As wealth is transferred to younger generations, private banks are adapting their offerings to address the needs of next gen clients. Indosuez Wealth Management is developing more sustainable offerings and management solutions based on exchange-traded funds (ETFs), all while ensuring that they gain and maintain the trust of younger clients.
Nearly 84,000 billion dollars worldwide will be handed over from the Baby Boomer generation to their heirs by 2048. In Luxembourg, the amount of wealth stands at 132 billion, with 32 percent to be transferred in the next five years, according to Capgemini’s annual wealth report. It’s happening faster than one might expect: in just 10 years, 73 percent of that wealth will be transferred.
Capgemini says 94 percent of these younger clients plan to switch wealth management firms within two years of inheriting wealth. That makes it crucial for institutions to convince the next generation of their added value, says Tanguy Kamp, head of investment management for Indosuez Wealth Management in Luxembourg. “The key points to monitor are obviously the performance of their assets, but also the overall quality of the advice provided, our responsiveness to their requests, and our proactivity in relation to their needs.”
“When you hold significant wealth, you do not necessarily want to entrust everything to an algorithm.”
Tanguy Kamp, Indosuez Wealth Management
Despite the rise of digital platforms and technologies like AI, private bankers and wealth managers continue to bring invaluable expertise to the table. Private banking is based on trust and the human dimension must remain “at the heart” of the profession, Kamp emphasized. Though “AI brings immense added value through automation and personalisation, it cannot replace the human touch that advisors provide,” he said. “When you hold significant wealth, you do not necessarily want to entrust everything to an algorithm.”
Tech and ESG
In addition, new demands from younger clients are leading Indosuez to adapt its offerings and investment approach, with sustainability and the integration of ESG aspects key demands. Clients continue to prioritise the financial performance of their investments, but more and more of them want to combine performance with a positive impact.
To address this desire, “Indosuez has implemented management mandates focused on new technologies (World to Come) and mandates focused on themes aimed at sustainability in social and environmental aspects (People & Planet),” said Kamp.
Monuments and art
Positive societal impact can also be accomplished through support for philanthropic causes, with clients of different ages choosing to prioritise different causes. Philanthropy, says Marie Melikov, senior philanthropy advisor for Indosuez Wealth Management in Luxembourg, is an “integral part” of the bank’s wealth management approach.
Older clients, particularly those without children, often wish to pass on their assets, including historical monuments and art collections, in a way that allows culture to be promoted and preserved, she explains. “Additionally, these clients tend to be deeply invested in supporting medical research, with priorities often aligned around causes like cancer research or Alzheimer’s.”
On the other hand, middle-aged entrepreneurial clients have a more business-oriented view when it comes to philanthropy. They often take a “highly proactive approach,” Melikov said, which can involve corporate endowment funds or corporate social responsibility strategies. “Their engagement is often formalised through the lens of their business.”
Less risk-averse
While both older and younger clients both aim to grow their wealth, today’s market dynamics may be unfamiliar to younger clients. “Young clients have often never experienced long bear markets, with index corrections close to 50 percent, as seen in 2000-2003 or 2008-2009,” said Kamp.
“The S&P 500 has increased tenfold since March 2009, and all corrections since then have been short-lived.” These corrections include the start of the Covid-19 pandemic in 2020, the start of Russia’s full-scale war against Ukraine in 2022, and the US announcement of tariffs earlier this year. “Therefore, [young clients] tend to be less risk-averse.”
Young people are also interested in exchange-traded funds (ETFs), says Kamp, as well as investments related to new technologies, like blockchain, cryptocurrencies, AI, semiconductors, cloud, and robotics. Capgemini research backs this up: the firm’s wealth report found that 40 percent of next generation wealthy clients in Luxembourg are interested in cryptocurrencies. And a Nasdaq survey conducted in June found that 46 percent of Gen Z investors and 50 percent of Millennials held cryptocurrency-themed ETFs, combining two of the next generation’s interests into a single product.
Insead
Education is also important in the transfer of wealth, and ranges from estate planning to finding a balance between the desires of the older and younger members of a family and ensuring continuity. For the bank, the transfer of assets is more than a financial transaction, but rather a carefully managed process that helps strengthen family ties.
Moreover, together with the Insead Business School, Indosuez has launched the Indosuez Academy, an educational programme that aims to help the next generation navigate the roles and responsibilities related to family businesses. “This project highlights the crucial role of the next generation and the essential strategic priorities they must address,” said Jean-François Olivier, head of wealth planning at Indosuez Luxembourg.
This is the final article in a three-part Investment Officer series examining how Luxembourg’s private banks are navigating the great generational wealth shift. Find a link to the other articles below.