The fact that young high net worth individuals (HNWIs) are vital to the future of wealth management is evident. Within the U.S. alone, an estimated US$36 trillion of wealth is expected to be transferred from estates to heirs between 2007 to 2061 , in what has been described as the greatest wealth transfer in U.S. history.
This is only part of the story, of course. Increasingly, young HNWIs are entrepreneurs, with plenty of hard-earned liquid assets and a list of distinctive wealth management needs. But what makes young HNWIs tick, how will this influx of young wealth shape the wealth management
landscape, and are wealth managers ready for the complexities of engaging with today's younger generation?
Young HNWIs -- those under the age of 45 -- are already driving wealth management firms to adapt. They have grown up in the digital age and expect to be able to access and manage their money online. It won't be long before the majority of the clients that wealth managers service are digital natives and for some this is already the case.
Wealth managers have not been oblivious to this evolution and have responded by improving digital and online service offerings. This is doubly important in the face of the growing proliferation of automated advisory services. Differentiating against the backdrop of the rise in digital wealth management services -- most of whom provide simple services which only address a small percentage of the needs of HNWIs -- is a real opportunity for wealth managers who wish to retain and grow their client base and remain relevant to their clients.
Indeed, most wealth managers are clearly taking steps to introduce digital services to take into account an increasingly mobile client base. Despite their use of online services, the 2015 World Wealth Report from Capgemini and RBC Wealth Management revealed that young HNWIs actually have a higher preference - and need - for support and professional advice from their wealth manager than older HNWIs.
They also have less brand loyalty, showing a higher propensity to leave their wealth manager if their advice needs are not met. This is particularly the case for the first generation of young HNWIs, whose attitude to wealth management and exposure to advice is less likely to have been passed through generations.
There is also evidence to suggest that some wealth managers are not sufficiently aligning their services with their young clients' biggest financial concerns. The World Wealth Report showed that wealth managers today are overestimating the degree to which they understand the needs of younger HNWIs, with a 15 percentage point gap between how well young HNWIs believe they are understood by their wealth manager and the perception of the wealth managers themselves.
According to the report, the primary concerns of young HNWIs revolve around health and financial planning, fears around assets lasting through their lifetime, being able to afford their preferred lifestyle in retirement, and rising education costs. Regrettably, some wealth managers underestimated the importance of these issues to younger clients by up to 23 percent.
This points to a shift in the way wealth managers will seek to nurture their client relationships in the future. Beyond what is being done at an individual firm level, joint industry initiatives have also been launched to improve the understanding of the needs of young HNWIs. Whilst the points of access with the new generation of HNWIs have undoubtedly changed, there is no replacement for a skilled wealth manager who can provide holistic advice on a client's unique circumstances.
The most successful wealth management firms of the future will be those who can differentiate themselves to appeal to the new generation of HNWIs both online and in person. These firms will empower their wealth managers, invest in training and education, and support full financial planning based on the comprehensive needs of their clients, whatever their age.
This article was originally published in the Dec.8, 2015 issue of Private Banker International.