Drivers: what’s happening
The Future Laboratory’s Great Wealth Transfer report, launched at the Modern Affluence Summit 2023, explores how Millennials and Gen X currently possess a meagre 3% of all wealth assets, but this is about to reach a significant 60% globally.
Meanwhile, in the US alone Baby Boomers are set to hand over a staggering £42 trillion ($53 trillion, €49 trillion) to Gen Z and Millennials by 2045 (source: Cerulli Associates).
But with wealth comes responsibility, according to Jessica McGawley, founder of Dallington, a boutique consultancy that supports 16–28-year-olds from families of affluence in terms of their mental, emotional and cultural wellbeing.
‘And with inter-generational wealth exchange especially comes a whole new understanding of how wealth is viewed, spent and ultimately brokered in terms of ethical, moral and environmental considerations.’
For McGawley, the most vital of all skills to be cultivated and deployed when spending time with Gen Z is not financial literacy but tone of voice – being curious and never talking down to them.
: Overall, HNWIs’ and UHNWIs’ value has dropped by 3.6% and 3.7%, respectively, in recent years. US wealth holders still lead the way, but suffered big wealth declines in 2022, with HNWIs’ assets falling by 7.4% (source: Capgemini)
: Four out of 10 HNWIs – those with assets of over £23.7m ($30m, €27.7m) – are doing well despite the ongoing permacrises, while New Modern Affluents – those with assets of over £791,900 ($1m, €922,540), and HENRYs, or High-Earning, Not Rich Yet (£197,997, $250,000, €230,630+), now hold £21.4 trillion ($27 trillion, €24.9 trillion) between them (source: The Great Wealth Transfer report)
: Centi-millionaires are also in the ascendent, with almost 26,000 of them making an appearance globally, with 9,730 in the US, followed by China (2,021), India (1,132) and the Middle East (source: Henley & Partners)
This would explain why as few as 18% of HNWI and UHNI affluents under 35 are happy with their wealth management advisers, according to Capgemini, and why many, especially women HNWI inheritors, swap them for asset managers or online advisers who are more reflective of their behaviours and core generational viewpoints.
They are also keen that their family offices – those legal and financial entities that manage their collective investments – also reflect their shifting environmental, social and ethical concerns, according to research from PwC, which highlights the fact that 71% of next-gen Millennials and Gen Xers recognise that their ‘family’ has a responsibility to fight climate change and its related consequences’.
This isn’t just a tension thing between family and their sons and daughters, but between the latter and financial advisers whom they deem to be increasingly out of touch with where money needs to flow to, and why
Market shifts: what’s new
The Purpose Generation
This push to purpose, as we shall see, isn’t just confined to the ‘poor-rich’ as one of the report’s interviewees referred to wealthy families with over £50m ($63.1m, €58.2m) in their portfolios. It also refers to the 1% who have captured 54% of all wealth over the past decade, according to Oxfam, and indeed to our centi-millionaires, with £100m ($126.2m, €116.4m) in assets.
All see environmental, social, ethical, moral and climate crisis issues growing in importance, both in terms of how and where they invest or spend their money, and in those day-to-day conversations they have with their peers and, more tellingly, with their wealth advisers.
Ironically, environmental, social and corporate governance (ESG) data analysis and traceability – a key metric for our New Modern Affluent (NMA) groups – are not among the top priorities of wealth management firms, according to the latest World Report Series 2023.
It isn’t about using money as an instrument for profit – that was my parents’ generation – it is about using it as a force of change, impact and unprecedented difference
To understand this mindset, we must examine how and why it differs from that of wealthy forebears. Boomers, for instance – the progenitors of what we know today as lifestyle products – tend to overly invest their wealth in stocks; 30% of them do this, according to FeeX. They invest in money markets, bonds, pension funds, property, cash and lifestyle heritage assets (LHAs) such as cars, watches, jewellery, wine and art.
