Directing the matrix: Meeting the advice needs of high net worth clients.

High net worth (HNW) investors represent a growing segment amongst the wider Australian population, with more than 635,000 HNW individuals investing more than $2.98 trillion AUD in aggregate.  Their larger amounts of wealth is almost always associated with complex advice needs. 

However, new entrants to the HNW segment are more likely to be unadvised, representing a real opportunity for financial advisers to sharpen their value proposition to meet their needs. In our latest whitepaper, Directing the matrix: Meeting the advice needs of high net worth clients, we share practical insights on the behaviours and advice needs of HNW clients – and what it takes to serve them successfully – based on the insights of financial advisers and leading experts who specialise in serving this segment.

Understanding HNW Investors

As tempting as it is to think of HNW investors as one homogeneous group – that is stereotypically largely male, middle-aged, and professional – in reality, today’s HNW client is just as likely to be a female entrepreneur or a young IT whiz.  In Australia, the HNW segment is sizeable, and in 2023 is estimated by Investment Trends to comprise around 635,000 individuals, investing more than $2.98 trillion AUD in aggregate.  What may be surprising to some, is that the under-40’s are estimated to make up 14% of ultra-high net worth (UHNW) investors.

Their financial motivations and behaviours

To some extent, the money motivations of HNW clients mirror those of many other investors – saving for retirement, the desire to make a social impact, preserving wealth, passing assets on to family members and leaving a legacy. However, the quantum of the amounts involved increases the number – and complexity – of solutions available. Older HNW clients, such as Baby Boomers and beyond, have ridden a wave of enormous asset growth over their lives in both equity and housing markets. It is these clients who are at the very centre of the enormous intergenerational wealth transfer we will see over the next two decades.

Advice and service needs

Without exception, the advisers interviewed for this paper agreed that the core basis on which their HNW clients had engaged them – and their ongoing advice need – was to solve complexity. Accumulating large amounts of wealth is almost always associated with complexity, particularly in areas such as business structure, cash flow, tax and debt management and family dynamics. And while investment management is undoubtedly a core service required by HNW clients, it is likely to be simply one of many utilised in solving their problems. As such, centring the benefits around investment management to HNW investors is likely to dilute rather than strengthen the advice proposition in the eyes of these clients.

Creating a legacy, investing with purpose

HNW and UHNW clients have a strong and growing interest in philanthropy, with the Crestone Wealth Management: 2021 State of Wealth Report finding the proportion of HNW investors who rated philanthropy among their top three investment priorities doubled between 2019 and 2021.  Whether it be driven by philanthropic objectives or their investment goals, ESG is an important factor for HNW individuals, when considering their wealth management objectives

At higher levels of wealth, philanthropy is generally via ‘structured giving’, where highly specialised legal structures such as Private and Public Ancillary Funds (PAFs and PuAFs) and private foundations allow individuals to maximise the tax effectiveness, flexibility and impact of their philanthropy. 

Self-Managed Super Funds (SMSF)

The SMSF market remains a pivotal player in Australia’s financial sector, providing investors with control and adaptability over their retirement savings. The latest data, gleaned from the Australian Taxation Office (ATO) as of March 2023, offers a comprehensive glimpse into the current SMSF landscape, revealing both time-tested trends and intriguing shifts in investor behaviour.

Since their original inception, the surge in SMSF usage among HNW individuals can be attributed to their ability to provide greater choice and control over investments, and the flexibility to accommodate more complex, tax effective estate planning strategies.

How are they reacting to the current climate?

Decades-high levels of inflation and associated interest rate movements are without doubt the dominant economic themes around much of the world right now. And evidence suggests the silent wealth-eroding effects of inflation are weighing more heavily on the minds of HNW investors than market volatility. Despite the inflation rate being the highest seen in decades, the response of most HNW clients seems to be ‘muted’.

7 key take-aways for advisers.

Determine your HNW target market

Is there a specific niche of HNW client you’d like to attract? For example, if you’re interested in working with medical professionals, there are organisations and industry groups that could be good sources of information or potential referrals for your business. Would you target people from a specific company, similar to how the team at Arrive Wealth works with executives from PwC? There are many opportunities available for specialisation – choose what best suits your interests and business strengths.

Refine your CVP specifically for HNW clients

What sets your business apart for HNW clients? It could be a specific investment approach, such as liability-driven investing (mentioned by Stephen Furness at MDG Wealth). Maybe it’s a skillset you bring to the table, such as in-house tax and accounting specialists or aged care advice.

Discover the full 7 key take-aways advisers can use to effectively grow relationships with HNW clients.