How today’s advisors are incorporating ‘holistic planning’ into the advisory discussion
by Craig HawleyMr. Hawley is head of Nationwide’s advisory solutions. Visit nationwide.com
Year-over-year, RIAs and fee-based advisors rate the pursuit of profitability as their single most important practice management issue – and the push for new clients remains the top driver. The Emerging High Net Worth are poised for growth, and targeting this segment of investors is essential for advisors to move the needle, enhance current profitability, and build a foundation for the future growth of their firm.
As competition for new clients continues to increase, it pays to understand this valuable client segment and position your practice to help them build more wealth. In a new Special Report based on our latest Advisor Authority study of more than 1,600 Registered Investment Advisors (RIAs), fee-based advisors and individual investors nationwide, we zero in on the characteristics that make the Emerging HNW unique – and help you to understand how their priorities, preferences and concerns will shift as they ascend to the ranks of the HNW and Ultra HNW.
The opportunity is huge. Among affluent investors, slightly more than one-third of the Emerging HNW (36%), HNW (37%) and Ultra HNW (37%) do not have an advisor. While over half of those without an advisor (54%) say they prefer to manage their own assets, they could clearly benefit from your services. Holistic planning and comprehensive unbiased advice goes well beyond the basics of portfolio management – and is essential for helping these investors build more wealth and manage the complexities that come with it.
The Future Millionaires Next Door
The Emerging HNW market in the U.S. is thriving. With investable assets ranging between $500,000 and $1,000,000, the Emerging HNW represents roughly 12 million households in the United States – close to 10% of all households. Focused on building more wealth, the average net worth of this group increased by 23% from 2013 to 2016, making them one of the fastest growing net worth segments, according to Federal Reserve data.
Today’s Emerging HNW investor is on the path to becoming the future “millionaire next door.” The U.S. continues to be home to the largest number of millionaires – and their numbers continue to increase. According to global consultancy firm Capgemini, the number of HNW and Ultra HNW in the U.S. with investable assets of $1 million or more has grown to 4.8 million individuals in 2016, a 7.6% increase from 4.5 million in 2015, and nearly double from 2.5 million in 2008. Moreover, according to Credit Suisse, the U.S. currently accounts for 41% of the world’s millionaires, has six times more Ultra HNW than the next closest country, and has the highest number of individuals in the top 1% global wealth group.
Attracting and Retaining the Affluent Investor
To attract and retain the Emerging HNW and other affluent investors, you must understand and align with their top priorities – and creating greater confidence is at the top of their list. When asked to name the single most important reason for having an advisor, the Emerging HNW and other more affluent investors say they want to feel more confident in their financial future. This is the number-one reason by a wide margin for the Emerging HNW (43%) and the HNW (48%).
As investors’ wealth increases, so does the complexity of their financial life. This explains why a plurality of Ultra HNW also say the number-one reason for having an advisor is to feel more confident in their financial future (22%) – but it is followed more closely by their focus on financial planning (15%), and because they do not feel confident to go it alone (12%).
When asked what influenced them to work with their advisor, the Emerging HNW and other affluent investors say that three factors are most important. The Emerging HNW prioritize advisor experience (54%), a fee-based fiduciary standard (31%), and personalized holistic advice (22%). All other factors quickly decline in importance.
To provide more personalized and holistic advice for the Emerging HNW and other affluent investors, establish partnerships with specialists such as CPAs, Trust Attorneys and Estate Planners. If you’re new to the industry, team up with more seasoned advisors within your firm and build multi-generational teams. To ensure your service offering is consistent with a fiduciary standard, make greater transparency and greater choice a top priority. And be clear that you put your affluent clients’ best interest first.
Making the Relationship Work
Research shows that a unique customer experience can be a competitive advantage for your firm. And to provide a truly successful customer experience, the Emerging HNW say personal one-on-one relationships matter most (52%), while quality of communication comes second (38%). To ensure a successful customer experience, the Emerging HNW also say products and strategies should be transparent, low-cost, high-value, and offer more choice. Also note that affluent investors say partnerships with CPAs, Trust Attorneys and Estate Planners lead to a more successful customer experience.
Digging deeper, we looked into what makes the advisor/investor relationship work. And affluent investors across the board say that trust must come first. By a wide margin, the Emerging HNW (44%), HNW (34%) and Ultra HNW (34%) all say trust is the single most important attribute in the relationship with their advisors.
And when it comes to the business of managing their finances, affluent investors want results. To make the advisor/investor relationship work, proven-track record is rated second by Emerging HNW, HNW and Ultra HNW. Likewise, the Emerging HNW and the Ultra HNW are twice as likely as other investor segments to expect advisors to add value. So when working with the Emerging HNW and other affluent investors, be aware – and be prepared – to address your track record and your approach to adding greater value.
Addressing Top Concerns Creates Confidence
To help the Emerging HNW and other affluent investors feel more confident in their financial future, it is critical to address their top concerns. While advisors say that saving enough for retirement (39%) is their clients’ top concern over the next 12 months, affluent investors say their focus is distinctly different.
When asked to name their top three financial concerns over the next 12 months, protecting assets is cited as number one by Emerging HNW (43%), HNW (41%) and Ultra HNW (40%). Cost of healthcare and taxes are also among their top three – and far outpace their concerns about saving enough for retirement. So when working with the Emerging HNW and other affluent investors, be sure to develop strategies to protect their portfolios against market risk.
Remember that incorporating tax-advantaged investing strategies will be beneficial for your affluent clients – as well as for your practice.
And when it comes to the macro trends impacting their approach to investing in 2017, many advisors say U.S. Fed Policy (32%) is number-one. But in a year where politics have been anything but usual, lawmakers continued to dominate the headlines as they locked horns on healthcare reform, hit countless roadblocks before finally reforming taxes – and gridlock in Washington became the new volatility.
So it should come as no surprise that affluent investors say Washington politics tops the list of macro trends impacting their approach to investing, rated first by Emerging HNW (34%), HNW (36%) and Ultra HNW (30%). Affluent investors also express concerns about the impact of domestic economic performance and changes to the tax code, in addition to U.S. Fed Policy. When advising more affluent clients, take note of these concerns and address their potential impact on portfolios.
Move the Needle – and Drive Greater Growth
In a year that was defined by the unexpected and the unprecedented, the value created by RIAs and fee-based advisors has continued to attract the Emerging HNW and other affluent investors. As Advisor Authority has shown, year-over-year these discerning clients demand holistic financial planning and unbiased advice. Likewise, those affluent investors who work with an advisor are far more optimistic about their financial outlook than those who do not – and year-over-year their optimism has increased.
So now is the time to position your firm to target the Emerging HNW. Start by learning more about their priorities, unique preferences and the root causes of top concerns. Understand the importance of building one-on-one relationships, cultivating trust, and putting their best interest first. When you invest the time it takes to attract, retain and nurture the Emerging HNW, and you help build more wealth to ascend the ranks of the HNW and Ultra HNW, you are making an investment in your firm that will move the needle now, enhance current profitability, and build a foundation for the future growth.◊
To learn more, financial professionals can download this latest Advisor Authority 2017 Special Report on “Moving the Needle: Targeting the Emerging High Net Worth” by visiting: http://www.jeffnat.com/advisorauthority/chapter3
For more insights on the Emerging HNW segment and other affluent investors, financial professionals can also download the latest Advisor Authority nfographic at: http://learn.jeffnat.com/advisorauthority/chapter3-infogram