But they also tend to be pragmatic and hard-nosed about this. Investments are there to fund their retirement, support their passions, and in the case of Asian HNWI Boomers especially, saving for their children and grandchildren.
According to the Norton Trust and the Wharton Global Family Alliance, across 24 countries two thirds of family offices interviewed didn’t have a succession plan in place, while only 37% of respondents were aware of such a plan’s existence.
And in keeping with Baby Boomers’ aspirations, to get the best return on their investment, the same report shows that ESG concerns account for less than 10% of the overall portfolio mix.
This generation’s attitude to ESG-related products reflects how affluent Boomers generally react to ESG, as a recent survey by Stanford University indicates. Millennial investors, for example, are prepared to give up 10% of their investment to see a company improve its environmental practices, while Baby Boomers are only willing to sacrifice a trivial amount.
Even when it comes to how one generation define such things as corporate and social responsibility, the response is telling, according to UBS head of family advisory, art and collecting, Eric Landolt. UBS’s Voices of Next Gens report notes how an ambitious next-gen Millennial attempts to redefine the corporate social responsibility (CSR) strategy of their family business by instilling in the company the notion that time should be given for delivering purpose-driven causes as much as capital: ‘For example, if we give away 30% of the time of our employees, with 5,000 people working for us, this would be very impactful.’
Luxe Millennial Mindsets
For Millennials, by contrast, ethics and investment are one and the same. They distrust stocks – too opaque – with only 25% of those with assets of £2.4m ($3m, €2.7m) investing in them, compared with 55% of those aged over 43, according to Bank of America. They are more likely to invest in alternative investments than average investors, such as crypto (29%, versus 7% of the over-43s). More than 70% of the 21–42 age group hold sustainable investments in portfolios compared with just 21% of those aged 43 and over.
British and French HNWI Millennials, for example, are happy to pay more for a sustainable brand – 87% in the UK, 90% in France and 67% in the US, according to Agility, Research & Strategy.
Similarly, the pre-owned luxury market has become a key way for Gen Z and Millennials to demonstrate their circular and environmental principles. Some 42% of HNWIs in the UK and 22% in the US now see this as a good choice to invest their wealth sustainably, according to the Global Millionaires 2023 TrendLens report, while the pre-owned watch sector has grown by 20% since 2018, outpacing S&P’s yearly 8% growth rate in the process, according to Boston Consulting Group.
Current luxurians aren’t just buying a bag or a dress, they are buying into values and asking themselves: ‘Do I agree with them?’ And that’s a massive change. That’s a shift from the purely transactional to the transformational on the part of the client [in this case, the investor] and the brand itself
Generation Z-uite Spot
Just as Boomers are different from Millennials, so too Gen Z are showing more pointed differences from their Millennial siblings. In activist terms, they are demonstrating some of the fire associated with their Boomer grandparents. As Jessica McGawley points out: ‘For Boomers, it was gay rights, women’s rights and civil rights; for Gen Z, it is trans rights, environmental rights and wider gender and cultural inequalities.’
Often described as the activist generation, they are among the most diverse, gender-fluid, digitally active and pro-protest yet, whether this is about challenging high-end luxury brands to commit to sustainable and transparent practices or researching brands to uncover their back story – greenwashing and questionable business practices included. In the US, Forrester Research found that 51% of Gen Z ‘citizensumers’ did this as a matter of routine.
Indeed, Z-suites and ZEOs are fast becoming a core part of the workplace, or the board members of luxury fashion brands, as Gen Z (along with Millennials) become the largest group of luxury consumers ever, and the most vocal and challenging.
According to Z-suite member and ZEO Harris Reed, his generation are all about change and being challenging. ‘If businesses don’t take notice,’ he warns, ‘they will fail. Friends of mine will only purchase from companies where they know what their money is going towards.’
But those who do step up to meet Gen Z needs are succeeding, which again demonstrates this cohort’s underlying ‘side-hustle’ spirit and sense of reciprocity; if you do well by them, they will do well by you.
