Blog > How Millennials and Gen Z Are Redefining Wealth Management in Family Offices

How Millennials and Gen Z Are Redefining Wealth Management in Family Offices

Adapting family office strategies for the digital natives
Young professionals at work

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The rising influence of “Millennials” and Generation Z (“Gen Z”) has taken family offices to a new era of wealth management, characterized by a greater emphasis on social impact investing, technology integration, and sustainability. Consequently, family offices are now adapting their strategies to align with these changing dynamics. Arootah Advisor Steve Hart provides an overview of this new trend and its impact on family offices.

The New Era of Wealth Management

The “Great Wealth Transfer,” also known as the intergenerational wealth transfer, has begun and refers to the transmission of family assets from one generation to the next. It’s estimated that between 2023 and 2045, $84 trillion in assets will be handed down to Millennials and members of Generation Z. The phenomenon started in the mid-2010s when the “Baby Boomer” generation began to retire. Investing has reached the height of the Great Wealth Transfer, where the Millennials and Gen Z will gradually inherit vast private wealth over the next two decades. With $84 trillion at stake, it’s important to learn about this generation, which has different values, goals, and visions from those of its predecessors.

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Technology Integration in Family Offices

Most Gen Z were gifted their first smartphone by age 11 and are therefore considered “digital natives.” Understandably, their digital experiences heavily influence their expectations and decision-making, reflected in their investment choices. In contrast to their predecessors, who appreciate visiting their adviser or banker in person to speak about their investment portfolios, the digital native generation of family offices tends to prefer digitized offerings. Family offices once were traditionally slow to adopt innovative technology and digital solutions. However, as the tech-savvy generation takes over leadership in family offices, technology will become integral to the operation of investment mandates of these firms led by Millennials / Gen Z. What does this mean for family offices?

Millennials and Gen Z want “leaders to commit to making the world a better place for everyone and demonstrating a purpose beyond profit.” Millennials and Gen Z are known to be much more environmentally and socially conscious than their mentoring predecessor generations. The next generation of leaders has different priorities, often leaning toward environmental awareness, education, impact investing, and philanthropy. As a result, sustainable investing opportunities must increase commensurately with this demand.

The Rise of Philanthropy in Family Offices

In turn, approximately 90% of family office professionals now believe that charitable contribution giving is set to increase exponentially over the next ten years. Philanthropy will be a strong engagement tool for family offices, and many current young investors expect the next generation to participate in established family philanthropy objectives. This new generation has different priorities and values from their predecessors, shaping philanthropy in the private wealth world for the near and long term. To better engage the next generation and ensure a smooth transition, investment offerings by financial services firms must begin working closely with the causes about which the next generation of family offices care.

Notably, many are skeptical of Millennials and Gen Z leaders’ investment abilities simply because of their young age and associate that with a lack of experience. However, research shows that the new generation is, in fact, very experienced and mature when it comes to investment. According to the CFA Institute, this generation often begins their investment journey at a young age, whereby approximately 30% of Millennials were under 20 when starting to invest. This is compared with only 10% of Baby Boomers and 15% of Generation X when they were the same age.

Investment Prowess of Millennials and Gen Z

65% of family offices now have allocated funds to venture capital, reflecting a keen interest in fostering innovation and contributing to the entrepreneurial ecosystem. Amidst these encouraging trends, the face of the 2024 North America family office underscores a landscape of remarkable resilience, robust growth, and a steadfast commitment to responsible investing. A strong focus on impact investing in the financial services industry must now take shape amidst this notable generational shift.

The Bottom Line

Millennials and Gen Z will enter leadership positions with knowledge, differing views, and fresh perspectives. To ensure a smooth transition between generations and the longevity of the family office, the new generation of investment opportunities should closely mirror the dynamic and proactive approach of the new family leaders. As the new generation of leaders gradually takes over, we expect different professionalization and digitalization in the family office industry and more philanthropic and personal ambitions.

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Disclaimer: This article is for general informational purposes only and does not constitute legal, investment, financial, accounting, or tax advice, or establish an attorney-client relationship. Arootah does not warrant or guarantee the accuracy, reliability, completeness, or suitability of its content for a particular purpose. Please do not act or refrain from acting based on anything you read in our newsletter, blog, or anywhere else on our website.

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