The age-old financial practice of building and managing wealth is transforming, driven by financial priorities and the digital-first mindset of millennials and Generation Z (Gen Z). These tech-savvy investors, aside from adapting to the changing economic landscape, are also actively reshaping it.
These new-age investors, guided by technology, are showing an appetite for alternative investments and a strong commitment to values-based investing as they set new standards for wealth management. The real challenge for the financial industry is not whether it will change its operations based on these “new expectations,” but how swiftly it can adapt to remain competitive.
The digital-first revolution
Today’s young investors, born into a world of smartphones and instant gratification, now expect advanced digital experiences. Recent data shows that 74% of them have set a new standard for the industry.
According to 2024 research from FNZ, ThoughtLab, and Deloitte, “The democratisation of wealth management is transforming the industry, offering both retail and mass affluent investors more options for growing their returns and managing risk. Personalised services and advice, once reserved for the wealthy, are now more accessible to all.”
Firms need to prove their relevance to a tech-savvy and more demanding younger generation of investors raised on the immediacy and personalisation of smartphone apps and digital-first services. The study, which analysed the views of 250 wealth management firms and 2,000 investors, also found that 60% of next-generation investors do not expect to use traditional advice services by 2030 due to advances in technology and the development of AI.
Wealth advisors will continue to be a bedrock of the industry. However, the study expects firms to shift towards a bionic model where AI-enabled tools enhance productivity and efficiency. These professionals will face the challenge of tailoring their solutions to a more diverse base of younger investors.
Research firm Wealth-X predicts a $15 trillion wealth transfer from older to younger generations by 2030. These young investors are increasingly demanding smart and sophisticated digital apps, channels, tools, and platforms.
According to the FNZ, ThoughtLab, and Deloitte research, while 35% of investors would consider switching providers over the next three years, this figure rises to more than half (53%) when younger investors were asked the question.
“There is also a significant shift in the adoption of different methods of decision-making, with the percentage of young investors expected to use discretionary investment services doubling from 18% to 36%. Younger investors have higher expectations for digital experiences and tools than their parents and grandparents. They are more interested in digital assets and are open to using automated tools: over the next three years, 52% of Gen Y and Z would like their primary investment providers to offer chatbots to answer queries, compared with 39% of Boomers and the Silent Generation,” the study observed.
While 74% of younger investors expect digital experiences on par with leading digital-native companies, versus 61% of older generations, 61% of those 74% also want better digital tools to manage their investments directly. In fact, the study also found that over 85% of respondents preferred to use AI for financial tasks such as researching investment advice and reviewing financial circumstances and aims.
Hybrid solutions combining technological innovation with human expertise will become the new normal. Instant messaging, video coverage, and participation in online communities will transform the wealth management industry into a more dynamic and accessible experience.
Alternative investments take centre stage
The most significant shift among young investors has been their preference for asset allocation. They now consider investing in sources like private equity, commodities, real estate, and other tangible assets, marking a notable departure from traditional stock-and-bond portfolios.
A recent Bank of America study found that 75% of Americans aged 21 to 42 do not believe above-average returns can be achieved through traditional stocks and bonds alone. Around 80% of these young investors are exploring alternative investments, and nearly 75% of millennials, compared to 21% of older respondents, are investing in sustainable products and ventures.
This is not a surprising trend, as these individuals live in an era that has witnessed disruptive phenomena such as COVID-19, the collapse of digital asset markets, geopolitical conflicts, climate change, the AI revolution, and major tech layoffs. There have also been market swings in recent years that have made younger generations sceptical about accumulating wealth through stocks and bonds.
The study further found these investors putting their money into alternative avenues like real estate, peer-to-peer lending, investment crowdfunding, commodities, and collectibles.
Another study, titled the “2024 Bank of America Private Bank Study of Wealthy Americans”, indicates that younger high-net-worth individuals maintain significantly less exposure to stocks and bonds. This again reflects a fundamental shift in how younger generations view wealth creation and risk management.
Values-based investing
A US Bancorp survey in 2023 noted young investors being overwhelmed by economic upheavals such as inflation and the cost-of-living crisis, while not being sure how to start investing. These individuals compare their financial progress to others and are highly motivated by experiences and the pursuit of personal interests and opportunities.
Financial industry veteran Gunjan Kedia said, “Younger generations are dealing with inflation, high interest rates, and high prices, but they also inherited a much different world than older generations. Since 1980, college tuition has increased by 169%, the average price of a home is up 540%, and average student loan debt now sits at $37,000. It’s no wonder they are unsure about beginning an investing journey. But despite these headwinds, they are passionate about investing in causes they believe in and are seeking financial guidance.”
The 2023 study, which covered 3,000 active investors and 1,000 aspiring investors of all generations, highlighted factors such as financial worries and decision fatigue affecting young investors’ confidence, with nearly 80% of investors responding to the economic climate by changing their investment strategies proactively.
Environmental, social, and governance (ESG) investments have moved from the periphery to become a central consideration in portfolio construction, as young investors question the impact of their investments on climate change, social justice, and corporate governance.
AI-driven personalisation
AI-powered hyper-personalisation has become the new standard in wealth management. Young investors expect their financial platforms to understand their unique goals, risk tolerance, and investment preferences, deliver tailored recommendations and insights in real time.
Modern wealth management platforms are incorporating sophisticated algorithms to analyse spending patterns, predict financial needs, and adjust investment strategies based on changing market conditions or personal circumstances. Whether it is ESG preferences or risk tolerance, AI and big data analyse client behaviour in real time before tailoring portfolios.
However, despite being technologically savvy, young people globally have financial literacy rates below 50%. The industry is responding by integrating educational components into its platforms, making financial knowledge more accessible and engaging. This includes interactive learning modules, social learning communities, and real-time market insights delivered through preferred communication channels.
Young investors seek financial advice from peers and online communities rather than traditional sources. This has led to the rise of social investing platforms where users can share strategies, discuss market trends, and even copy successful traders’ portfolios.
Although this approach has risks and challenges, requiring platforms to balance social features with responsible investing practices, the truth is that millennials and Gen Z will reshape how investments are approached, managed, and prioritised, driving significant changes in wealth management.
To meet the expectations of future investors, financial institutions must embrace key trends such as the integration of cryptocurrency and blockchain, mobile-first and data-driven experiences, sustainable and impact investing like ESG, transparent and flexible fee structures, and AI-powered personalisation, which will make their approach to wealth management digital-first and value-driven.
The future of wealth management belongs to institutions that masterfully combine digital innovation with human expertise. Those who master the new playbook will emerge as the ultimate winners. Ultimately, the next generation of investors demands a seamless blend of technology, values-driven choices, and human guidance, compelling institutions to innovate continuously or risk obsolescence in wealth management.