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.
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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. 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. 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. 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. 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. 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. 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. 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.
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. Failure seamless, liquid user-experience across multiple
to adapt will result in a continued mistrusting. channels.
In 2015, over 80 percent of millennials own a As shown in the case of e-Toro, digital firms can help
smartphone with numbers steadily growing. 89 percent to address the gaps between expectation of the
of those millennials check their mobile devices within next generation HNWIs and the offerings of wealth
the first 15 minutes of waking. Checking on social management providers. Offerings from digital firms
networks represents the first action in 37 percent of responding to the demand of millennials vary widely
those cases. Leveraging this kind of interaction is at and can be clustered into three main client segments
the core proposition of each new technology firm. One (see figure 1):
example is E-Toro, an e-community for forex enthusiasts 1. Clients who possess low-to-medium level
which pushes new investment ideas and headlines to of financial knowledge
the mobile users in real time. A direct connection to
2. Clients who prefer to be self-directed in
the in-house brokerage service ensures that users are
their investments
always ready to make swift investment decisions at the
tip of their fingers thanks to the 24/7 connectivity of 3. Clients who hold a negative perception of
the service. their advisers

Figure 1: Clustering of digital firms' offering in three main segments

The novice The loner The cautious

Low financial knowledge Self-directed Negative perception
Your future investor Your future enthusiast Your future referrer

• Concise information • Detailed information • Clear information

• Simplistic investment data • Technical investment data • Transparent investment data
• Social media interaction • Real-time access to data • No hidden fees or kick-backs
Information

• Virtual investment portfolio • Social investment clubs • Face-to-face consultation

• Investment learning tutorials • DIY structured products • Performance-based fees
• Passive investment mandate • Algorithmic trading solutions • “Case-by-case” pricing
Services

• Demo trading account • Algorithmic investment tools • Online meeting feedback

• Simple portfolio builder • Custom invest. product builder • Adviser peer comparison
• Online investor school • Mobile investment solutions • Benchmark my performance
Technology
To avoid disruption, traditional wealth management Irrespective of the applied option, private banks will
firms will need to transit into the digital age. Once the need to become a part of the digital wealth eco-
decision to proceed is made, there are two possible system.
options to consider.
All wealth managers are facing new marketing and
First, there is the possibility to invest in the digital product development challenges from the millennials
experience. Providing digital offerings requires building generation and need to respond accordingly. The
a strong fundament of capabilities such as requirements longer wealth managers delay in doing this, the more
engineering, user-experience design, technical costly the change is likely to be when it finally becomes
architecture, development services and digital channel inevitable. Furthermore, they risk losing market share to
marketing. Furthermore, it necessitates investing in early adopters. Another value of millennial consumers is
the right infrastructure (digital platform, products, not just in the scale of the opportunity they represent,
services, channels) and employing key resources to drive but in their capacity to drive changes across the
the implementation (software developers capable of entire bank. These changes can deliver benefits to all
developing and delivering modern financial technology, generations and create more valuable franchises and
advisers trained in using digital, UX specialist, data channels for those banks that rise eagerly to meet the
engineers, financial modelling experts) to deliver a millennial challenge.
state-of-the-art digital experience to the customer.
Recent announcements of global wealth management
For wealth managers who prefer to stick to their core providers about investments in their future, such
business of offering investment services, the second as the launch of digital programs, indicate that the
option to form strategic partnerships might be a industry is starting to respond to the rising demands of
better fit. Long-established wealth managers can the millennials clientele. However, not all banks have
form partnerships with firms that can fill the gaps of accepted this challenge yet.
knowledge, technology, and skills required in the digital
environment.