Top Trends in Private Wealth Management
Private wealth management is ever evolving in terms of how high net worth individuals (HNWIs) manage their wealth and how financial advisors and institutions service their needs.
Each year there are new trends and buzz words drawing the attention of advisors and the individuals whose wealth they are managing. While jumping on trends is not always the best route for wealth management these trends can be useful in triggering conversations between clients and advisors on the best allocation of their resources. This article will discuss some of the top private wealth management trends now.
The Re-Wired Investor
Investors themselves are changing with a higher proportion of high net worth individuals being part of generation X (born in the 1960’s and 1970’s) and generation Y (1980’s and first half of the 1990’s). These investors have different expectations in terms of the advice they expect and how they expect to interact with their advisors.
These investors are more skeptical of the advice provided by professionals and often require detailed background on investment ideas than financial advisors have typically provided. They are also more likely to ask for second opinions and to conduct their own research into the fundamentals of an investment proposal. As a more technologically advanced generation the re-wired investor also expects a very personal and digital experience, with access to advice and their portfolios anytime and from anywhere.
Many financial advisors are adapting to this change in expectations, but not all, reinforcing the need for high net worth individuals to find the advisors that work ‘right’ for them.
Holistic Goals Based Advice
A key trend is the drive for high net worth individuals to expect financial advisors to provide a broader range of advice on how to achieve their various financial goals and objectives. Simply generating the highest returns possible, while still important, also has to compete with other objectives (retirement planning, lifestyle goals, children’s education, cost of aging parents, etc.) that often compete with each other.
Achieving these goals and being able to clearly articulate the trade-offs between them require financial advisors to know a lot more about their clients and provide a far more customized service. Balancing these goals can be complex and requires more time, and often leveraging more technology, than was previously the case for wealth management.
Managing the Retirement Wave
One of the biggest changes being seen in private wealth management is how the dynamic of retirement and ensuring the maintenance of a comfortable lifestyle is shifting. For most high net worth individuals their retirement standard of living and being prepared for any costs in the future is one of their most important considerations. Increased life expectancies, rising medical costs, changes to government retirement programs and even the potential that those government provided plans may become insolvent in the future are all major dynamics facing retirement planning.
For many wealth managers who have traditionally focused on the accumulation of wealth through focusing on annual returns this need to focus on later payout schedules is still an added complexity. Traditional products like annuities often no longer sufficient to address the needs of many clients and coming up with a wealth management plan that considers both the growth and payout stages of clients is increasingly important. Retirement and the longevity of investment planning increasingly need to take on a more important focus at a far early stage in an individual’s life than had previously been the case.
Aging Advisors and Succession Planning
One dynamic of the private wealth management world that is often not considered in wealth planning is related to succession planning for financial advisors. In the US alone 43% of individuals working as financial advisors are 55 years of age or older, with at least 1/3 of those individuals expected to retire in the next 10 years. Many wealth management firms need to address this major transition and it’s something that their clients need to consider as the last thing a high net worth individual wants to face as they retire is the retirement of their financial planner and the loss of their advice. This means high net worth individuals need to consider the team working for them, both currently and what that team might look like in 10 years to ensure they have a smooth succession plan in place and an established relationship with their future advisor.
The Investment World: 3 Lows and 2 Highs
In the wake of the financial crisis of recent years and dynamics in the current global economy 2017 and beyond is likely to face a different climate than many high net worth investors are used to. This is characterized by the 3 lows and 2 highs.
Low/Slowing Economic Growth
Globally economic growth rates are either already low or have slowed in recent years. China as a driver of global trade has seen its economic growth rates decline and much of the developed world has settled into a relatively low growth rate.
Low Interest Rates
Partially driven by the low/slowing economic growth rate in many countries interest rates are at historical lows and expected to remain there for quite some time. While extensive attention is paid to central banks and whether they will increase rates each quarter the core interest rates in most countries are very low and returns on deposits will generate little income.
Tied to both of the above factors inflation is low in many countries and will remain so for the foreseeable future, with some countries even facing deflationary factors. This forces a rethinking of financial models and asset appreciation rates that many investment plans have in place.
High Financial Leverage
With low interest rates many companies, and individuals, are increasingly leveraging their investments through the use of debt. This adds a degree of risk to investments in companies that do struggle to capitalize on the growth planned through leveraging.
Relatively high volatility will drive significant complications into long term strategies and investment planning. This means that high net worth individuals may need to spend more time with their financial advisors as markets swing and action need to take place.