy the needs of the new generation may negatively impact long established relationships, leading to outflow of assets under management.

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Given that each year only around 6% of high-net-worth individuals (HNWI) change their wealth advisor according to Crealogix, a degree of complacency pervades the wealth management industry in that there is a belief that client loyalty and long-established relationships remain secure. However, in reality, 80% or more clients of the new generation will change their wealth advisors according to CNBC. A sizeable portion of wealth advisories continue to adopt a “one size fits all” model, in turn failing to provide new innovative services and technological infrastructure to meet the evolving expectations and demands of the new client.

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The new generation of HNWIs are highly tech-oriented and expect greater interaction with their respective wealth advisors through digital channels. Moreover, information and advice must be highly personalised, readily available and delivered through interactive, intuitive and user-friendly platforms. Transparency has never been more important as there is an increased demand for a holistic view and greater awareness over their financial status and investment portfolio.

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In addition, sustainability and climate change are prominent concerns among the emerging demographic of clients; over 86% of millennials are interested in sustainable investing and 61% whom have executed at least one sustainable investment decision according to a 2019 survey conducted by Morgan Stanley. Consequently, wealth advisories should integrate sustainable processes into their value chain to facilitate environmental social and governance (ESG) and ethical impact investing.

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By digitising conventional processes in the value chain, upgrading legacy systems, and establishing multiple social platforms for streamlined interaction — this will enable firms to shift away from the “one size fits all” approach and adopt a “hybrid advisory model”. In turn, enabling them to successfully navigate through the “Great Wealth Transfer” and meet the demands of the new generation.

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A “hybrid advisory model” combines the latest technological developments such as data analytics and artificial intelligence (AI) with human advisory to create an intuitive digital platform/product; 68% of HNWIs prefer a hybrid model as opposed to traditional models as noted by Accenture. Not only is the hybrid model cost-effective but more importantly it directly strengthens engagement and loyalty by enhancing transparency and providing actionable advice that can help achieve the financial and investment objectives of the new client demographic.

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It is imperative to recognise that digitisation does not mean abandoning the personal advisory aspect of the value chain; automation and other technological developments should rather complement and maximise the capacity for the wealth adviser to provide tailored value and advice to their respective clients. Simply put, the human advisory experience cannot be replaced with sophisticated AI algorithms; as remarked by Accenture, 57% of HNWIs believe that human advisors can provide the most insightful customized advice. The “hybrid advisory model” facilitates the shift from a product-oriented to a customer-centric approach, in turn enabling wealth advisories to offer greater personalised products and transparency for the new generation of clients.

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As the “Great Wealth Transfer” is starting take shape, firms will need to recognise that client loyalty is not a given and the emerging millennial and Gen-Z generation of HWNIs have different expectations from their predecessors. Digitising along with integrating technology into the value chain is ever more important if firms want to thrive and survive in the increasingly competitive wealth management landscape.

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At illio, we incorporate machine learning, automation and data analytics into our client-centric portfolio management platform to help family offices and wealth advisories gain a transparent and holistic overview of an investment portfolio. Our platform delivers a technologically driven scalable experience to empower you with the tools necessary to meet agreed investment goals.

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