For quite some time, the client base of the private banking industry has been represented mainly by baby boomers (those who were born from 1946-1964) and Generation X (those who were born from 1965-1980). These clients usually have already made a significant amount of money and now have passively managed saving accounts and retirement or succession planning.

But the industry is changing as millennials (those born from 1981-1996) form a larger part of the global workforce and increase their net worth. According to a 2015 Deloitte study, by 2020, millennials were forecast to make up half of the workforce, with their wealth expected to double during that five-year period. This makes them a key demographic for the private banking industry. That same report found that three-fourths of millennials said they would be likely to switch their wealth management and private banking provider if they found a better solution.

Meanwhile, Swiss private banks continue to struggle, which is not surprising but counterintuitive given the growth of wealth of the global millennial population and the upcoming transition of wealth from their parents within the next decade. While the wealth of millionaire households in Europe increased by more than 60% between 2000 and 2015, wealth managers’ profitability declined by 40% in the same period.

Private banks are naturally trying to adapt to a new generation, but in my opinion, they still do not understand the true needs of their millennial clients. In their advertising messages, the top private banks point out the hundred years of experience, but at the same time, many do not even have a decent user-friendly app.

Some private banks position themselves as banks for entrepreneurs, even though research has shown that millennials are less entrepreneurial than other generations. Yet, banks overall are not spending as much on research and development as other industries.

I’ve heard wealthy millennials say they do not understand why people would need private banks in the future, as more people turn to digital banks and commission-free trading platforms. In terms of investments, more than half of millennials say they prefer passive exchange-traded funds strategies, and they often try to minimize the time spent on the investment process.

The vast majority of affluent millennial investors say they care for environmental, social and governance causes, with 90% saying they try to tailor their investments to their values. For example, one of my millennial clients refused to invest in a multinational energy corporation. He said he believed the company “smells bad” because of its nontransparent practices and history of corruption scandals.

I believe understanding how millennials spend money would help private banks better serve their millennial clientele. Research has found that millennials value experiences and care for social causes. Interestingly enough, a lot of millennials do not link happiness with making money. Millennials are an integral part of sharing economy and are used to subscription-based digital products and seamless service.

The problem with the current state of private banking and wealth management is the need for a completely new business model that can work with the growing number of affluent millennials. I believe the private banking industry needs to evolve by investing in research and development and adopting a startup spirit based on innovation and technology.

Private banks need to shift their mindset away from treating technology as a surface-level perk that makes their bank seem more techy or cool. Instead, they need to make technology one of their core values, because internally many continue to use outdated banking systems and rely on paper.

Technology needs to speed up execution and communication — both internally and with clients. Private banks should focus on creating value for their clients. One way is to develop a personalized solution for each client. In the same way as Facebook allows advertisers to tailor their messages to targeted audiences in a variety of ways, private banks should use technology to design investment offerings tailored to the values and experiences of each client. Instead of focusing on selling their products, banks should focus on solving their clients’ problems.

For example, say a millennial client inherits a mansion but does not have cash. Their bank’s technology solution should be able to identify that problem and offer an equity release on the property. That solution could then develop an investment plan, based on the client’s income needs, that corresponds with the client’s values. By adapting a startup spirit and using technology to enhance the client experience through tailored offerings, private banks can better serve affluent millennials.

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