Traditional wealth managers face uphill struggle to win over millennials

Millennials – they are viewed with fascination, fear and obvious admiration. Interestingly, they also preoccupy the minds of wealth managers in ways that few of their parents or grandparents ever did at this age.

Those of us who are millennials are enjoying all the attention we are getting. Although really just a reference to when we were born (i.e. after 1980), the term ‘millennial’ has long been a byword for a digital native with demanding service expectations. These two behaviour traits are enough to give any firm plenty to worry about. Introduce the fact that we came of age during the global financial crisis, and you can understand why the global wealth industry is facing such an uphill struggle to (re)build trust with us.

In previous years perhaps this did not matter so much. Yet in today’s environment, millennials are being targeted in increasingly sophisticated ways by inventive firms storming onto the scene to offer a new way to look at their investments and build wealth. It may not even matter that these firms are not long established. The fact that they are doing something innovative and relevant to them speaks volumes to their two underlying behavioural traits. Millennials’ custom is therefore there for the taking, and new operators are paying us the compliment of trying to win it.

Facing new competitive pressure, what can traditional players do to improve engagement with millennial investors? Scorpio Partnership’s recent collaboration with BNP Paribas Wealth Management highlights the path forward and suggests adopting a ‘challenger’ mindset to the problem could help.

Client experience – understanding what matters most

Fundamentally, fintech challengers are gaining traction with the younger generation of clients because they have put digital engagement at the heart of the client experience. Fintech founders, often millennials themselves, know they are catering to people who not only prioritise online experiences with firms, but are also actively under-served in that area when it comes to wealth.

Successes of these challengers therefore lie in how shrewdly they understand the barriers to a positive online experience (legacy IT systems, sustained under-investment in technology and lack of user friendliness to name a few), and how enthusiastically they seek to dismantle them.  

Investment philosophy – an opportunity to differentiate

Apply the same principle to millennials’ investment philosophy, and we see that this is an opportunity for distinct differentiation. Yes, good returns are important, but so are unique opportunities aligned to their interests and values – and specifically, ethical investments are key (see chart).

Millennial high net worth individuals (HNWIs) are more likely than any other generation to try to match their portfolio choices to their values. They are also more interested in alternatives, such as private equity and real estate solutions. These investments give exposure to the real economy, outside of what is possible through a traditional portfolio, and as a consequence, they are more focused on the future than their age would imply.

Top five millennial motivations

Source: Scorpio Partnership and BNP Paribas Wealth Management Private Assets Study (2018)

So while they are looking for sustainable ways to grow their wealth, many also maintain that a host of concerns prevents them considering these alternative opportunities. These include: illiquidity, a lack of sufficient understanding around products to make a decision and a lack of time to look at providers. This therefore presents a clear opportunity for wealth managers to step in and service their clients in a differentiated way reshaping some of these perceptions.

Fulfilling needs in the most engaging way

Challenger firms increase the chances of meaningful engagement by using digital to make investment information more dynamic and accessible to their customers. Private bankers have a similar opportunity to build engagement in relation to their investment choices. Of those investing in alternatives such as private equity and real estate, 44 per cent of HNWIs agree their private banker is their most important adviser, ahead of independent research.

Firms therefore need to carefully tailor their communication approach to be truly effective in engaging younger clients. Channels should vary depending on the sophistication of the topic and investor. Digital, for example, is not seen as the best route forward for highly complex topics, with 44 per cent of HNWIs saying conferences and workshops would be more helpful.

Secondly, it is worth keeping in mind that engagement does not mean enticing clients through click-bait on social media channels such as Instagram and WhatsApp. Most clients are open and willing to learn about topics that are relevant to them, so it is up to the wealth manager to add that value by playing the role of educator in an area where expert advice is needed most.

Tasha Vashisht is senior manager, Nikhil Dama manager and Sean Kang director at wealth management think-tank Scorpio Partnership