Millennials need a Netflix-type wealth management advice

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The Great Wealth Transfer has commenced.

In the next 25 years, an estimated $100 trillion of wealth will change hands from the older generation to the younger. The bulk of this inheritance will go to millennials, those aged between 25 and 40 years today.

Millennials comprise 25 percent of the global population, make up the majority of today’s workforce, and will reach its demographic peak in 2025 on a global scale. With their combined annual income crossing $8 trillion in the US alone, they will have a dominant influence on consumption, investment, and wealth management.

Rise of the ‘millionials’

The concept of wealth management has been around since the 1930s. Yet, no one generation has changed this industry’s dynamics as much as the millennials.

Worldwide net private wealth is estimated to be close to $500 trillion, and an increasing proportion of this wealth will be owned by adults under 40 in the coming years. Adults who are tech-savvy, inquisitive, risk-seeking, socially aware, and generally considered more independent and tolerant.

Millennials grew up in the digital era, making technology an integral part of their lives and a strong influence in their decision-making. Compared to their parents, they have better financial literacy and are more sensitive towards issues pertaining to the environment, climate change, gender parity, and inclusivity.

Keeping these characteristics in view, wealth managers will have to overhaul their operating models to support new product offerings, modes of engagement, and marketing channels to serve this younger generation better.

Unlike previous generations, millennials readily embrace new and innovative ways of managing finances. They actively seek information and resources to educate themselves and do not just rely on external advice.

Having witnessed a plunge in property prices during the subprime mortgage crisis of 2008, they mindfully choose to keep their financial liabilities low. This gives them the bandwidth and flexibility to take higher risks and invest in various traditional and non-traditional investment avenues.

Demanding clients, different themes

A recent research shows that millennials are one of the most complex, important, and demanding groups of clients for wealth managers to understand and serve. The good news for wealth managers is that millennials are more open than their parents to sharing their transactional data, social media profiles, and even GPS locations with providers in exchange for greater personalization.

Despite their comfort with digital channels, millennials also value the ability to discuss matters with an advisor, whether virtually or in person.

New themes are emerging. The sharing economy, the climate emergency, and inequalities are on the compasses of the younger generation. While yield remains a cardinal point, asset allocation also depends on the values promoted by companies. Hence the rise of green finance products and sustainable investments based on extra-financial criteria like ESG (Environmental, Social, and Governance).

One size does not fit all

So, what is expected of wealth managers?

  • Millennials expect digitization at every touch point and demand personalized experiences. They do not prefer the one-size-fits-all approach for their wealth management services, and would want advice in a Netflix-style’ data-driven and hyper-personalized model.
  • Millennials are more open to taking risks than older generations and are willing to invest in speculative assets, such as cryptos, digital and alternative assets, for higher returns. A recent survey revealed that 46 per cent of millennial millionaires owned crypto-currencies.
  • Millennials prefer to be independent and self-reliant. Wealth managers have to harness technology to educate and guide their clients to make well-informed investment decisions rather than merely prescribing investment plans.
  • Finally, millennials take an active interest in ESG issues and proactively incorporate these philosophies into their investment decisions. It is estimated that 61 per cent of millennial investors currently participate in impact investing, and this share is likely to grow significantly.

As the Great Wealth Transfer takes effect, and about $1 trillion of wealth changes hands in the Middle East by 2030, wealth managers both regionally and globally have to prepare themselves to cater to a new and different cohort of wealthy individuals.

Image by: Pixabay

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Edmund Shing, PhD

Global Chief Investment Officer
BNP Paribas Wealth Management

Edmund has over 29 years of experience in financial markets in a wide variety of positions, ranging from proprietary trading to portfolio manager in a number of financial institutions in London and Paris.  He previously held the role of Global Head of Equity and Derivative Strategy at BNP Paribas in London from 2015 to 2020, and has been Chief Investment Officer at BNP Paribas Wealth Management since November 2020.

Edmund is responsible for piloting our investment strategy and will continues to rollout out recommendations and themes with actionable advice that brings our expertise to our clients and support to our client-facing teams.  In this time of change, his expertise in following and anticipating markets is a true value added for both our customers and those at Wealth Management who serve them.

Edmund has a PhD in Cognitive and Computing Science from the University of Birmingham in the United Kingdom, and has done advanced studies in Knowledge-Based Systems and in Experimental Psychology.  He is an EFFAS-certified financial analyst. He has also authored the book “The Idle Investor” published by Harriman House in 2015, proposing 3 simple investment strategies that take only a few minutes to execute per month.

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