MARKET INSIGHTS
MILLENNIALS TO MILLIONAIRES
FIS Wealth Management Series
Perspectives for Community and Regional Banks
November 2015
Millennials to Millionaires
MARKET INSIGHTS
This paper is the second in a series from FISTM that provide wealth management market insights to community and regional
banking executives. Upcoming papers will profile specific opportunities to drive profitable growth and will feature thought
leadership from bankers who are successfully growing their wealth management practices.
The Next Generation of Wealth Management
Millennial wealth. What is it? Why is it important now and why does it continue to receive a central spot on the agendas of
wealth management executives as they discuss and decide on the future of their banks?
That fact is that the millennial customer segment creates an interesting conundrum for community and regional banks. As the
largest of all customer segments in the United States, over time the millennials will certainly accumulate significant wealth.
But presently, at just about $1 trillion in assets under management, millennials are not a lot to talk about. But when you start
to look at the $30 trillion in assets in the United States that will transfer from baby boomers to millennials over the next 30
years, it becomes a whole new conversation.1
As You Sow, So Shall You Reap … Hopefully?
Millennials pose a challenge for community and regional banks because, quite simply, many banks have trouble engaging
them. It is not news to anyone that millennials – both the age group and the mindset – like to engage digitally and by mobile,
which is a new trick for many smaller banks. But trickier still may be convincing executive management to invest in
developing a whole new digital approach – a costly measure – when realizing significant profits is still just a twinkle in the
eyes of optimistic strategists. Millennials represent the epitome of a strategy that is based on customer lifetime value.
However, if banks don’t soon figure out how to communicate with this demographic they could just miss just miss the biggest
wealth transfer in history.
U. S. Labor Force by Generation, 1995 – 2015
Source: Pew Research Center tabulations of monthly 1995-2015 Current Population Surveys, Integrated Public Use Microdata Series (IPUMS)
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MARKET INSIGHTS
Millennials to Millionaires
How Millennials Think
The millennial generation population exceeds 80 million and represents more than one quarter of the nation’s population.2
Amazingly, of the three largest adult generations, millennials are most likely to say they are conservative with their
money — 43 percent versus 31 percent for boomers and 27 percent for Gen X.3 Also interesting is that 40 percent of
millennials say they are committed to passing wealth along to their families, which suggests that millennials may be
the most serious investors of all generations.4 Millennials have witnessed an array of boom and bust cycles. Dot-com
bubble bursts, a mortgage crisis, stock market crashes and multiple foreign market meltdowns have made millennial
investors leery of cheery advisors promising long-term gains.
MILLENNIAL GENERATION: 18 – 34 years old in 2015
Committed to
passing along
wealth to their
families
Conservative with
their money
Extremely
interested in
learning more about
investing
Likely fire their
parent’s financial
advisor after they
receive inheritance
Sources: Accenture, “Millennial Investors More Conservative, Less Trusting of Financial Advisors than Baby
Boomers and Gen Xers, According to Accenture Survey,” February 6, 2013. Accenture, “The ‘Greater’ wealth
transfer: Capitalizing on the intergenerational shift in wealth, 2015. Ernst & Young, “Global wealth and asset
management industry outlook,” 2014.
Reversing the Tide
Millennials crave financial education. Forty-four percent say they are extremely interested in learning more about investing,
which is more than both boomers and Gen X.5 Most millennials don't see value in traditional advisor relationships and expect a
simplified and efficient experience when dealing with their money. This generation scoffs at the idea of not getting a second
opinion after receiving advice from a wealth advisor and many are more comfortable with online communities, where investors
can interact with each other and an array of financial management resources.
Historically, 66 percent of children fire their parent’s financial adviser after they receive their inheritance and if banks don’t get
into conversation with millennials now, this percentage is predicted to grow to more than 90 percent.6 As millennials mature
and gain assets, incumbent wealth management practices will scramble to develop relationships with this population. If banks
don’t reverse this tide, millennial money will naturally flow away from traditional institutions and toward service providers that
have invested in attracting and retaining this generation. Can banks avoid this perfect storm?
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MARKET INSIGHTS
Millennials to Millionaires
The “Build, Buy, Borrow” Cycle
Okay, so community and regional banks must become better at talking to millennials – we get that. Digital services will be
critical – we get that too. But what are the options? How can smaller banks compete and collaborate in wealth’s future
landscape?
Capco Managing Principal, Phil Kerkel has a unique view. “I see it as a ‘build, buy, borrow’ cycle,” explains Kerkel. “Right now
there are well-funded tech disrupters building new platforms that are at the forefront of incorporating meta data, extreme
algorithms and machine learning to deliver a polished digital wealth management advisor experience. That’s robo- advising.
But scale is a problem for startups.”
Kerkel’s view is once these disrupters start to amass enough assets under management to be a nuisance to the incumbents,
they’ll get bought up and their technology will be embedded into proprietary systems. At some point, when all companies can
have access to the same algorithmic tools, Kerkel envisions that the whole service can be outsourced and utilized at a muchreduced expense. Using a utility model, technology providers will be able to offer these services at lowering costs as they build
scale.
Kerkel believes, “This is a technology evolution we have seen in other aspects of financial services. The key here is to
consistently understand and use emerging technology solutions and models to deliver services that will keep your distribution
channels healthy and growing.”
