30 June 2023

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New generations and wealth management

Luigi Campopiano

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From the relationship with money and the financial world of the new generations, three fundamental indications emerge, which can be summarized under three headings:

1. The savings virus has infected the youth. Young people have a rather solid money culture. They believe in and practice saving, understand the importance of savings goals, and are intrigued by investment topics. It is necessary to shift from a culture of saving to a culture of investment.
   
   
2. The Next Gen, investment and the challenge of purposes. This group has a modest financial culture that leads them to approach investments with a more concrete and intelligent approach compared to their parents. Instead of asking "where" and "how" to invest, they tend to ask "why" invest, for what purposes, for which projects? Young people have low confidence in financial solutions and products. Goal-based advice is useful.
   
   
3. Combating the obsolescence of the classic financial toolbox. The financial culture of young people is modest, and their mental map of investment solutions is sparsely populated. Few are familiar with managed savings, funds and other solutions. However, they have two solid references: cryptocurrencies and stocks. While stocks can represent a useful entry point into the world of serious investment, cryptocurrencies risk positioning the investment theme in a logic that may not necessarily be useful for their culture of purposes related to their life projects. However, cryptocurrencies should not be 100% demonized and should be used to foster fruitful conversation. Be aware of the need to reposition classic solutions and bring them closer to the Next Gen. Otherwise, there is a concrete risk of obsolescence of the sector's toolbox and ultimately its marginalization, especially for the new generations.

Is wealth management equipped for active management of the Next Gen? Advisors and their companies should make significant and broad changes because service platforms and advice should go beyond mere financial asset management. 

Today, innovation that appeals to young people (e.g., social investing or equity crowdfunding) involves new hybridizations between classic forms of high-intensity relational consultancy and the applications made possible by high-end fintech. This operation does not have a distant future, but rather, it starts today.

The ability to manage these topics with service models and renewed offerings involves a different management of the current relationship with all family members, not just the family asset manager. 

Investment managers must offer services that are suitable for the needs of each family member and every generation, with flexible and sustainable methods for the family and the bank or financial institution. Transitioning from the monolithic vertical model of the decision-maker to the polycentric and horizontal model of a community with different interests and needs appears to be the turning point to be ready to manage the future and managing generational diversity.