Why wealth management needs more EQ than IQ

Constant global connectivity, instant digital information and widespread artificial intelligence (AI) will be a reality in all aspects of life for digital natives in the future. The world of wealth management, however, must recognize that it has to follow another path, a more human-driven one, a more personal and emotional one, especially for the top segment of the wealth pyramid and in particular for their heirs.

The Next Generation’s power

In the next few decades, it is estimated that over $30 trillion of wealth will transfer to the next generation in North America alone. This Next Generation, on the brink of moving into the driver’s seat of their inheritance, is seeking more than an old-school banking relationship. This is especially true after the global financial crisis in 2008, which strained the relationship between banks and their clients.

As founder and general manager of the Young Investors Organization (YIO) – a network for the next generation of the world’s most influential families, sponsored by Credit Suisse – I have been working for over 13 years with this cohort and have had the chance to understand their characteristics and the driving factors behind their desire to live with passion and purpose. If there is one thing I have learned in this past decade, it is that the reality of the Next Generation is often very different to how it is portrayed in the media, particularly concerning wealth management.

Yes, technology and AI will be key, but the human touch will trump all.

The YIO members – who have grown in number from 200 in 2007, to some 1,500 spread around the globe – fully represent the values of this generation’s distinct philosophy. It’s a generation that is united in their desire to leave a mark and has a strong sense of collective responsibility for the wellbeing of the world.

At the same time, they are digitally savvy and born to a world with a free flow of information. They're used to comparing, used to having services anywhere and anytime at the touch of a button. For this generation, a wealth manager has to offer more than what is simply available at the swipe of a touch screen.

Making social impact the norm

The Next Gen thinks about investments in terms of risk and return, like previous generations, but they also factor social impact heavily into that equation – considerably more than their parents.

Only 20% are happy with current investment objectives and the allocation of their family wealth. This means they plan to make big changes in portfolio management once they take control. The growing importance and drive for social impact will therefore have a lasting influence on how wealth managers serve this growing client base. With more than 50% of the world’s population under 30, this should not be underestimated.

Furthermore, this is also an issue that can be best addressed, not through high tech, but through personal knowledge and understanding of the client, to better hone in on the themes close to their heart and to provide uniquely tailored solutions. Artificial intelligence will indisputably support and enhance the existing wealth management approach to sustainable and impact investing but it will not replace it.

From relationships to lifelong partnerships

As the next generation of the world’s wealthiest, slowly and sometimes abruptly are given control of their family’s wealth, their challenges will be multifaceted and highly intricate. The world may have become smaller thanks to communication, internationalization and high-tech but it has also become more volatile and more complicated.

I have met members of the YIO who, at a young age, have opportunities others can only dream of, but sometimes also responsibilities that not even an experienced, international manager could deal with easily.

The Next Generation seeks not only financial advice. At the top of their list of priorities when assessing a wealth manager are strong personal relationships. This means wealth managers will have to become honest, lifelong partners assisting in finding and achieving original, sophisticated and very specific goals, providing connections, linking sources and finding unique solutions. The Next Generation is clearly high tech – but in this new world they are also high touch.

They will transform the wealth management industry from one based on relationships with clients to one based on all-encompassing lifelong partnerships.

AI will be key in further developing transparency in the industry and supporting complicated number crunching, but it will also soon be the norm. AI will not be the differentiator.

What will? How will wealth managers ensure successful transitions between generations? How will they help to identify and realize their clients’ dreams for a better society? This is where the human factor will always trump AI in wealth management – according to the Next Generation.