Good news for advisors: There are more high-net-worth clients than ever before - with a record amount of investable wealth. The bad news? Many of the newest clients will be formidable challenges for the wealth managers who seek to advise them.
High-net-worth individuals with over $1 million in investable assets had more wealth - and in greater numbers - than ever before, according to this year's Capgemini United States Wealth Report.
The number of HNWIs rose 8.6%, to a record 4.4 million, as their investable wealth increased to $15.2 trillion, also an all-time high.
But the long-term outlook for wealth managers who will be dealing with a new generation of clients is "scary," says David Wilson, head of Capgemini Financial Services strategic analysis group.
"High-net-worth individuals under 40 have less trust, satisfaction and confidence in wealth managers than an older generation of clients, and are also less sticky - they're much more likely to leave an advisor if they're not happy," Wilson says.
As a result, there is "a real urgency for firms and wealth managers to develop progressive strategies to adapt to evolving client needs," according to the Capgemini report.
WHAT YOUNGER CLIENTS WANT
Accordingly, the report urges wealth managers to be particularly responsive to "behaviors and demands" of younger clients. Managers should also pay close attention to opportunities that come with digital automated advice platforms, as well as the distinctive characteristics of female clients, the report said.
Younger wealth management clients want access to credit and mobile applications, and they seek digital interaction with their advisors, according to the report. They also want diverse portfolios that could include real estate and global investments. They are particularly concerned with the social impact of their investments, rising educational costs and the availability of quality education.
Perhaps surprisingly, the report found that, although clients under 40 wanted lower-cost digital service delivery, they also were very interested in sophisticated financial planning.
"It's a bit of a myth that younger clients just want digital services," says Wilson. "They are also very demanding about their need for comprehensive, cutting-edge financial solutions."
DEMAND FOR DIGITAL
To be sure, Wilson adds that there is a "phenomenal demand" among wealth management clients under 40 for digital services and automated advice platforms. The demand is even higher for clients under 30.
Nearly 90% of clients under 30 are interacting digitally, compared with only one-third of clients over 60. Advisors would do well to note that 77% of clients under 30 said they would leave a wealth manager who didn't provide digital communication and service channels.
Automated services also offer wealth mangers an opportunity to widen their market to include the underserved, low-margin mass affluent market, estimated to have more than $4 trillion in assets. For HNWI clients, wealth managers should view automated services as part of a hybrid approach to a holistic practice that includes human advice for complex planning issues, Wilson says.
But so far, wealth managers have been slow to respond, according to the report.
'VIBRANT NEW MARKET'
Only 18.6% of wealth managers surveyed by Capgemini said they thought HNWIs would consider automated advice. As a result, they risk "missing out on the growth of a vibrant new market," the report asserts. Indeed, Capgemini estimates that HNWIs will be willing to allocate around $1.5 trillion to automated advisor models by 2017.
"Demographic trends and technology are converging to propel a radical new way of delivering wealth management services to clients," the report states. "Wealth management firms cannot afford to underestimate the attraction of automated advice, particularly for under-30 clients.
"Given the demand, firms may well want to aim high," the report continues. "One evolutionary path may turn out to be rapid adoption, supported by exceptional innovation in delivering highly sophisticated automated advice. If this or similar paths play out, firms will want to be ready for it."
The cost may be steep if they don't, according to Wilson.
"If you don't get on the train now, you risk being left behind," he explains. "In the big picture, knowledge will be expanding exponentially, leading to combinations in unanticipated forms."
Wealth management firms need to act now to offer an automated advisory capability, the report recommends, not only to respond to HNWI demand and competing offerings, "but to begin to develop a culture of innovation."
DISTINCTIVE CONCERNS OF HNW WOMEN
The Capgemini report also urged wealth managers to pay more attention to women clients and spouses of clients - who, after all, tend to be first in line in the event of wealth transfers.
For example, women HNWIs had a greater fear of identity theft and personal financial crime (by a difference of 12 percentage points) from men, more anxiety about the environment (by a difference of 10 points), and the threat of income not keeping up with inflation (by 10 points).
Female HNWIs also identified specific needs that set them apart from males, including a requirement for smooth account opening procedures and a strong brand reputation.
When it came to investing, females were more likely to hold cash than males (25.5% versus 21.3%) and less likely to hold equities (29.3% versus 39.8%). Female HNWIs were more likely to use cash holdings for lifestyle needs (39.9% versus males at 33.2%), while male HNWI tended to earmark cash holdings for providing security against volatile markets and investing in unique opportunities.
These characteristics, the report concludes, "are creating new incentives for wealth management firms to begin catering specifically to female HNWIs."
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