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Millennials and wealth management - Inside Article …

Millennials and wealth management Trends and challenges of the new clientele Dr. Daniel Kobler Felix Hauber Benjamin Ernst Partner Senior Manager Senior Consultant Head of Banking Strategy Consulting Banking Strategy Consulting Banking Operations Consulting deloitte deloitte deloitte The financial crash and the volatility of the markets have led to a state of general distrust toward financial institutions, especially among the Millennials . Furthermore, this clientele imposes other requirements on wealth managers than the previous generations. The fact that Millennials will be the largest client group is therefore driving many wealth managers to assess their business model as well as the way in which they interact with clients to identify which adjustments are necessary to successfully serve Millennials . Early adoption will enable them to protect market share and keep their leading position. This Article highlights the trends and challenges of the new clientele for the private banking industry.

Millennials and wealth management Trends and challenges of the new clientele Dr. Daniel Kobler Partner Head of Banking Strategy Consulting Deloitte

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Transcription of Millennials and wealth management - Inside Article …

1 Millennials and wealth management Trends and challenges of the new clientele Dr. Daniel Kobler Felix Hauber Benjamin Ernst Partner Senior Manager Senior Consultant Head of Banking Strategy Consulting Banking Strategy Consulting Banking Operations Consulting deloitte deloitte deloitte The financial crash and the volatility of the markets have led to a state of general distrust toward financial institutions, especially among the Millennials . Furthermore, this clientele imposes other requirements on wealth managers than the previous generations. The fact that Millennials will be the largest client group is therefore driving many wealth managers to assess their business model as well as the way in which they interact with clients to identify which adjustments are necessary to successfully serve Millennials . Early adoption will enable them to protect market share and keep their leading position. This Article highlights the trends and challenges of the new clientele for the private banking industry.

2 57. Millennials are going to be the largest adult compared to 2015, with estimates ranging from US$19. segment by the end of the decade to 24 trillion. Certainly most of the Millennials are The population of Millennials also known as currently still in the phase of creating wealth , but there generation Y has been constantly growing over the is going to be a massive shift in the future driven by past years and this year it will be the largest generation three major trends. First of all, with an age ranging from ever. The term Millennials is usually considered to 18 to 34 at present, Millennials are about to enter their apply to individuals who were born after 1980 and prime earning years, resulting in a meaningful increase reach adulthood with the turn into the 21st century. of liquid assets. Second, being self-employed as an In 2015, it is expected that 40 percent of the global entrepreneur is a key role model for the Millennials and adult population will be under 35 years old with this will accelerate the increase of assets.

3 In developed strong growth rates predicted for the coming years. countries, 54 percent of the Millennials started or It comes as no surprise that Asia represents the largest plan to start their own business, while 27 percent proportion nearly two-thirds of the Millennials are are already self-employed. Furthermore, Millennials Asian however developed regions, such as Europe and will benefit from the wealth of their baby boomer the Americas, represent a significant proportion with parents. Nowadays more than two-thirds of the wealth more than 25 percent as well. managers' clients are over the age of 60, driving the future wave of inheritance. These are a few reasons Whilst being the largest adult segment, Millennials why wealth managers should start focusing on the are also expected to grow their wealth significantly in Millennials . the next years. Until 2020, the aggregated net worth of global Millennials is predicted to more than double Millennials ' behavior differs significantly compared to the previous generation When dealing with Millennials , banks are more and In developed countries, 54 percent more challenged by the fact that this segment is demonstrating different behaviors compared to older of the Millennials started or plan to generations.

4 In terms of personal values, 75 percent of Millennials want to stay authentic and refuse to start their own business, while 27. compromise family or personal values. In addition, almost two-thirds are not only concerned with the percent are already self-employed state of the world, but also feel obliged to change something. This is reflected by the fact that Millennials First of all, banks need to overcome the lack of trust refuse to consider money as sole success factors resulting from the financial crisis. Although 72 percent and give more value to brands and employers who of the Millennials describe themselves as self-directed act socially responsible. With regard to economic with direct control over their wealth , they also tend conditions, Millennials were highly influenced by past to lack financial knowledge compared to older crises. The financial crisis, as well as the volatility of generations. 84 percent of Millennials seek financial financial markets, made Millennials relatively cautious advice clearly highlighting the fact that, despite the and conservative in regard to financial matters.

