Twenty-five years in the financial market – is it a lot or a little? It depends. For classic investment banks with a hundred-year history, this is not a term. For fintech startups, neobanks that draw strength and motivation from a rapidly changing reality, this is an eternity. Nevertheless, for both the former and the latter, the next 25 years will be decisive.

Why exactly twenty-five years? During this time, a generational change occurs. And if in the “good old” times for a bank or investment adviser this meant that instead of the father, the client's chair would be occupied by his son, now things are completely different. A very interesting generation of rich people is entering the arena. Two things make it interesting. First, it is the richest generation in history: according to forecasts by the American research company Cerulli, over the next twenty-five years they will inherit about 84 trillion dollars from the baby boomers! Second, to get a piece of this pie, participants in the financial industry will have to try hard, because the new rich are very different from their predecessors, and this requires a radical change in the approach of the old-school bankers.

New Preferences

According to research, almost 80% of the new generation of wealthy people will not use the financial advisors their parents worked with. That is, they will not take a seat in their father's chair. Moreover, the further they go, the less often they will take anyone’s seat to solve their financial problems. They do not want to read 50-page reports and spend hours talking to advisers. What do they want? To solve a problem in one or two clicks. To get high-quality financial analytics in a concise form using several applications on their smartphone, track the movement of money in their account, control the payment of taxes, invest in assets, order participation in a golf tournament or a ticket to a concert (preferably with a transfer), etc.

Personal Experience

When I was starting my career in the financial market (by the way, it was twenty-five years ago!), the trend towards simplifying and accelerating financial transactions was already on the move. In 1999, while working between the Ukrainian cities of Kharkiv and Kyiv and London – the capital of finance, I recognized that most actions, including buying shares and creating portfolios, could be performed remotely. And it was in demand. While I was building my career in different banks and then in my own investment business, this trend was strengthening under the impact of evolving technologies and changing customer demands. At the age of 18, I wrote down a goal in my notebook – “to build an international investment bank”. About twenty years have passed. In the middle of my journey, I have added the word “digital” to my goal in the notebook. This has turned the entire business in a new direction, although it is not easy and very expensive. A digital investment bank is not a tribute to fashion, but a necessity dictated by the times, which requires significant investment in technology, including artificial intelligence.

Conditions for Success

Who will the new rich trust with their money? Thinking about this, I came up with three conditions under which a company can get such a client.

Condition One: Simplifying Wealth Management

The company should spare the client of a headache over money. Money gives freedom – that is true. But wealth also creates a lot of trouble. Wealthy people at the level of High Net Worth Individuals (5m+) and Ultra High Net Worth Individuals (30m+) find it quite difficult to effectively interlink numerous operations related to money. In particular, to track the movement of money in accounts and taxes, carry out financial transactions, build investment strategies, invest, deal with life-style issues, and much more. The more money, the more tension.

To avoid chaos (after all, specialists in individual financial issues are independent and pursue different goals), wealthy people create a family office. They tend to hire teams of 5-9 people. It is expensive and inconvenient. Today, a large number of neobanks, fintech startups, platforms that digitalize basic financial transactions are available. This makes the process more accessible and convenient, but does not solve the essence of the problem. Being digital, financial services remain scattered, not united in any way into a single system with the client and his needs and preferences in the center of it.

Condition Two: Maintaining Human Communication

With maximum digitalization of financial services and integration of artificial intelligence into the processes, the company will be able to maintain human communication. No matter Zoom communication or face-to-face meeting with a financial advisor. True, today more and more clients no longer care about beautiful offices and expensive managers for constant communication. They are reluctant to go to a broker or an investment bank. However, when it comes to big money, such as 500 thousand and above, a client needs face-to-face communication or a video call. Harmonization of online and offline services is, indeed, very important.

Condition Three: Building Trust

The clients will trust the company. In the financial sector, which includes investments, asset management, banking, and insurance, it is generally held that everything comes down to numbers and calculations. My experience tells another story: trust is the most important thing in working with money. As I have already mentioned, a large number of neobanks are available today; many startups are emerging in the Fintech and WealthTech industries. Do people queue to keep their money or invest with them? No. Only 7-10% of clients are ready for this. Not the quality of digital products is the problem. These products are good and meet the demands of the time. There is no trust! Trust is built on two factors: character and competence. Competence implies skills, professional results, achievements. People trust those who can see things through to the end. People entrust the most promising projects and business contracts to those who have already achieved results in the past. Clients TRUST their money to those they TRUST. Startups lack history and reputation, which are accrued over decades. On the other hand, there are classic banks with a history of 100-200 years. But clients are already leaving them, although the cherished 25-year cycle of a large transfer of wealth has only just begun. Why do young people not trust them? Probably because old-school approaches make these advisers “strangers” in the eyes of new clients. It is easier to trust someone from “their own clan”.

Thus, young fintech companies need to develop competencies and form their history. Traditional banks need to change their approaches and adjust to the profile and requests of the new client. They do not have twenty-five years to do this because the process of wealth transfer is already in full swing. Some traditional companies will be able to win over a new client; otherwise, they will be left behind. Strategically, more chance of success will have those companies for whom the transfer from traditional asset management to wealthtech is a logical evolutionary path, when knowledge and competencies are supplemented by technologies and innovations.