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What the next generation of millionaires want from their wealth management firm

A crypto ATM.
Reuters/Arnd Weigmann
Lack of digital savvy was one of the top reasons rich millennials ditched their wealth managers.
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Over the next few decades, around $30 trillion in wealth is expected to be passed down from Baby Boomers to millennials. A survey from Capgemini Research Institute found that they’re going to be pickier customers for wealth management firms than their parents and grandparents.

Earlier this year, the French consulting firm examined nearly 3,000 high net worth individuals (HNWI), defined as people with investable assets of $1 million or more. It found that millennials coming into wealth are far more price-sensitive than the previous generation, especially in a bear market. A majority of them are switching advisors to find a better fit compared to what may have worked for older investors.

“We tend to think that the wealthy are not sensitive to fees, but of course they are because they pay a lot of fees,” said Elias Ghanem, head of Capgemini Research. “A lot of fees were covered by the huge performance in the past but as performance declines, fees will be more and more visible.”

The millennial “freemium” mindset” that has developed over the last 10 years is another factor. Younger HNWIs are less willing to pay for straightforward access because they expect that for free in exchange for data or deposits.

About half of millennials surveyed said they had changed their primary wealth management firm in the past year, with high fees and lack of digital expertise among the top reasons. Over 70% of high net worth individuals have invested in digital assets, and for those under the age of 40, that number rose to 91%.

Capgemini observed that millennials prefer a hybrid model for advisory services and information. The pandemic caused HNWIs to reduce dependency on wealth managers and become more actively involved in investing, spurring demand for self-directed tools.

“HNWIs still value human connection and may be willing to pay for it,” said Ketan Samani, chief digital officer at China Development Financial, but he observed that there is a “dichotomy between full-on digitization and personal advisory from the perspectives of products, services, and distribution.”

In two generations, women will hold 70% of global wealth

Wealth asset management firms should also plan for another big change in the investor pool: the growing importance of women. Women will manage two-thirds of household wealth by 2030, and increase their share of global wealth from about half to 70% within two generations, according to the Royal Bank of Canada.

At the same time that women have taken strides in the workforce, much of the fortunes of men who pass away will end up in the control of female spouses who tend to be both younger and live longer, according to an analysis by consulting firm McKinsey. “In the United States, women outlive men by an average of five years, and heterosexual women marry partners roughly two years older,” the firm wrote.

“It’s not saying that women will be rich and men will be poor,” said Capgemini’s Ghanem. “But women are working more, they are highly educated, more engaged, more visible and vocal, when women were previously behind the scenes. What was there, but not mentioned, is becoming quantified. It’s the positive consequence of many years of pushing women to be at the front.”

Despite standing to gain a much bigger share of global wealth, women tend to be less confident than men in their financial decisions, and wealth management firms need to adjust their approach if they want to retain clients, the Capgemini report said.

“Women are more sensitive to advice, to education. Women don’t respond to aggressive selling,” said Ghanem.

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