5 At the skepticism about advisers, the necessity for world class same time, Millennials highly demand and make use of investment advice is still in demand. Furthermore, banks technological advances. Consequently, they consider need to compensate the risk-aversion of Millennials technology and online platforms an important aspect resulting in lower revenue margins. Less than 30. of financial advice. 57 percent would even change their percent of Millennials ' wealth is invested in stocks bank relationship for a better technology platform and, contrary to the previous generation, they prefer solution. All of those trends are determining the way physical assets as well as cash and demand simple, wealth managers should interact with Millennials . clear and straightforward products. The current low interest rate period is certainly influencing this behavior; Implications for wealth management firms yet it is still expected to differ significantly from the The different behaviors derived from the personal previous generation.

6 On the other hand, Millennials values of Millennials implicate new challenges to are increasingly demanding socially responsible or even wealth management firms. The need and individual impact investments and tend to mistrust social security characteristic of the Millennials are not as yet systems for their own retirement needs, which gives rise adequately met. It is possible to differentiate three types to a new line of product offerings. and characteristics of Millennials . Another trend requiring wealth managers to react is Many Millennials possess a low-to-medium level the way Millennials are seeking classical investment of financial knowledge. For these clients, wealth advice. Millennials increasingly consult peers and management firms need to find out how strong media before acting on adviser recommendations; the interest for a deep financial understanding is. less than 10 percent of investment decisions are made If the need to get a deeper insight exists, wealth alone.

7 At the same time, word-of-mouth and personal management firms are obligated to find a way to recommendations significantly influence the buying educate the client on financial terminologies and decisions of about 50 percent of Millennials . However, products based on the prevalent knowledge. The Millennials still value traditional media and face-to-face language, which the wealth managers use, has to be meetings for advice, 82 percent would even appreciate clear, simple, and understandable for the unexperienced more personal meetings with their investment adviser. Millennials . This clearly highlights that the majority of Millennials regard technology as an additional way to communicate As a wealth manager, it is required to understand that and invest, but not as a substitute for personal the advice will be cross-checked with external sources, interactions provided by a wealth manager. as Millennials tend to not fully trust their adviser.

8 This raises the next characteristic wealth management firms need to address: a lot of Millennials have a negative perception of financial advisers. To overcome this negative attitude, wealth Almost 90 percent of millenials management firms initially need to focus on the pricing transparency. All fees should be clear, reasonable and fair to the client. In this context, flat fees are problematic and less accepted than a performance fee. check their smartphone within Furthermore, it is unconditionally compulsory to offer customized advice, keeping in mind unique needs. A the first 15 minutes of waking wealth management firm must therefore also possess a certain skillset in more specific areas such as alternative investments, markets and products. As digital New firms are leveraging digital technology natives, Millennials have much higher expectations to to disrupt financial services communication and transparency. This also includes The change in client needs and the new digital social and environmental aspects.

9 Technology have given new opportunities to financial institutions with innovative revenue models. There Another characteristic of the Millennials is their are wealth management providers that offer all preference to be self-directed in their investments, their services online. The online advice and offering assuming they do understand the financial markets in algorithmic trading solutions enable cheaper and know the diverse range of products. wealth alternatives to managed accounts from multichannel management firms are required to offer the necessary wealth managers. Another new business model is channels for this client segment. They should get the known as social investing. E-communities connect support of the wealth manager if needed, supporting investors from different backgrounds around the them to make their investment decisions by themselves. world to online platforms where they share investment Products should therefore be designed in a way that ideas, see others' portfolios and are able to copy other resonates well with the customers' expectations, investors' investment strategies.

10 With a special focus on state-of-the-art technological platforms. Technological communication platforms Successes of those business models can be attributed need to be able to transfer information about their to the right understanding of client channel behavior. wealth quickly and at every point in time during the Whilst older generations baby boomers and investment cycle. generation X have a higher preference for more traditional channels such as personal interaction and It is absolutely essential, therefore, that services have mail, Millennials have embraced newer technologies a value-added function in a quality visible for the to interact with their financial institution. Digital firms Millennials . To generate this value, wealth management manage to leverage new technologies to deliver firms should reflect the voice of the customers in target products and services to customers by offering a aspects of marketing, products and operations.


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