Alts pivotal to deep HNW client relationships

As high-net-worth (HNW) investors look to opportunities in alternatives, Praemium has revealed that advisers who can deliver on this demand tend to have deeper relationships with their clients.

Based on a survey of 151 HNW investors, specifically those with over $1 million in investable assets, the research conducted in conjunction with CoreData found that HNW individuals that hold alternative assets are more likely to engage with a financial adviser, but they also want to be involved in the investment process.

Speaking on a Praemium webinar, Matt Walsh, Praemium head of private wealth, said: “The data is clear. The high-net-worth market is actively seeking alternatives, and those who engage with them have a deeper, more engaging relationship with their advisers.”

The survey showed that advised HNW investors believe they have high levels of understanding across a range of financial solutions as a result of their own personal use.

On the back of this confidence, Praemium found that HNW clients tend to take a proactive approach to the allocation of the capital, with 96 per cent reporting a high level of involvement in the process when working with a professional.  

This trend became even stronger among wealthier clients with 100 per cent of investors with more than $4 million in assets being highly involved in the allocation process.

Walsh said: “It's showing that it's not a passive relationship, it's a partnership. It's not so much about the adviser being prescriptive and telling the client, this is what you need to do. It's more around co-creating strategies and also helping the high-net-worth feeling control as well. So, it's not an order-taker sort of relationship.”

Notably, the study also found that 56 per cent of HNW investors engaging with alternatives have an ongoing relationship with a financial adviser, while just over a third (36 per cent) of non-alternative HNW investors reported the same.

Walsh said this highlights a clear opportunity for advisers that can incorporate alternatives into their service offering, delivering value through education.

“There's definitely rising interest and a rising focus from the high-net-worth part of the market. Advisers need to have a strategy on this piece, and by positioning yourself as an expert or having a value proposition around it, you can connect, you can educate your client on as an educational resource, because it can be a complex asset class,” he said.

However, CoreData research consultant Anna Vennonen said that accessibility of alternative products can still be a challenge for advisers due to regulatory standards, licensee enforced limitations, or an excess of caution.

Looking at cryptocurrency, in particular, she said that around a third of all Australian investors are incorporating cryptocurrencies into their portfolio in some capacity, but this tends to be lower among HNW investors because they are more likely to be engaging a financial adviser.

“That tends to be because they're much more deeply engaged with financial advisers. And it's a dubious, high-risk area but we are seeing there's still plenty that are interested in it. But again, it comes down to the ability to get it and do it in a safe way and in the way that they’re used to,” Vennonen said.

“So, right now, only, I think 8 per cent of financial advisers have it on their approved product list, and there's all these barriers around the professional indemnity insurance."