The Wealth Report asks two experts for their perspective on the shift in generational wealth
Mike Pickett, Director, Cazenove Capital and Ben Whattam, Co-founder, Modern Affluence Exchange
6 minutes to read
Mike Pickett
Director, Cazenove Capital
How is the financial sector preparing for the coming generational wealth transfer?
The wealth management industry is probably one of the last sectors to be disrupted in terms of how we think about the next generation. We’re talking about a cohort that is seeking a wealth manager who is on their wavelength, if indeed they want to deal with a human at all. Younger clients have new views and ambitions and I think the opportunity for businesses, if they get this right, are enormous. Technology – including providing digital services, and being open to new fields such as AI and blockchain technology – is a big part of it. Impact is important, too.
Why is this change so big?
Next gen wealth owners share some key characteristics – from their expectations and mindset to their desires and what they are willing to pay for – which vary markedly from those of previous generations. Add to that the enormous sums due to be transferred between generations over the next couple of decades. But it goes beyond a simple shift of existing wealth. I think the diversity of opportunity to create wealth has also grown – for example, there are YouTubers worth tens of millions. First generation wealth creation is on the rise, as is the array of entrepreneurial routes to create it. There is also evidence that the youth of today blame the generations before them for the challenges that they and the planet face today. All of this has implications for how wealth management is approached in the future.
How are these changes expressed in investment strategies?
The transition to the next generation will impact not just how we deliver investment services, but also the kinds of investments we make. Sustainability and impact investing are clear examples. The growth seen in both areas hasn’t been driven solely by younger investors – but there is growing awareness that investment portfolios can actually have a positive impact on people and the planet and many younger clients want us to help them achieve this.
Private markets are another area of focus. Over the past two decades, we’ve seen some incredible businesses enjoy huge success while remaining privately held – think Facebook, Uber or Airbnb. The next generation has come of age seeing private markets as an incredibly exciting opportunity. As the infrastructure continues to mature, these kinds of investments are becoming more accessible to a wider range of investors, and on more attractive terms.
That brings me to my final point: transparency and cost. One of the great benefits of technology is that it makes price comparison so much easier. This in turn means managers are becoming even more focused on the costs associated with investment strategies – and on running their businesses as efficiently as possible.
We talk about values-driven investment for the next generation – is that fair?
Without a doubt there is a hunger from younger wealthy clients to “do the right thing”. Gen Z in particular are looking for ways to invest in alignment with their values. It’s not just about financial returns, it’s about building cultural capital. That encompasses brand and identity, as well as a sense of community that allows for collaboration, purpose-led investing, enriching experiences and more. Appealing as stewards of both financial and cultural capital will be crucial to engaging the next gen audience in the future.
That said, I think there is a need for pragmatism. Not to say that a sustainable investment strategy won’t deliver financial returns over the long term; but the path from A to B may differ from a more traditional investment strategy. Overall, though, there is a sense of the next generation wanting to be involved and engaged in the process of how their wealth is managed – for a firm to invest their money with them instead of for them.
Does property feature in younger clients’ investment plans?
I don’t think younger generations see residential property as a route to wealth creation in the same way as boomers or Gen X. In particular, the low interest rate environment and impressive growth in house prices of the past 15 years is unlikely to be repeated in the next 15. I also think there is some evidence that Gen Z may be happier to rent property or lease assets such as cars, and to adopt subscription-led lifestyles.
In any overall wealth strategy, diversification is important. Ensuring you have sufficient assets to meet your needs in each bucket – “liquidity” (e.g. cash reserves), “lifestyle” (liquid investment portfolio) and “legacy/illiquid” (property or private markets) – can be a good way to think about it. How wealth or property firms deliver these “lifestyle” and “legacy” offerings will, in my view, be key to creating and maintaining active and long-standing connections with the next generation of wealthy individuals.
Ben Whattam
Co-founder, Modern Affluence Exchange
How big a change does the great wealth transfer represent?
It’s a seismic change. We’re witnessing the historic convergence of two powerful forces: immense amounts of private capital, and growing social and environmental consciousness. There is a huge dichotomy at play: 71% of the world lives in a country where inequality is growing, while record numbers of next gen family members recognise they have a responsibility to counter inequality with impact investing or fighting climate change.
The next generation, holding major investment power, is likely to direct significant amounts of capital to causes beyond solely maximising economic growth. Their consumer spending will also be guided by a different set of values and perspectives.
Why does this transfer matter?
Since World War Two, Western economies have been driven by an overt focus on economic prosperity. This has come at the expense of environmental prosperity and has arguably imposed social costs.
The next generation is poised to inherit huge sums, and all the research we have commissioned confirms that they value societal and environmental wellbeing alongside economic gain and are unlikely to continue the relentless pursuit of growth at all costs. If you’re selling services to the wealthy and your primary message and underlying proposition is based on economic prosperity, it’s unlikely to resonate in isolation. Anyone looking at engaging the rising generation of wealth will need to think hard about how they remain relevant for this audience.
Are differences in attitudes between generations that significant?
Our conclusion after running the Modern Affluence programme for five years is a very confident “yes”. Bloomberg opened our 2023 summit with a unique piece of research confirming significant differences in attitudes to wealth across generations. Take the fact that 66% of millennials focus on investing with purpose, compared with 49% for Gen X. Climate change is the number one concern for Gen Z and whether they’re rich or just affluent, they see it as their generational responsibility to fix what has been broken by their elders. This issue is fundamentally changing consumer behaviours, particularly for those with wealth.
How should a real estate business position itself to capitalise on these trends?
Demonstrating meaningful awareness and willingness to change are the two corporate behaviours that any business in any sector will need. The willingness of Gen Z and millennials to associate with brands that can show they are aware of the impact their business has on the world, and meaningfully demonstrate how they are working to make that impact a positive one, is notable.
Real estate offers a significant and relevant opportunity for meaningful dialogue with the rising generation, covering both cultural capital in the form of social inequality and environmental impact and financial capital such as investing, debt and wealth creation. A real estate company that seeks to unlock its current and future customers’ cultural and financial capital will be a market leader and, importantly, a market shaper.
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