Global PR firm Edelman Worldwide, for example, which established its own Z-suite to work directly with brands targeting Gen Z consumers, says it added £11m ($14m, €12.9m) to its bottom-line revenue between June 2022 and Easter 2023 as a consequence of listening, collaborating and embedding a Z-suite in its organisation.
Once your older clientele die off, not to be rude, who’s buying your product? Whether a company wants to be sustainable or open for the right reasons doesn’t matter. They have to step up or they’re not going to succeed
Gen Z Investors
Little wonder, then, that with this kind of ingrained entrepreneurialism, Gen Z – like their Boomer forebears – are keen on investment. And even with the smaller amounts they have at their disposal, they are learning to cut their teeth on investment platforms with meme stocks, cryptocurrencies and non-fungible tokens (NFTs) leading the way.
By The Royal Mint’s reckoning, despite their shortage of cash, Gen Z in the UK are set to invest £9.4bn ($11.9bn, €11bn) by the end of 2023, with so-called ‘fintox’ influencers leading the way. Within this context, 23% of Gen Z say their investment advice comes from social media, with 17% saying it has encouraged them to adopt a get-rich-quick mentality, where returns are expected in less time.
But Gen Z are not foolish, and just as Boomers and Millennials have learned to diversify their portfolios based on their generational tropes and technological abilities, so too have this generation.
Six in 10 Gen Z in the US, for instance, report that they have their own spread risk investments (think savings, pre-owned, fee-free platforms such as Robinhood), with a significant 19% investing in cryptocurrency and NFTs, while many of them taught themselves how to invest before turning 18, according to a report from the CFA Institute.
Finally, perhaps tellingly, unlike their Boomer and Millennial counterparts, they are very aware of the risks they take and mitigate accordingly – about 48% say they know more about investing than their parents (the figure is much higher in the UK), with 33% saying they are very confident in their ability to make investment decisions.
And, surprisingly, despite their propensity to look to fintech, AI, crypto and NFTs for alternatives routes to wealth, as The Royal Mint’s recent report reveals, many are also looking to old wealth and luxury symbols such as gold and silver to diversify risk.
Analysis: what this means
For New Modern Affluent Gen Z and Millennials, investments and spending increasingly mean the same thing: a focus on sustainability, purpose and impact.
And luxury brands have been quick to spot this. Building on their heritage credentials – and owning up to past excesses and environmental damage – they are now actively acting as guardians of eco-systems at a time when scrutiny of sustainable claims and greenwashing continues to peak.
As Helen Brocklebank, CEO of Walpole, put it recently about the industry: ‘We must do business well by doing good. Younger consumers are far more engaged with issues of sustainability than their predecessors. For luxury brands, doing things not just the best way but the right way will be crucial to attract and retain them.’
Just as we are witnessing HNWI investors putting the brakes on giving their money away to philanthropic causes in favour of environmental pursuits, luxury brands are also shifting donations to ESG initiatives – with a collective focus on planet, people and purposeful investment.
In essence, HNW brands must be reflective ‘doppelgangers’ of their target audience, mirroring their mindsets, their pro-activism and increased desire to invest and buy into better.
For Boomers, it was gay rights, women’s rights and civic rights; for Gen Z, it is trans rights, environmental rights and wider gender inequalities
: Generational mindsets can and do overlap, but each has a spike of difference that drives and defines them. It is a brand’s job to find that spike, so that it is relevant to each generation – but it is also important to identify the overlaps so that each generation can find their own relevance with the brand’s universe
: Wealth may create inequalities, but within wealth cohorts themselves there is a growing consensus that regardless of income there are more commonalities than ever in terms of supporting ESG causes and challenges. Brands therefore need to understand what these are and how to honestly and transparently reflect them in their brand DNA
: Gen Z, especially, aren’t just vocal, they are willing to proactively involve themselves in the success of a brand’s trajectory. But to do this, they want skin in the game, so why not develop a Z-suite mentality where ZEOs can have a voice – but also take responsibility for its consequences?