While the number of millionaires continues to rise, the demographics of millionaires are changing. And with them their expectations and needs. For the consulting firm Capgemini, both to retain their clients and to access under-exploited segments, wealth management professionals will have to rethink their business strategy by relying more on digitalisation and hyper-personalisation of the client relationship.
“The demographics of high net worth individuals are changing, with more and more women, LGBTQ+ individuals, and members of generations Y and Z now seeking wealth management services. These emerging client segments each have their own values, preferences and requirements that many wealth management firms are currently unable to meet. As a result, many of these high net worth individuals are turning to more suitable competitors or smaller family offices,” says Weekers, adding that “traditional” asset management companies will have to adapt.
Multiple and diversified expectations
He gives several examples. The first is that of women, who are expected to inherit 70% of the world’s wealth over the next two generations. “They are looking for companies that provide not only transparency on fees and data security, but also education on how to grow that wealth.”
He also cites LGBTQ+ families whose wealth and estate structuring now requires sharp experts.
“The boom in the tech sector and the rise of venture-backed unicorns have created a unique group of ‘tech-wealth’ millionaires, and this large segment of high net worth individuals offers huge potential for wealth management firms, but only 27% of firms report actively targeting these prospects.
“Similarly, 39% of generation Y high net worth individuals have switched managers in the past year due to a lack of transparency. They often turn to new wealth managers who offer more digital interaction, training and are more convenient,” states Weekers.
He says that wealth management professionals need to improve the client experience. “More and more wealth management firms have created a new position of chief customer officer, designed to maintain intimacy with clients and put them at the heart of the wealth management process. This role is about leveraging the strengths of data and digital across the organisation to meet complex and evolving customer demands and build loyalty.” It is an example that he hopes will become the new norm.
Upsurge in new modes of investment
The arrival of new investment methods is also turning the wealth management sector upside down. And this will further force “traditional” asset management companies to adapt.
This is the case for ESG investing, which is expected to reach the $5trn mark in assets under management by 2025.
55% of high net worth individuals invest in such assets with a strong desire to make an impact. This proportion varies according to geographical origin--69% of Asian millionaires are active in this niche, compared with 66% of Europeans and 55% of North Americans--and age--millionaires under 40 are much more sensitive to these themes than their elders. 80% of them are involved in these topics, compared to 33% of those aged 60 and over. The level of wealth also plays a role. 78% of millionaires in the $30m+ asset bracket are interested in this theme, compared to 44% of wealthy people with wealth between $1m and $5m.
Most importantly, 64% of high net worth individuals ask for ESG scores to see the societal impact of a fund. But 40% of asset managers find it difficult to display an accurate ESG impact. It is a gap that may prove problematic in the long run.
The boom in digital assets
Digital assets are also making their appearance in the palette of asset management companies and in their clients’ portfolios. Although the market remains marginal--there are 16,000 crypto-currencies with a capitalisation of $2trn, “roughly the same as Apple’s capitalisation”--they are attracting investor interest. 71% of wealthy individuals have invested in this segment. This proportion rises to 91% among those under 40.
Direct investments in crypto-currencies are the most popular (39%), followed by indirect exposure via ETFs (33%), digital security tokens (28%), investments in the metaverse (21%), digital assets such as domain names (20%), non fungible tokens (19%) and investments in startups via private equity (15%).
According to Weekers: “This new demand poses challenges for asset management firms who need new product and education capabilities, as well as ecosystem partnerships to diversify portfolios of digital offerings.”
This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link. Originally published in French by Paperjam and translated for Delano.