High-net-worth investors (HNWIs), who are “disenfranchised” with the traditional options available, are moving into the non-custodial space, with advisers citing client preference as the top factor influencing their usage.
HNWIs are classed as those with $1 million in investable assets outside of house and superannuation, and there were around 690,000 HNWIs in Australia in 2024, with the number having grown by 8 per cent from 2023.
In a report by Praemium on non-custodial usage, 41 per cent of advisers said client preference or demand was the top factor influencing the use of non-custodial solutions, beating out cost efficiencies, access to alternatives and increased control.
CoreData founder, Andrew Inwood, said: “It’s about the customisation and the client demand that’s driving their use. If you know the wave of HNWIs moving through the system, the youngest Baby Boomer is 60 this year, and the next wave of people retiring in the ‘great tsunami’ will be those who have been saving since the 1980s.
“The first part of the curve was pretty wealthy and the next wave will be really wealthy, and they will be looking for better outcomes and better solutions. They will be making significant investments and finding ways to generate alpha.”
These wealthy individuals are desiring a greater personalised and tailored portfolio which is suited to their needs, something Inwood said is lacking in the traditional superannuation system and presenting an opportunity for financial advisers.
“Australia’s rich are becoming increasingly disenfranchised with the methods of saving money inside the system, so they are looking for other services to provide the solution.
“As you move into the HNW space, that desire for personalisation and client intimacy becomes a bigger and bigger need.
“I can’t stress enough how much people are prepared to move with you if it’s a portfolio that has been designed for them, which reflects them and shows consideration and effort. That will become a bigger deal for them, and being able to do that is really important.”
Benefits of non-custody solutions include broader access to alternatives, greater flexibility and ability to offer total wealth solutions, but this is countered by the complex administration involved and challenges around reporting.
This was particularly the case for HNW-focused advisers, where 66 per cent said complex administration was a problem and 62 per cent cited challenges around reporting. This compared to 46 per cent and 44 per cent, respectively, for non-HNW advisers.
However, Praemium previously noted there is a distinct divide in advisers’ understanding and knowledge of the products. Almost half (47 per cent) of HNW-focused advisers said they had limited familiarity with non-custody solutions, rising to 55 per cent for advisers who didn’t work with HNW clients.
