Delivering a personalised advice service for HNW investors
Investment Trends recently released their 2022 High Net Worth (HNW) Investor research, and the findings present some significant challenges and opportunities for those advisers servicing or looking to service Australia’s most affluent investors.
The number of HNW investors with investable assets over $1m, declined marginally in comparison to 2021 after 5 years of consistent year-on-year growth. However, the pool of assets they control grew slightly to $2.82 trillion, emphasising the opportunity this segment offers the advice industry. Its importance is recognised by advice firms that are generally serving less and less of the mass market (<$150k) and focusing their client acquisition strategies on HNW investors. For advisory firms seeking to reduce costs and scale their businesses, this investor segment offers an attractive way to accelerate business growth, without having to increase client numbers substantially.
Those firms looking to capture this opportunity and develop or actively enhance their HNW offering need to understand how this investor segment views their relationship with advisers.
Traditionally the relationship between adviser and client has been one of delegation. The client will outsource financial decisions to their adviser, who will largely manage all their financial affairs. Alternatively, advisers may segment a retail investor base by client life stage (accumulation, pre-retiree, or retiree) and then tailor the advice to each stage or provide advice on a particular specialist area, such as SMSFs. When it comes to the HNW sector this approach doesn’t necessarily align with the wealth management services these investors are seeking.
Most advisers would understand and appreciate the nuance between a Delegator and someone who classifies themselves as Self-Directed. What this latest research has identified is a lesser-known but large and rapidly growing segment of HNW investors who identify as Validators.
Delegators, those who outsource all advice decisions, have declined steadily over the last few years as more and more HNWs move away from the traditional adviser/client relationship, decreasing by 4% in this latest survey. At the other end of the spectrum, the Self-Directed segment also reduced from 33% to 30%. The beneficiary of these decreases was the Validator segment which increased by 8% from 2021 and now accounts for 60% of HNW investors.
This segment of HNWs are confident and comfortable in making their own investment decisions and see the financial planning relationship as a collaborative partnership. One where they can seek access to investment opportunities, expertise, and/or technical knowledge, rather than as a source of full advice facilitation.
Therefore, the challenge for those advisory firms wishing to grow their exposure to this sector, or those wishing to build a new advice model to attract the HNW sector, is the need to change the way they develop and articulate their Client Value Proposition (CVP) to attract and not repel this market segment. Holistic advice models may conflict with the service a HNW investor is looking for and traditional website, social media, and print marketing is not written in a way to articulate the CVP needed to attract this sector. This can be overcome by developing an advice model which ensures the HNW investor feels engaged, informed, part of the advice process and importantly can blend self-managed investment activities with those outsourced to an advice specialist. The CVP narrative used will need to articulate how the investor will not lose control of their decision making and maintain direct involvement in the investment process.
As part of developing this new CVP, it’s important to understand not only how HNWs are motivated to engage with advisers but also what holds them back from sourcing advice. The research indicated that the predominant factor was the desire to seek advice only when they need it, which is not surprising given the rise of the validator segment. However, conflict of interest, cost, and previous poor experience are three additional barriers that can be easily solved by developing a CVP and marketing materials that talk directly to this sector, the value delivered, and how their needs can be met in a way that resonates with them.
The research also identified that of those HNW investors looking to change advisers, 54% believe an increase in the frequency of contact is an important factor. This means developing the right CVP is only part of the equation and in fact to retain this type of investor a strong communication strategy and engagement model is extremely important.
In addition to the obvious requirement of value for money, frequency of contact and the belief they have received a personalised service are both high determinants of strong retention and advocacy within the segment.
Leveraging technology also allows advisers to serve another important need of HNWs – a total view of wealth. Outside of online broker relationships for direct shares, this sector has not successfully embraced technology, with 53% of HNW investors using a spreadsheet to track their portfolios, often due to an inability to gain a single view of their entire wealth, missing out on the benefits of online portals and apps altogether.
Therefore, a great opportunity is available for advice firms to build a model attractive to the HNW validator, using technology to develop a hyper-personalised service, with a strong communication and engagement strategy and offering portfolio reporting services to assist an investor to manage their whole of wealth, even if they are not advising on the complete investment portfolio.
To download the eBook The High-Net-Worth Investor 2022 visit www.praemium.com/hnw22
Important Information: The source of the statistics quoted in this article are based on findings from the Investment Trends High Net Worth Survey 2022. The research is based on a quantitative online survey of 1,387 HNW investors conducted by Investment Trends between June and July 2022. Investable assets refer to - net wealth clear of debt, excluding own home, business and super (but including SMSF assets). The views expressed are Praemium’s own.