Women won the right to vote, there was a mass adoption of cars, radios and telephones and, although it ended in a crash, it began with an economic boom.
The 1920s broke with the past and ushered in a modern era.
Very soon, a new generation will be controlling investment decisions with a different approach and strategyWith the 2020s potentially seeing mass adoption of self-driving cars, blockchain and 5G, history could be repeating itself a century on. Wealth management is set to evolve too.
How can financial advisers and family offices usher in the next ‘roaring 20s’?
As we enter a new decade, family offices and wealth managers are facing the largest generational wealth transfer of all time, with $68tn (£52tn) expected to transfer hands in the next 25 years.
Very soon, a new generation will be controlling investment decisions with a different approach and strategy.
Not only will this transform and modernise family offices, it will have a knock-on effect for the companies who advise them.
If financial advisers fail to break with the past and ignore these changing demands in the 2020s, they could risk missing out on significant business opportunities over the next decade.
The next generation of digitally native investors will have different technology expectations than their predecessors.
Key points
- The younger generation differs from their parents in desire for technology and responsible investing
- They want everything available instantly on their phones
- They do not want to invest in a harmful way
Despite a recent wave of investment in technology, some parts of the financial services industry still remain relatively low-tech.
When advisers do meet with younger generations, there can sometimes be a gap in digital capabilities.
And while this may have sufficed in the previous decade, in this modern environment it means one of two things for consultancies: damaging relationships with financial advisers and wealth managers, or creating unnecessary cost and work in the process of responding to ever-more complex and changing demands – or worse, both.
Tech engagement
The crucial difference is that the younger generation is used to having everything at the tip of their fingers; they want all the information immediately available on their mobile phone.
There are a number banking capabilities available on people’s phones, especially with the likes of the new banks such as Monzo, but what we do not have is sufficient technology on the wealth management side.
This is a big gap as the client may well have assets in the bank, which they can see on their phone, but they also have investments and property.
Younger people will now want to consolidate that into one system, and not once every quarter; they will want to have that information on an ongoing basis, to see where they stand in terms of diversification and risk, and costs and the revenues of those assets.
Another similarly progressive and hot topic among the younger generation is the growing concern for responsible investing.
Making an impact
Impact investing is set to become more prominent as the next generation rises through the ranks and places an increasing focus on the environmental, social and governance impact of business activities.
And it is more than just impact investing.
It is the fact that the new generation does not want to do anything harmful to society: they are very concerned about doing the right thing.
So one part of that is about making a positive impact on the environment and society, but it is also about investing in companies that do not engage in human rights abuses or those that have real gender equality.
Right now, one in four family offices are already engaging in impact investing; a figure that is predicted to increase, with a third of family offices expected to allocate 25 per cent or more of their portfolio to responsible investments in the next five years.
And not only that, but increasingly investors are focused on investing and preserving capital in a sustainable and compliant manner across all investments.
It will become a priority for family offices and wealth managers to be investing in businesses operating within full ESG criteria.
Advisers will need to be assessing investments in relation to governance, human rights, laws and regulations and ethics in order to align with the client’s values and objectives.
High performance
Social concerns aside, the promise of meaningful financial returns is also pushing family offices and wealth managers towards impact investing.
According to a recent survey by Campden Wealth, for the vast majority (81 per cent) of family offices, their impact investments matched or outperformed expectations compared to their traditional investments of the same type over the past 12 months.
The trend towards impact investments will continue to grow and it is important that advisers recognise this increasing enthusiasm.
Consultancies who fail to effectively engage in the interests of new investors could risk losing substantial business.
The problem for a lot of advisers is that there are currently no standards.
A lot of what has been done was ‘greenwashing’; everyone is attempting to be ESG-compliant because they need to be, but one has to look closely and ask, ‘What are they really taking into consideration?’
It is about investing in a compliant and respectful manner. It means some things are off-limits, and this impulse is coming not from the companies and from regulation but by the pressure of investors.
It no longer means investing in companies that make a profit, no matter what the cost.
Parents who are transferring wealth may not have thought ESG was that important, but the younger generation is demanding it, and expecting the investment providers to prove they are ESG-compliant.
So by the end of the decade, companies who fail to take it into account at all could risk becoming isolated from potential returns.
The investment industry, thankfully, is starting to get it.
Some tech companies are trying to provide services in terms of ESG information to give to the private equity industry. For example, real information about where they invest and knowledge that where they invest is going to be part of the solution to the company.
All the big private equity companies have to take on an ESG policy, and family offices are also considering it, because of the demands of the next generation.
Without a doubt, the 2020s will be a decade of change.
The wealth transfer will place another generation in the driver’s seat – investors with a preference for utilising technology and generating positive social impact alongside investment returns.
Adapting to this shift in approach will ensure financial advisers retain their client’s children in a competitive environment.
For many, it could mean ending the decade in a boom instead of a crash, but even more than this, it is making sure that no other investment is going to have a harmful impact.
Serge Krancenblum is group executive chairman at IQ-EQ
