Millennials are identified as those born between the 1980s and the new millennium. This generation is challenging the traditional way in which financial services are delivered.
The old way of doing business, more in the form of a ‘gentlemen’s club’ where name and reputation were the key to close deals, is facing a tougher reality. Technology, with the availability and instant spread of information, has found its way into the financial system – just think of Fintech companies – and the Asset Management industry is not shielded either.
The new generation has grown experiencing the rise of Internet, terrorism, the financial crisis. These events led Millennials to prioritize peculiar values such as the importance of social responsibility in business, the integration of technology and social media in every-day life and the skepticism towards financial institutions. Because of these elements, they require a different value proposition from wealth managers, who must address their ad-hoc requests, if they do not want to give up on the lion’s share of the future demand. Millennials will in fact be the largest adult segment ever and they will double their wealth before 2020.
Deloitte has performed a recent study that helps identifying some guidelines for wealth management. It has classified Millennials according to their knowledge of the financial system taking into account the diffused skepticism.
To overcome this diffident approach, wealth managers need to reassure the customer providing all the necessary information (e.g. implementing a look-through approach), and being aware that it will be cross-checked through the internet and social networks. Clarity will be essential and price transparency in particular. The millennial client would appreciate for example a fee breakdown explaining the different cost drivers.
The study suggests the wealth manager to adapt its role according to the financial knowledge of the customer. The low/medium instructed millennial wants usually to get a better understanding of the financial markets and the investment opportunities available, thus the asset manager needs to provide detailed and clear information to the client. The conscious investor plays a more active role and takes ‘self-directed’ investments, but needs the wealth manager to support the decision-making process. In both cases, and particularly in the second one, the millennial client expects the asset manager to integrate the proposed service with the latest technology. He/she would keep track of the investments directly from his/her smartphone, in between the usual facebook and instagram check, with the morning cup of coffee.
Technology is indeed part of everyday (and every hour) life and it has become an integrated part of the value proposition of almost every service provider. Social media play an important role, just as well as e-communities, where people help one another on different tasks. One of them is investment decisions, giving rise to the social investing phenomenon. More of a threat for traditional wealth managers is the appearance of online wealth managers, which operate just online thus being very competitive on costs.
While older generations do prefer a more traditional, face-to-face/delegating approach with the wealth manager, Millennials are asking for a different service, integrated with the advance of technology and coherent with their values. To address this change in their target market, asset managers have the option to invest directly in integrating their business model to provide the desired digital services. Alternatively, they could partner with the new tech-players in the industry to fill the knowledge gap.
Either way, a significant change is required for the incumbents to maintain their position in the market.