By Spiros Mouratis, Financial Services expert at PA Consulting

With the greatest generational transfer of wealth in history due over the next 20 years, how will Millennials and Gen Zs want to invest their money and are financial institutions prepared to adapt to meet their investment and financial needs?

There is a clear generational divide in wealth:

• In the UK, approximately £5 trillion GBP of wealth is projected to be inherited by Millennials (born 1981-1996) and Generation Z (born 1997-2012) from Baby Boomers (born 1946-1964)
• In the US, this amount explodes to approximately $35 trillion dollars

Coupled with the wealth divide, there is also a generational divergence in the value systems influencing consumer behaviour, such as sustainability and company ethos. It is therefore vital for financial services organisations to understand what the next generations are looking for and how to ensure they are meeting those needs.

While our recent study of 3,500 consumers found the 60+ age group cares more about all areas of sustainability than any other age groups, there are some key divides between generations, with Millennials and Gen Zs being referred to as ‘wellness consumers’, more willing to alter their way of life for health, ethics and the environment.” For example, reducing meat consumption or taking on a vegetarian/vegan diet for environmental reasons and being prepared to take a pay cut and change companies to gain a better work-life balance and greater job satisfaction.

These are important factors for financial institutions to consider and how aligned the next generations will feel to their organisation’s values. 

Technology’s role in customer experience

For younger generations, technology has become a key facilitator of everyday functions, such as communication, retail and grocery shopping, banking, investing, learning and working. We are only starting to dip our toes into the ‘anything as a service’ future, with Millennials leading this, and prompting companies to rethink the underpinnings of Business-to-Consumer (B2C) operations.

To remain relevant in this online market, companies must strive to offer 24/7 services with the best customer support, and this must filter down to financial services. They need to ensure they are reimagining customer experience, including:

• Setting a vision for personal, seamless, immediate and meaningful target experiences for customers and employees
• Embedding the right technology to realise this vision – what other sectors can they draw upon for this?
• Embedding agile ways of working to enable teams to react fast to future customer, employee and market trends
• Drawing upon customer insight to understand how people inside and outside their organisations interact with them on- and off-line, where the pain points are and where the opportunity lies

Future investing

Despite having less accumulated wealth, Millennials were found to earn more, save more of those earnings, and start investing earlier when compared with Baby Boomers. On early life investing it was found by the CFA Institute that more Millennials and Gen Zs had a form of investment before the age of 21 (31% and 14% respectively) when compared to Baby Boomers (9%).

Approaches to investing have also changed, with ‘Do-It-Yourself’ (DIY) investing becoming the new norm, and Millennials being more adventurous and happier to invest without the help of a financial advisor. Ease of access to online investing platforms and resources has driven a rise in the DIY approach, with widespread availability of online financial reports, educational materials, market analysis, simulators and advisors.

Millennial and Gen Z generations also lead the way in investing in companies with high Environmental Social and corporate Governance (ESG) scores, where ESG scoring can act as an indicator of a company’s sustainability and is increasingly used to guide investment decisions. It’s been found that the majority of Millennial investors actively invest in companies that not only delivered good financial returns but also had a positive social and environmental impact. This shift in investment choices of younger generations has driven an increase in ESG funds and re-allocation of capital towards ESG investments, with an upwards trend predicted in the years to come.

Millennials are also investing more in digital currencies and more specifically cryptocurrencies, with almost 50% of Millennials owning cryptocurrency compared to 22% of Baby Boomers. Despite the high risk and volatility of crypto-assets, Millennials and Gen Zs choose to include cryptocurrencies in their investment portfolios, some even including them in their pension portfolios, as they believe they are the future of finance.

Disruptive platforms 

Over the past couple of decades, a significant number of established industries have been disrupted by new technology start-ups; Uber in the taxi industry, Deliveroo in food-delivery, Airbnb in hotels, and of course, the financial services sector was no exception. In the retail banking sector, many Neobanks have made their debut in the past 10 years: Revolut, Monzo, Starling and N26 are now some of the biggest players in the UK and Europe. When it comes to investing, apps like Robinhood in the US, Etoro, Revolut and Freetrade in the UK and Europe, allow customers to buy shares or even fractions of a share with the click of a button.

As for cryptocurrencies, Coinbase, Binance and Crytpo.com have made investing in these alternative assets easy and accessible to everyone.  It’s therefore no surprise that Millennial and Gen Zs comprise the biggest cohort of users for these apps. Traditional banks and investment brokers don’t appear to be attracting them at the same pace, however, they are taking strides to catch up.

The personalisation of services, instant customer service support and an omnichannel user experience that these newer offerings provide could be a few of the reasons younger investors prefer them. Research from Crealogix has shown that extra features such as budgeting, notifications, spending patterns and automatic savings are some of the reasons Millennials prefer new generation banks.

When it comes to trading and investing apps, instant trading, low to no fee orders, fractional shares and access to global markets are a few of the possible reasons for the surge in popularity and users.

This current transformation of the financial services and investment sectors is happening while Millennials have only a portion of the total existing global wealth. As the reallocation of wealth ebbs ever closer, financial services organisations need to ensure that they are providing the services and products future consumers are looking for.