Wealth management firms must prove their relevance to the younger generation of investors ahead of a “substantial” level of wealth transfer over the coming decade, according to research from FNZ, ThoughtLab and Deloitte.

The study, Building a Future-ready Investment Firm, sought the views of wealth management firms and investors on the transformation of wealth management services amid increasing digitalisation and AI-driven change.

It found that 60 per cent of Generation Y and Z investors do not expect to use traditional advice services by 2030 due to advances in technology and the development of AI.

While the report stated that advisers will remain the bedrock of the industry as a source of human trust, it expected forms to shift towards a ‘bionic’ model where AI-enabled tools would enhance productivity and efficiency.

It warned that those in the sector will have to tailor their solutions to a more diverse base of younger investors or face being left behind.

Furthermore, the report highlighted that younger investors will become increasingly important as the transfer of wealth accelerates, with research by Wealth-X forecasting that a US$15trn wealth transfer from older to younger generations by 2030.

FNZ, ThoughtLab and Deloitte’s study found that while 35 per cent of investors would consider switching providers over the next three years, this figure rose to 53 per cent of younger investors.

“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 per cent to 36 per cent,” the report said.

Younger investors also had a higher expectation for digital tools, with 52 per cent of Gen Y and Z saying they would like their primary investment providers to offer chatbots to answer queries, compared to 39 per cent of Baby Boomers and the Silent Generation.

Nearly three-quarters (74 per cent) of younger investors expected digital experiences on par with leading digital-native companies, compared to 61 per cent of older investors, while 61 per cent of younger investors want better digital tools to manage their investments directly.

Younger investors were more likely to be willing to use AI for financial tasks, and were also more conscious than their older counterparts of mitigating the risks involved with tech developments.

Wealth managers were urged to understand the differences between age cohorts on their investment goals, with younger investors more focused on income generation and lifestyle preservation, and older investors more interested in legacy planning and philanthropy.

“The industry is navigating a ‘perfect storm’ of challenges, as a substantial wealth transfer from older to younger generations coincides with the latter's expectations for digital-first services,” commented FNZ chief marketing officer, Carl Robertson.

“Prioritising technological strategies such as implementing end-to-end platforms to drive hyper-personalised client experiences and driving extreme automation is essential.”

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