But who is a HNWI? There is no commonly agreed figure assigned to the ownership of liquid assets by an individual that is used in classifying such an individual as being one of high net-worth. However, the generally quoted figure is between $1m and $5m in liquid financial assets.
For this discussion, the primary focus is going to be on HNWIs that are under 40 years of age. This is an emerging class of HNWIs, some of whom are starting to get access to generational wealth that has been left to them by their parents. As this is the first time we are seeing such wealth transfer from the baby boomers to the generation Next and the millennial generation, it is important that wealth managers understand the dynamics of the HNWIs in these generations in a world that has changed a lot in the last 20 years.
What Are the Characteristics of New Generation HNWIs?
The new generation of HNWIs have a different demographic.
a) Better Educated
Most if not all, are generally well educated. Gone are the days when individuals started off selling newspapers door to door in their teen years as they built businesses from ground floor up; a lot of times without a college degree. Now, you hear of individuals who are college graduates, who probably hit on their first millions building an app or leveraging on social media to sell a product or service.
b) Finding Wealth At a Younger Age
The age bracket at which the typical new generation HNWI tends to emerge is a younger one. There are probably more under-45 HNWIs today than there were 50 years ago. Therefore, these individuals are going to need access to wealth management services at a generally earlier age than the generations of HNWIs before them.
c) Want More Out of Life
Taking it further from point (b), the impact of youth in terms of demand is growing and is putting additional pressure on wealth managers to perform up to the expectation of their new generation HNWIs. A younger HNWI has a different personality than an older one: more aggressive, willing to explore more, willing to take more risks, and wanting more out of life than the older HNWIs.
d) Want Newer and More Bespoke Investments
New generation HNWIs have come into a world that is full of data and information. They therefore want something that will truly blow their minds: something fresh and something new in terms of investment vehicles. The investment vehicles of yesteryears are starting to get obsolete and this is reflecting in what wealth managers are willing to come up with. For instance, the number of HNWIs investing in blockchain startups is generally higher than was seen with investments of older HNWIs in the revolutionary investment vehicles of their day. You will see a typical new generation HNWI willing to invest money in riskier investments than in the more conservative ones. Investments into areas such as renewable energy, blockchain startups, artificial intelligence and complex financial assets are what you would typically find in the portfolio of a new generation HNWI.
e) Digitally Savvy
The average new generation HNWI has grown up with communication being an integral part of life. The average new generation HNWI is therefore digitally savvy. They would probably have owned their first smartphones at a very young age, would have been exposed to the social media earlier and these experiences are translated into their daily lives as adults. They love to be in constant communication with their social circle and their wealth managers, and they love most of this communication to be in digital format. So communication via Skype, email and other digital means is something that they always want to do. This is a generation that is more online than offline. This is a generation that has grown up with all the wonders of technology, and this is a part of their daily lives and routine.
f) Socially Conscious
Exposure to social media and the internet at a very early age means that the typical new generation HNWI probably knows more about what is happening all over the world than their parents or grandparents. This is producing a social consciousness among the typical HNWI. Some of the biggest family offices that manage generational wealth have attested to the fact that a new generation HNWI is more likely to get involved in causes that have a social impact, philanthropy and social justice. For instance, a viral video of a teacher who is doing his work in the most difficult of conditions, is likely to elicit some form of intervention from a new generation HNWI from halfway across the world that would have been the case half a century ago. According to Mary Duke TEP, a family wealth advisor based in New York, investing in a socially responsible manner is “de rigueur among young clients”.
How Are Traditional Private Banks Addressing this Issue?
In many emerging markets, generational wealth and involvement in the family business is not just a regular business process: it is a cultural thing in which the HNWI is expected to carry the generational wealth torch that has been passed down with an added weight of responsibility. Therefore, wealth managers need to properly segment the HNWI market and not just lump everyone into one basket. The wealth management needs of an HNWI in America may not necessarily be the same needs of an HNWI from Dubai or South Africa.
A number of traditional private banking institutions are beginning to understand the various segments of HNWIs and their needs, and are developing solutions that properly segment and cater to such requirements. One such private banking institution is Fortu Wealth.
Fortu has emerged as one of the new firms that is set to disrupt the traditional private banking industry, dominated by old-school Swiss private banks and private banking arms of retail banks, Fortu is a new wealthtech startup, and it is going to disrupt private banking in a similar way as new fintech players as Robinhood, Revolut, Monzo, Wealthify and others changed the landscape of retail banking.
There is a difference in the mindset and character traits of the new generation HNWIs in terms of how they invest their money, where they invest, their interaction with wealth managers and their social circle as well as their personal spending habits. These can be capitalized on by wealth managers to deliver products that are well suited to this demographic of society.