Journal of Financial Planning: April 2022
Dani Fava is head of strategic development at Envestnet, the financial services technology company transforming the way financial advice and wellness are delivered. For more information, please visit www.envestnet.com, subscribe to https://envestnet.blog, and follow them on Twitter (@ENVintel) and LinkedIn.
Maybe members of Gen Z and Gen Alpha are going to do their banking and investing in the metaverse. Maybe they’ll only accept payments on the blockchain, and maybe they’ll only send gift cards as NFTs. There’s so much innovation happening within financial technology that it is hard to tell how Gens Z and Alpha will interact with their finances and what that will mean for traditional financial services companies in the not-so-distant future. And if you think these generations are too young to matter, the oldest Gen Zers started voting seven years ago.
Capturing the hearts and minds of these future generations matters—a lot. As a matter of fact, there is precedence for getting this right in other industries. Let’s take Google, for example. Google Classrooms has become the de facto standard in U.S. schools. Today, about 15 million primary and secondary school students in the United States use Classrooms, according to Google. Why would Google focus on the public education system, which is far from an ideal profit center? Well, imagine telling these children that they must use Microsoft Word and Excel when they enter the workforce. That’s why.
Apple also uses this brilliant tactic. Apple offers free coding classes for children in all of its stores. At first blush, you might think it is to get parents to shop at the store (and maybe that’s an ancillary benefit), but the real reason Apple does this is so that children learn how to code on iOS before anything else. So that when they grow up and become engineers, iOS is their default, and Apple is their beloved brand. Makes sense, right? These companies are baking future relevance into their current use.
Not surprisingly, there are several companies focused on serving as the financial services brands of choice for Gen Zers and Alphas, assuming real dollars still count outside of the metaverse. The surprising part is who these companies are—they are not Charles Schwab or Vanguard. A mixture of well-known nonfinancial brands, and brands you may not have heard of, have taken the stage to introduce these generations to financial literacy through programs and tools that enable younger folks to take charge of their financial future. While an established brand, Verizon, has launched the Verizon Family Money app, startups like Greenlight and Goalsetter are also trying to capture this market with their own apps—these smaller ones no doubt hoping that the Vanguards and Schwabs of the world gobble them up when they realize how important this market is for their future.
What are these companies offering, exactly? They are offering personal financial education and embedded banking and investing capabilities. Most of these apps allow parents to automate allowances and allow kids to have their own debit card and savings vehicles, so they can learn about earnings, savings, budgeting, and spending. And some of these apps even have investing capabilities—truly rounding out the basic pillars of financial wellness and helping parents teach their children one of the most important life lessons.
As a result, the members of these generations will presumably be more aware than any of their older counterparts about the importance of setting goals to achieve and maintain financial wellness in the short and long term. Technology has played a huge part in driving this shift.
With the digitalization of banking, saving, and investing practices, investors from Gens Z and Alpha can be exposed to information and money managing practices from a young age. Because of the technology available to them, they can track their finances more closely through the swipe of an app versus building an Excel spreadsheet. They can monitor their credit scores frequently without doing any harm, and learn how to improve their scores based on credit activity. These apps make it easier for their personal finances to become part of their daily or weekly routines, and ultimately, help them prioritize financial goals, whether they are saving for college, investing in real estate with co-owners, or minting the latest NFT.
Though it might not be apparent in real time, the importance of family succession planning has become more evident as the use of traditional financial services apps for banking and investing, as well as gamified apps for saving like Mint or Acorns, are used more frequently by the people who stand to benefit from the looming intergenerational transfer of wealth. According to Cerulli Associates, nearly 45 million American households will transfer a total of $68.4 trillion to heirs and philanthropic causes over the next 25 years.
Why does this matter to financial advisers and financial planners? Financial professionals are faced with the same old conundrum. It’s a well-known problem without a well-known solution. Financial professionals are the Schwabs and Vanguards of this familiar story. They are doing good right now, maybe even great, but will their brands be the brands of the future—especially when, according to Cerulli, only 13 percent of adult children of affluent clients choose to work with their parents’ adviser, and the vast majority (88 percent) of the remaining 87 percent who choose not to continue the relationship with their parents’ adviser never consider doing so?
When wealth is transferred, these generations might view Verizon as a viable financial services brand instead of the traditional financial services brands that we know, like Vanguard and BlackRock. What can financial professionals do now to solidify their role in the future of their younger clients’ finances?
Financial planners and advisers could benefit from forming connections with each member of a client’s family, especially children slated to become beneficiaries, early on in the relationship. Financial professionals can use this time to invite clients’ children to join in-person or virtual meetings and update calls, and ask them about how they want to save for college, how much money they would need to meet expenses during college or when they move out after graduation—anything to break the ice and develop a rapport. By the time the children are of age, or their parents’ wealth is transferred, they would hopefully be far more likely to continue using their parents’ adviser. By investing in these relationships, financial professionals are investing in the future of their practices and their brands.
If traditional and non-traditional financial services companies are going out of their way to make an impact and grab the attention of Gens Z and Alpha, financial planners and advisers could benefit from taking a new approach in how to appeal to this audience. In a world where financial advice is consumed through the internet and social media, financial professionals should figure out ways they can offer value to clients and craft their brands so they speak the lingo of the client of the future.
One suggestion: perhaps financial advisers should embrace some of these newer apps, and even lead their clients’ families to them as a way to start more conversations. It is the relationship where the adviser adds value to the client, and the underlying technology will constantly evolve.
It is time to explore a new way of family succession planning that brings clients’ children into the conversation earlier in the process. Family succession planning is evolving before our eyes alongside innovations in technology. Now is a crucial time for financial professionals to implement communication and branding that appeals to the younger generation—so that instead of being threatened by these new apps, they embrace them and win relationships by having proven their value through a well-developed, long-standing relationship that enables them to understand client goals and experience. Providing value and a deep level of human connection can go a long way for financial services providers at a time when the corporate giants of the world are looking to branch out into the financial services space.