•
Well-funded tech disrupters
build new, innovative
platforms
•
They deliver polished digital
wealth management
experiences
•
However, they do not have
scale
•
Disrupters amass scale and
market share
•
Eventually, the innovations
become available to all
•
Disrupters become nuisance
to incumbents and get
acquired
•
Services are outsourced and
used at a much reduced
expense
•
The innovative technology
gets embedded into
proprietary systems
•
Technology providers
deliver them as utility
services
Time
Source: Capco
Talking to an Advisor or an Algorithm?
As it relates to millennials, Kerkel maintains, “The questions millennials are asking are: Why do I need an advisor and what
can they offer me that I can’t access on my own? But I do actually see a continued need for the advisor role in the future.”
Think of it this way. As consumers we have all the information necessary via the Internet to learn how to build a house. But
do we have the experience, the expertise and most importantly the time to build our own homes? Of course not. Nearly all of
us would rather pay a fair and transparent price to a builder so we have the time to pursue the career of our choosing. For
most consumers, it’s the same with wealth management.
Kerkel believes, “People are willing to pay a certain fee for a certain return and for assurance that it is someone else’s day
job to watch their money. We saw the same thing with the unbundling and automation that lead to e-trading. People felt freed,
empowered and vindicated. But then many consumers got confused, loss interest and ended up getting burned when stock
markets dropped. There is still a role for the advisor.”
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MARKET INSIGHTS
Millennials to Millionaires
But who, or what, will fill the advisor role of the future? New frontiers in analytics and artificial intelligence mean that a
majority – maybe someday all – of the activities performed by traditional advisors can be performed by computers, in an
eerily human way. Even if the fact remains that people still want advisors, some industry futurists see a time when advisors
will be algorithms wrapped in engaging digital skins.
Closing the Great Divide
Whether this aggressive, future view of algorithms supplanting advisors fully comes to pass remains to be seen. But we can
safely assume that technology innovation will continue to dramatically change the wealth management business. We also
can assume that some constants will remain. For millennials, personal and tailored attention – whether delivered by a
machine or a human – will be critical. And to remain competitive, banks’ distribution capabilities also must be utilized to their
fullest potential.
For community and regional banks, the strategic planning effort to nurture millennials to become millionaires should include
the following:
•
•
•
•
Understand the millennial mindset and build relationships. Engage them with digital services and provide education
to build trust, gain wallet share and become positioned to capture the generational wealth transfer.
Capitalize on the full suite of distribution and service advantages that banks hold over the competition. Banks can
nurture millennial consumers as they grow and gain wealth by providing advisory services as well as retail banking,
mortgage and small business services all in a local, community context.
Focus on front office. Retain skilled advisor staff and seek to bring younger advisors onboard.
Keep track of technology innovation – the aggregators, providers of personal financial management tools and roboadvisors. Work with emerging Fintech startups, traditional wealth management technologists and informed
consultancies who shaping these industry trends. Seek opportunities to partner, collaborate and learn, because at
some point relatively soon these services will become mainstream. Costs will drop and accessibility will expand.
Learn More
For additional information on this topic, please contact our experts.
Phil Kerkel
Managing Principal
Wealth Management Practice
Capco
T: 917.828.4911
[email protected]
Scott Parry
Executive Vice President, General Manager
Wealth
FIS
T: 704.561.8285
[email protected]
About FIS
FIS is a global leader in financial services technology, with a focus on retail and institutional banking, payments, asset and
wealth management, risk and compliance, consulting and outsourcing solutions. Through the depth and breadth of our
solutions portfolio, global capabilities and domain expertise, FIS serves more than 20,000 clients in over 130 countries.
Headquartered in Jacksonville, Florida, FIS employs more than 55,000 people worldwide and holds leadership positions in
payment processing, financial software and banking solutions. Providing software, services and outsourcing of the
technology that empowers the financial world, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500®
Index. For more information about FIS, visit www.fisglobal.com.
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Millennials to Millionaires
MARKET INSIGHTS
Endnotes
1
2
3
4
5
6
6
Accenture, “The ‘Greater’ wealth transfer: Capitalizing on the intergenerational shift in wealth,” 2015,
https://www.accenture.com/us-en/insight-capitalizing-intergenerational-shift-wealth-capital-marketssummary.aspx.
United States Census Bureau, “Millennials Outnumber Baby Boomers and Are Far More Diverse,” June 25, 2015.
Accenture, “The ‘Greater’ wealth transfer: Capitalizing on the intergenerational shift in wealth,” 2015,
https://www.accenture.com/us-en/insight-capitalizing-intergenerational-shift-wealth-capital-marketssummary.aspx.
Accenture, “Millennial Investors More Conservative, Less Trusting of Financial Advisors than Baby Boomers and
Gen Xers, According to Accenture Survey,” February 6, 2013, http://newsroom.accenture.com/news/millennialinvestors-more- conservative-less-trusting-of-financial-advisors-than-b-by-boomers-and-gen-xers-according-toaccenture-survey.htm.
Ibid.
Ernst & Young, “Global wealth and asset management industry outlook,” 2014,
http://www.ey.com/Publication/vwLUAssets/EY-Global_wealth_and_asset_management-industryoutlook/$FILE/ey-global-wealth-and-asset-management.pdf.