The Coming Fight for the Loyalty of the Millennial Mass Affluent

What You Need to Know

Digital disruption is coming for the wealth management industry in expected and unexpected ways.
Tomorrow’s high-net-worth clients are today’s tech-savvy, mass affluent millennial and Gen Z investors.
Even the biggest and best-established firms must pivot to reach growth goals in a tech-first future.

Nikhil Sharma and Robert Norris are both senior leaders at Capco, a global technology and management consultancy supporting digital transformation in the financial services industry.

In a recent interview with ThinkAdvisor, the duo highlighted some of the work their firm is doing to help U.S. financial advisors and wealth managers respond to a bevy of challenges and opportunities.

Among these are the great forthcoming transfer of wealth from core baby boomer clients, who carry a well-defined set of product and service expectations, to millennials and members of Gen Z, who carry their own outlook on financial services. Perhaps the biggest obstacle to grapple with is what Sharma and Norris call the complete digital disruption of the financial services industry, which is only now in its early phases, according to the duo.

Similar challenges face leaders in manufacturing, automotive, health care and other industries, Sharma and Norris suggest, noting that the asset and wealth management industries are clear laggards in the digital disruption lifecycle that has profoundly affected other segments of the U.S. and global economies.

Change is here, Sharma and Norris warn, and the advisory marketplace is set to be one of the next big industries to be rebooted. Those firms that get their competitive thesis and technology transformation right, the Capco leaders argue, will be frontrunners in a promising landscape defined by evolving client expectations and new competitive pressures.

A Time to Pivot

Historically, Sharma and Norris say, the financial services industry has sold customers a limited range of offerings that have served well-defined, particular purposes. These have included portfolio management solutions, insurance planning, retirement savings or, as is increasingly common, generic financial literacy education.

In the wealth management segment, there has been a clear emphasis on winning a key set of highly affluent clients, those with millions and billions of dollars to save and invest. The biggest national wirehouse firms and regional players alike have traditionally targeted this segment, Sharma and Norris explain, using premium brokerage, advisory, banking and insurance products and services.

At the same time, mass affluent customers have been relatively underserved by the advisory industry. According to Sharma and Norris, it took the arrival of a new generation of fintech companies to demonstrate how agile business models and engaging user-focused designs could appeal to the mass affluent segment in a cost-effective manner.

At this moment, Sharma and Norris say, established national wealth management firms are coming to the realization that the emerging mass affluent segment must be a focus of outreach and attention. This segment, according to the pair, cannot necessarily be expected to pivot away from their current service providers just because they inherit and earn substantial wealth in the future.

In other words, Sharma and Norris say, firms that aren’t competing “down market” and seeking to build scale in the emerging mass affluent marketplace will not be able to meet their growth goals in the future.

In such an environment, the Capco leaders say, the vexing problem for established financial institutions looking to capture a slice of this market is understanding the motivations and values of millennials, who sit at its center.

“Raised as digital natives, they have much higher expectations from their financial institutions than their parents,” Sharma warns.