Preparing for the Great Wealth Transfer

By Vikas Sahay, SVP, Banking & Financial Services, Virtusa

With the oldest Baby Boomers having turned 75 in 2021, we are on the crux of one of the most significant generational wealth transfers in history. Over the next 20 years, approximately $70 trillion will be exchanged between Baby Boomers and Gen X and Millennial account holders.

With a future that is expected to be 100% digital and a clientele increasingly focused on financial wellness, it’s time for banking and financial institutions to prepare for the dawn of next-generation investors.

A transition from incremental to sudden wealth

Baby Boomers have typically accumulated wealth over their lifetimes, with reasonably straightforward investments: a portfolio of stocks and bonds, along with a 401(k) or IRA for retirement. Millennials will experience the fastest growth rate of net wealth accumulation, which will continue to rise over the next 50 years.

With this sudden surge in wealth, these inheritances promise to dramatically change the financial landscape with more sophisticated and diverse investments.

The acceleration of digital technology and new apps rapidly coming onto the market make it more accessible than ever for people to buy, borrow, and invest. Forward-looking financial institutions must embrace the intrinsic value of personalization, artificial intelligence, and digital transactions to keep pace with consumer expectations.

At the same time, this generational transfer of wealth comes with an emotional undercurrent as family dynamics shift and the older generation passes on. Banks that succeed will prioritize customer experience with intuitive solutions that streamline both day-to-day banking and long-term investments in the following ways:

Building relationships across the generations

This generational shift is not only for wealthy clientele—70% of wealth advisors will also retire in this timeframe. This will spawn a new breed of advisors, most of whom are expected to be Millennials, looking for a newer set of advisory and analytics platforms to serve their customers better.

By working closely with clients and inheritors, banking advisors can help plan for the transfer of wealth, improve asset retention and potentially retain future business. Advisors can mine for new growth channels and serve various customer segments simultaneously by prioritizing data, automation, and personalization. Leveraging a robust data infrastructure provides real-time, predictive analytics—banks can genuinely understand their customers and provide personalized solutions that scale inter-generationally.

Customer-centric, digital investments

Gen X and Millennial customers expect digital experiences—73% are more likely to communicate digitally than in-person. While the financial services industry has been slow to adopt a fully integrated digital experience, as the younger generation earns more wealth, they expect online services scaled to deliver unique and personalized experiences.

Next-gen investors will seek transparency and demand information and analytics at their fingertips to understand the full impact of their investments. Furthermore, as new investors and with rising wealth, they will require customized strategies and a one-on-one relationship with their financial institutions to feel secure in their investment strategies.

ESG investing and the circular economy

With 84% of U.S. asset managers anticipating a high demand for ESG strategies from Millennial clients over the next two to three years, it’s clear that environmental, social, and governance principles will shape investing in the future. As the circular economy scales up, next-gen investors will be motivated to align wealth and values to solve escalating climate change, environmental and societal issues.

Technology will continue to play the most critical role in transferring wealth, portfolio planning, and customer-centricity for Gen Z and Millennials. These clients are mobile-and-social-first—their inherent expectation is to have personalized products and services delivered to their palms.

The paradigm shift of “products knowing the customer” rather than “customers knowing the products” will be driven by analytics powered by cloud computing. The exponential growth of structured and unstructured data demands tools that can facilitate intelligent data ingestion to data management, analytics, and governance.

Wealth management firms will continue to use the power of NLP to analyze text and voice data to enhance the process efficacy and core functions. Wealth advisors will need an enhanced self-analytics tool to deliver personalized advisory sessions with their Millennial clients to influence their investments.

The shift to science vs. human in the advisory space will see more Robo-advisory and analytics tools in the hands of both advisors and Millennial clients. It will all culminate in building foundational capabilities that can provide:

• Integrated data models that tie sales and customer data with the product, channel, and opportunity
• A shift to customer-centric from product-centric that can bring transactional, demographic, and behavioral information for a customer
• The development of omnichannel capabilities to propagate and share actionable insights from a single source of truth

While The Great Wealth Transfer will take place over the next few decades, banking and financial institutions must start building relationships now and developing solutions that meet the needs across the generations. While it is yet to be determined exactly how younger generations will invest, there is no doubt that banking and financial institutions must evolve to keep pace with new strategies as Millennial investors reshape the economy.