Independent Wealth Managers: Demographic and Socioeconomic Trends

Independent Wealth Managers (IWMs) have traditionally segmented their clients on the basis of AuM, risk appetite or residence in the case of international clients. However, socioeconomic and demographic shifts are paving the way for new segments that do not fit the traditional approach. Two new segments of nontraditional clients present significant growth opportunities; female investors and millennials. They form segments of underserved customers with unsatisfied values and expectations (Ernst & Young, 2016a). These behavioral characteristics must be a new axis of segmentation that allows for offering to be customized.

Millennials are going to be the largest adult segment by the end of 2020 and they are also expected to grow their wealth significantly in the next few years, but most millennials are not yet considered to be wealth management clients. Millennials will drive some additional challenges as their behavior has been shown to be different from that of traditional investors. They will be much more responsive, Internet-driven (digital media and digital communication) and active (Visioncritical, 2016). They will not consider financial success as the sole achievement factor (UBS, 2014) and give more value to companies which are socially responsible or even impact investments (Ernst & Young, 2017). As digital natives, millennials have much higher expectations in terms of communication and transparency. For example, 81.7% of millennials in an average month access banking or financial information on their phones (Domo, 2015). Technological progress and changing demographics mean that IWMs will be dealing more often with younger clients. The pressure on prices varies depending on the client segments, price sensitivity being more pronounced among international and young clients. Among the latter, many are no longer inclined to pay an extra premium for a private advisor and they are opting for direct investments and using on a limited extent the support of IWMs.

Women control over USD 20 trillion (27%) of the world’s wealth (Hewlett et al., 2014), and the amount women control is growing rapidly in many economies; in the light of this, women are going to be more than a niche market. But women do not perceive wealth in the same way as men; they show preferences that differ from those we see traditionally in male investors. With respect to investment style, women are more conservative long-term investors than men; Charness and Gneezy (2012) found strong evidence of this assertion. Women feel far more intensely than men about the political, social and environmental impact of investment decisions; they tend to be drawn to socially responsible corporations with diverse leadership and causes that support their values (US Trust, 2013). They view investments more personally and have a greater attachment to where they choose to direct their money, rather than only requesting out performance over a benchmark. Education is a critical service offering as women are interested in knowing what investments are being made and why. It is clear that for firms to succeed with women investors a cultural shift is needed.

Each IWM, as a matter of positioning, must define the type of clients he wants to develop. IWM may want a capital preservation-oriented client or a client of a certain size, or a moderate risk-taking investor or the opposite. In reality, the clientele has never stopped changing but, when considered as a whole, it has rejuvenated due to the arrival of business owners derived from the technological world who own significant wealth. There is quite a big difference between local clients and international clients from emerging countries where entrepreneurs are mostly young people.

Yves Reichenbach (April 2018)

References

Charness, G., Gneezy, U. (2012) ‘Strong Evidence for Gender Differences in Risk Taking’, Journal of Economic Behavior & Organization”, 83(1), pp. 50-58.

Domo (2015) Millennials and Mobile Technology: Adjusting to a Mobile-first World. Available at: https://web-assets.domo.com/blog/wp-content/uploads/2015/08/r02_domo_millennials_report.pdf.

Ernst & Young LLP (2016a) Harnessing the power of women investors in wealth management. New York: Ernst & Young LLP.

Ernst & Young LLP (2017) Sustainable investing: the millennial investor. New York: Ernst & Young LLP.

Hewlett, S., Moffitt, A., Marshall, M. (2014) Harnessing the Power of the Purse: Female Investors and Global Opportunities for Growth. New York: Center for Talent Innovation.

UBS (2014) Think you know the Next Gen investor? New York: UBS Financial Services Inc.

US Trust (2013) Women and Wealth. Available at: http://www.ustrust.com/publish/content/application/pdf/GWMOL/ARS7ME57.pdf.

Visioncritical (2016) The Everything Guide to Millennials. Available at: https://www.visioncritical.com/wpcontent/uploads/2016/07/The_Everything_Guide_To_Millennial_eBook.pdf.

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