The Millennial Challenge: The youngest generation holds great wealth potential and has high expectations

Millennials. You have likely heard a lot about them at this point, some of it myth, some of it truth. They have been the subject of pages and pages of market research. If you are in the wealth management industry, you know they represent a cohort that is essential for the future of your business. Not only are they set to inherit vast sums of wealth, but they also have enormous earnings potential, which could grow to as much as $32 trillion by 2030, almost double what it is today. And while there may not be a single cookie-cutter millennial type, there are a few things about them that are different enough that they will require an updated business approach.

UBS Wealth Management recently published a comprehensive white paper about millennials and their potential impact on the wealth management business titled, Millennialsthe global guardians of capital. The paper discusses some of the myths about millennials that circulate in boardrooms and back offices, the characteristics they have in common and how this varies across the globe, how wealth managers can best cater to them in terms of marketing and services, and how to navigate some of the trickier elements of this transition. Among other things, they conclude that millennials want a variety of digital services and a networked platform approach.

We discussed the white paper with Global Chief Investment Officer at UBS Wealth Management Mark Haefele. Read on to learn more about how you can capture the attention and the loyalty of the millennial client.

April Rudin: First of all, the paper grounds readers by pointing out how millennials matter. In a sentence or two, can you sum this up?

Mark Haefele: Millennials matter because their economic and financial power is growing. Their global wealth could rise to as much as $24 trillion by 2020; by 2030 millennials' earnings power could top $32 trillion, a near doubling from today. How they spend this money will have major consequences for businesses and policymakers worldwide.

Rudin: What are the biggest and most harmful myths about millennials that wealth managers should be aware of?

Haefele: The biggest and most dangerous myth of all is that we can make any catchall assumptions about millennials. One common feature of this generation is, ironically, its diversity.

Another myth is that millennials are more obsessed with technology than other age groups all age groups rely on technology. Near three-quarters of millennials said in 2016 they'd struggle without a smartphone for one day, according to a Commscope study. The same stat for other age groups was still 50%.

We shouldn't buy into the stereotype that millennials are more selfish than other generations either. Today's "Generation Me" headlines about millennials sound eerily similar to the "Me Generation" straplines describing baby boomers in the seventies.

The facts suggest that this group is leading a social movement that wants to do well for society as well as make money. In a 2016 study from Deloitte, 87% of younger people said that businesses should be judged on more than just profits.

Rudin: It is apparent that millennials are more globally aware and more interested in the public good than previous generations. How can wealth managers help millennials use private wealth for public good?

Haefele: Wealth managers that want to service the millennial market need to be flexible. They need to offer millennials a mixture of digital and face-to-face communication through a variety of channels that suit clients' individual preferences.

Wealth managers also need to join other institutions in building networks that connect millennials to people, products, and information. A platform-company approach would give millennials the choice they demand in the most convenient and user-friendly way.

The power of a platform is that it harnesses technology to fill information and knowledge gaps about where millennials can best use their private wealth for the public good. Wealth managers can help millennials commit capital to purposeful investments by promoting platforms that bring to one place all players in the sustainable and impact investing community.

Rudin: Do millennials seem especially interested in particular categories of public good and should a wealth manager specialize in a particular category of social good, develop a niche to attract clients? What is UBS doing on this front?

Haefele: We find that millennials' affinities for particular types of public good are as diverse as their backgrounds. We're privileged to speak to some of the world's wealthiest millennials as clients. And their interests in generating positive social and environmental returns do span across fields and geographies.

We do think that certain categories of social good lend themselves more readily to private over public capital across all age groups. Our research on funding the UN Sustainable Development Goals for the 2017 meeting of the World Economic Forum identified affordable and clean energy, climate action, quality education, zero hunger, good health and well-being, industry, innovation, and infrastructure, and partnership for the goals as areas where millennial clients could have the most social "bang for their buck."

Rudin: Millennials are very digitally savvy and technology is constantly changing. What kinds of new digital services do wealth managers need to become most fluent with to attract millennial clients? How can wealth managers best keep up with the breakneck pace of technological change?

Haefele: Above all wealth managers need to learn more about new digital services that provide millennials with a customized service that caters to their individual needs. Some millennial clients are likely to want digital services that offer comprehensive trading and portfolio analysis capabilities that show tailored investment solutions. Other millennial consumers are looking for digital services that offer content like information, research, and social connections that match their particular affinities and circumstances.

Such a digital service needs to be nimble enough to connect millennials with experts from both within a wealth manager, and outside of it. And it needs to link up millennial clients with content that helps them fulfill not just their investment goals, but also their business or career objectives and even allows clients to satisfy their passions, whether for philanthropy, art, collecting, or for meeting new people.

