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The traditional financial services industry has remained largely indifferent to calls for digital relevancy, with only 3% of financial advisers concerned about the threat posed by online investment services, according to a 2014 EY study. Yet with Millennials making up roughly one third of total US population, this generation of digital natives make up the current largest client base in the US market, with their aggregated net worth expected to grow to US $7 trillion by 2018.

Unsurprisingly, it is Silicon Valley startups that are targeting this lucrative and very accessible client base; looking to build long-term relationships with the fiscally conservative Millennials, who have grown up wary of institutional financial services firms and their perceived gross lack of transparency during the financial crisis.

The success of early players in the online investment space, including Wealthfront (est. $700 million valuation) and Betterment (est. $500 million valuation), shows that Millennials are already leveraging tech to educate themselves about their wealth building options, and unsurprisingly, are less likely to seek out financial advisors to manage their wealth. Venture capitalist firms and angel investors pouring money into these startups are also betting they can profit from the “steep growth curve of millennial assets.”

Wealth transfer from Baby Boomers

According to a 2014 Harris Poll study, the average financial adviser is aged between 50-55, with 64% of advisors targeting Baby Boomers and High Net Worth (HNW) individuals, and only 18% looking to target Millennials. Institutional firms rely on the presumption that the new crop of financial ‘Robo-advisers’ will only appeal to tech-savvy Millennials, and Baby Boomers and HNW individuals will continue to demand the in-person advisory model catered for by traditional firms.

This view will hurt institutional firms in the long-term; digital players are looking to break the generational paradigm and tap into both client pools, acutely aware that we are currently seeing greatest wealth transfer in history from Baby Boomer parents to their offspring. This will continue to put pressure on the traditional model in the next few decades.

As noted by EY:

“This next generation of clients, set to inherit upward of US$30t, have a different set of preferences and expectations that will affect how firms adapt and leverage digital strategies to serve them.”

As online investment platforms fundamentally change how Millennials approach their wealth building and asset management strategies, it will be fascinating to watch if they will also bring their parents along. Simultaneously it will be interesting to see if leading Fintech startups will scale enough to pique the interest of wealthy Baby Boomers, as their children enter their prime earnings years and continue to respond positively to the emerging opportunities in online investment.