Growing HNWI market requires new advice model

Advisers now have a potential market of almost 300,000 high net worth individuals (HNWIs) to target, a rise of 4% in 2020, according to Capgemini.

In the firm’s annual World Wealth Report, it said the HNWI demographic grew 4% to 295,400 people while their wealth rose 5.9% to US$932 billion ($1.2 trillion). However, this was slower than the global average which saw the population grow by 6.3%.

HNWIs were classified as those individuals with more than US$1 million ($1.3 million) in investable assets excluding their primary residence. It was further sub-divided into ‘millionaires next door’ with $1 million to $5 million, mid-tier millionaires with $5 million to $30 million and ultra HNWI with $30 million and more.

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Australia was the 11th largest HNWI population globally while 63% of the total HNWI population resided in the US, Japan, Germany and China.

Drivers of wealth included market capitalisation, national savings as a percentage of gross domestic product (GDP) and real estate price which all increased in 2020. However, real GDP declined by 2.4% in the same period.

Seeking advice

COVID-19 had brought about the need for HNWIs to seek advice again, the firm said, but there were ways that wealth management firms could improve their offerings.

“As COVID-19 brought the third global economic upheaval of the 21st century, lessons from the 2002 tech bubble and 2008 Global Financial Crisis continue to point to the tendency of HNWIs to self-direct investments in a bullish market but return to advice-seeking during crisis and market volatility,” it said.

It suggested wealth management firms pivoted towards a hybrid advisory model with a mix of digital and direct interaction which would be “key” to capturing future market opportunities. This included the use of data and analytics, leveraging technology to respond to market trends and the ability to identify strategic partners.

“As macroeconomic ecosystems and HNWI demographics and wealth sources evolve, so do the behaviours and expectations. HNWI behaviour has shifted from passive oversight of investments to active involvement and making complex demands of wealth managers,” it said.

“The new age wealth management firm will be expertise-driven but also data-driven, exclusive but also broad-ranged and provide high measurable performance but also value and sustainability.”

Wealth managers were already increasing their use of wealth technology platforms to gain access to new client segments and provide unique offerings but Capgemini said this could be leveraged further to meet client demands.

Regarding fees, 32% of global HNWIs said they were uncomfortable with the fees charged by their wealth manager, particularly regarding transparency and value for money. There was a clear preference for fees to be charged based on investment performance rather than as a percentage of assets.  

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