Wealth managers can't keep up with rapid technological innovation by one means alone. Monitoring the competition and investing in digital innovation are important. But the most successful platform-company approach keeps pace with innovation by building robust feedback loops. Wealth managers need to collect data on how millennials use digital services, listen to millennials' praises and criticisms of the offering, and respond by adapting their services to meet shifting demand.

Rudin: Millennials also appreciate transparency, but the better we get at collecting, organizing and presenting data the more overwhelming it all becomes. What kinds of transparency are most attractive to millennials when it comes to their wealth? How can wealth managers offer transparency without overwhelming them?

Haefele: Our findings suggest millennials want to be more transparent about their financial needs than other generations if sharing personal information gives them a more convenient or personalized service. McKinsey found that this group was more willing than the boomers (by around a twenty percentage point proportion) to share savings targets with trusted friends and family if doing so would help them meet their personal goals.

If wealth managers want to best service millennial clients, they need to work with this generation to strike the right balance between transparency and information overload. Transparency is all about giving millennials the tools to offer up as much information as they want to offer them a tailored investment strategy. And wealth managers can use new technologies to provide millennials with both internally- and externally-generated holistic content. But our discussions with millennials suggest that human contact with a financial advisor is still a very useful service that helps millennials to sift through content and to filter the relevant parts from the redundant ones.

Rudin: What are some of the most radical differences between millennials in developed versus developing countries when it comes how they would like to accumulate and spend their wealth? What parts of the world do millennials differ most markedly from their parents generation in the way they want to experience and use wealth?

Haefele: Although millennials across countries tend to regard having exciting experiences as the most important form of "wealth," the age cohort in selected developing economies like Russia and the United Arab Emirates have different priorities. Here building a legacy for one's family and philanthropy are the respective top forms of wealth accumulation.

The biggest cross-generational differences in the most important form of perceived wealth are found in India. Millennials think their parents most value social wealth (in the form of being well-connected) and philanthropy. Conversely millennials think these types of wealth are much less important than exciting experiences, enjoying luxury goods and services, building a family legacy, or cultivating a high social status.

It's interesting to observe two things in the country data, which we collected in partnership with unlimited.world. First, the variety of wealth priorities across countries suggests wealth managers have to focus on more than just generating investment performance. There is significant value for clients in education, networks, and philanthropic services. Second, the evidence does suggest that the millennial generation places less value on social connections as a form of wealth than they perceive their parents did. Perhaps the rise of ubiquitous social networking and constant connection that millennials enjoy through technology has shifted the value in human relationships toward smaller, face-to-face events where millennials can make valuable connections. They value connecting with individuals that share common interests in their business lines, philanthropic endeavors, or passions that would be impossible or very difficult through social media channels.

Rudin: The white paper encourages a platform approach, and the creation of networks into which clients can tap. Can you describe how a wealth manager would go about doing this? Should wealth managers create proprietary platforms for their own clients or facilitate access to outside networks and in either case how should this work?

Haefele: Wealth managers can start building a platform company by building an open-architecture business model. That means giving their clients a gateway not just to external content, but drawing on external expertise as a valued check and balance on investment views. UBS's Investor Forum is a good example of how we sense-check our asset class positioning and debate the top investment issues with the world's top economists and specialists from outside the bank.

Clients should be able to connect with one another and with external experts as sources of fresh ideas, new business opportunities, and alternative ways to help achieve their philanthropic or charitable ventures. Connecting entrepreneurs with other successful business owners through UBS Industry Leader Network, we see first-hand how clients place a high value on sharing best practices and industry insights with not just their peers, but also owners in other industries or countries. We think that wealth managers act like facilitators, or the "platform" in these instances, connecting content and people in unexpected ways and bringing a more comprehensive value proposition to our clients.

Rudin: What are the most essential points that this paper attempts to get across to readers?

Haefele: We think the most important conclusion of this paper is that millennials are leading where other groups of investors and consumers follow. We acknowledge that the millennial generation is most comfortable with new technologies and wants greater digital servicing to complement human advice. And we find that millennials have a strong desire to generate financial and social or environmental returns with their wealth.

But other generations are adapting to advancing technology and becoming more aware of the world's social and environmental problems. Other age groups increasingly demand the same ramped-up digital and sustainable investment offerings that millennials do.

In short, we need to design the right business models not just to meet millennial demands as this generation grows richer and wields more economic power, but also to satisfy the shifting needs of other generations. Technology is connecting us all and laying bare the economic, social, and environmental imbalances that could stunt our future prosperity. The millennial generation wants to use its money to address these imbalances, and is spurring other age groups to do the same too. If wealth managers and other business get their operating models right, they can provide the tools to service every generation's evolving needsand not just millennials.