Across the financial services sector, a massive transition is currently underway. Wealth is being passed from some of the world’s best off to their next in line. In the US alone, more than $84 trillion is set to be transferred from the ‘baby boomers’ to millennials and even Gen Z in the next few years in a process that is widely being referred to as the ‘Great Wealth Transfer’.
In 2020, baby boomers held approximately 57% of all wealth and assets in the US economy, whereas by contrast, millennials owned just 3%.
What does this mean for wealth managers?
Financial advisers, wealth managers and banks will have to prepare for the transfer of their current clients’ assets. And despite the fact that the passing down of generational wealth is a trend as old as time this next phase has wealth managers, and the wider financial services sector, worried.
This is largely due to the fact that millennials and Generation Z have completely different preferences to that of the generations before them, particularly when it comes to their approach to technology.
No longer do the wealthy simply want to have a good relationship with their wealth manager and assume they are taking good care of their investments. They have far higher customer service expectations –they demand around the clock visibility and support, without having to necessarily speak to their fund manager.
Thanks to technology, this is now possible, but this generation won’t stick around if they’re receiving a service that falls short of their expectations. Most studies suggest that 80% or more will look for a new financial advisor once their wealth has been inherited, so there is no time for the financial services sector to rest on its laurels – firms need to ensure that they are getting ahead of the game now.
What to bear in mind
There are several things to bear in mind when preparing for what we might refer to as the ‘Great Tech Transfer’, all of which can be tackled head on by adoption and implementation of technology:
- Firstly, the customers in these generations will adopt a no-tolerance approach to financial systems suffering from downtime, and therefore there is greater demand for banks to have bullet-proof operating systems in place. According to ITIC, 44% of firms indicate that hourly downtime costs exceed $1 million to over $5 million, exclusive of any legal fees, fines or penalties.
- Whilst wealth managers may be on the front line when it comes to the wealth transfer, retail banks need to act too. It’s not just the wealthy that are demanding more when it comes to services, it’s the view of an entire generation.
- Observability will play a key role in ensuring that financial systems risks are mitigated, and that firms can learn from every disruption to help better safeguard their future operations. ‘Observability’ instead of ‘monitoring’, is the key word here. It’s about unknown-unknowns instead of known-knowns. Monitoring tells you if the system works, while observability answers the question as to why it’s not working. Achieving real-time observability of all relevant structured and unstructured data without disruption is vital – utilising technology to ensure this can dramatically reduce the time it takes to resolve faults should they occur. Added to that, the importance of early notification of faults means they can spot and correct them before they escalate.
Lastly, the reputational cost of an outage is increasing from both the customer and regulators perspective with every fault that occurs. Customer dissatisfaction here could very quickly cost banks their long-held reputations.
The role that technology will play in ensuring firms meet this incoming generation’s expectations when it comes to wealth management is key – and should not be underestimated. Whilst a printed monthly statement still worked five years ago, clients now expect their banks and wealth managers to offer this kind of service via a powerful app.
Firms must have the solutions in place to ensure they are ready to tackle the ‘Great Tech Transfer’ head on, and those that do will have the best chance of retaining this wealth as it transfers between generations, and the edge on their competitors. By Guy Warren, CEO at ITRS 
