Article initially published on World Finance. Read the article here.
With the emergence of a new generation of high-net-worth individuals, wealth planners must ensure that they take a flexible approach to investing
Some of the most high-profile global entrepreneurs we know today enjoyed success very early on in their careers: Sir Richard Branson became a millionaire at the age of 23; Carlos Slim, the telecoms tycoon, became a self-made millionaire at 25; and Facebook founder Mark Zuckerberg made his first million at the tender age of 22. Today, the net worth of these individuals runs into billions of dollars.
The world we live in is evolving, and so is the face of today’s high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals. The rapid rise of technology and digital innovation means we are seeing more and more entrepreneurs achieving HNW status at a younger age. According to the Wealth-X report UHNW Millennial Archetype, the number of ultra-wealthy individuals born between 1980 and 1995 currently accounts for 3.2 percent of the global ultra-wealthy population. Although a seemingly small percentage, this group is growing, and growing fast.
This group of individuals – Millennials – are amassing wealth much earlier than previous generations. They are also much more interested in understanding how to use it, while also being more inclined to contemplate the legacy their wealth will create for future generations.
HNW Millennials are eager to become more financially literate and be proactive in understanding where their money is going, in order to take a more hands-on approach to their investments. Almost half consider themselves ‘self-directed investors’, according to Spectrem Group. This means they want advisors who will take the time to educate them about their investment options, as well as wanting access to insights that are specific to their needs and portfolio so that they can make their own decisions.
In an age of constant digital change, innovation and global connectivity, it is no surprise that Millennials also want advisors who are digitally literate. They want easy, digital access to their portfolio information at any time, saving face-to-face meetings with their advisors for major milestones. Accenture’s Millennials and Money report uncovered that 62 percent of Millennial investors want platforms that actively use social media to share financial trends and recommendations.
However, Millennials still expect an on-demand, personal service from their trusted financial advisors. Over half of those with a net worth of more than $1m cited failure to return a phone call and respond to emails in a timely manner as the primary reason why they would change financial advisors, according to Spectrem Group’s research. This reason was closely followed by a lack of proactivity with new investment ideas, solutions and advice.
Today’s wealth planners must recognise that many Millennials expect sophisticated and intuitive technology tools as a basic service requirement, rather than a ‘nice to have’ option. However, they still also expect high levels of responsiveness and a tailored service.
This generation demands options when it comes to how and where their wealth is invested. They enjoy a wider choice of investment options than their parents and grandparents, and are also far more conscious of the broader societal and environmental impact that their investments will have. Of the Millennials surveyed in EY’s 2017 report Sustainable investing: the Millennial investor, 17 percent said they actively seek to invest in companies that use high-quality environmental, social and governance standards, compared with only nine percent of non-Millennial investors. Another 15 percent said they were interested in investing in companies and purchasing products from sustainable brands.
Having earned their wealth at such a young age, their investment horizons are considerably longer than their older HNW peers, so this generation is also more likely to look at higher-risk speculative investments. Accenture’s aforementioned report showed that they are also more inclined to invest in commodity options, while a third are interested in investing in non-traditional assets, such as hedge funds and private equity companies.
Optionality requires a high degree of flexibility from a wealth planner. Such flexibility is also essential when catering for international individuals. Many HNW individuals of this age group consider themselves ‘global citizens’, having potentially grown up in one country but been educated in another, with business interests and assets now spanning a number of countries. The flexibility of this global citizenship brings added complexity to wealth planning, and so requires portable solutions across multiple jurisdictions.
Providing the optionality required to meet the demands of this new age of investors may prove challenging for some wealth planners. However, it will create opportunities for those who have the expertise and flexibility to tailor their offering to suit this new generation of HNW investors and entrepreneurs.
By 2020, the total net worth of affluent Millennials is expected to double and reach between $19trn and $24trn, so it is crucial for industry players to find a way to engage with this important target audience in order to stay competitive. In the context of greater demand for digital solutions, personalised interaction and a greater desire for investment optionality, there is a clear need for wealth planners to innovate and tailor their solutions to appeal to the new face of private wealth.