Capgemini’s 2021 Global High Net Worth Insights Survey was recently published, querying over 2,900 High Net Worth individuals across 26 major wealth markets in North America, Latin America, Europe, and the Asia-Pacific regions.
If you haven’t had a chance to review this comprehensive, 50 page report, we highly recommend you do so by clicking on the image.
Below, we have outlined some of our key takeaways based on reading and assessing this report as it pertains to helping wealth managers and ultra high net worth service providers address more of the needs of their target market.
Our assessment can be beneficial to wealth managers, family office providers, ultra high net worth accountants, high-end divorce attorneys and more.
In additional to our summary of the our key takeaways, we have included how ultra high net worth service providers can enhance their practice to meet this ever-evolving market segment.
We have broken out our analysis into three key takeaways, with each takeaway accompanied with our recommendations.
First though, our high level takeaway
With lower interest rates and more fiscal stimulus, asset prices have surged, driving the world’s ultra high net worth (UHNWI) population 2.4% higher over the past 12 months to more than 520,000. The process was seen across North America and Europe, but it was Asia, with 12% growth, that saw the real upswing. The expansion in wealth was not universal, with a fall in the number of UHNWIs in Latin America, Russia and the Middle East as currency shifts and the pandemic undermined local economies.
Real estate was another source of wealth creation. According to the World Wealth Report in Knight Frank, in North America, from The Hamptons to Florida and Aspen, suburban space, coastal retreats and mountain air were in demand, boosting home values and wealth creation. Palm Beach was a key super-prime hotspot in 2020, recording 20 sales above $20 million, up from ten in 2019. Read this CNBC article called “‘Hottest real estate market in the world’ may be Palm Beach, Florida, brokers say.”
New York (-5%) struggled to gain momentum in the first half of the year as the pandemic took hold, but finished on a more optimistic note with the number of signed contracts in Manhattan up 14% in December year-on-year, and listings down 31%. Low construction volumes mitigated larger price falls. The Real Estate Board of New York estimates that total construction activity in 2020 was the city’s lowest in nearly a decade.
So, what does this mean for you, a wealth manager or service provider, who is seeking to do more business with the ultra high net worth?
Read below our takeaways to find out!
Takeaway #1: The look of ultra high net worth wealth is changing
In 2013, I was featured in the WSJ on how to find out what the look of wealth is. A lot has changed since then!
According to the 2021 Capgemini World Wealth Report, the ultra high net worth profile is changing in front of our eyes, and if we don’t adapt our practices, we will fall significantly behind on the demands of this powerful marketplace.
First, as generations transfer their wealth and the growing technology and real estate economy creates new income sources, client bases morph to include younger and more tech-savvy investors. According to this article in Thinkadvisor, millennials make up the largest share of $25 million-plus investors, 47%! The average net worth for millennials in the $25 million-plus segment is $164 million, with Gen Xers in this segment close behind with $160 million average net worth. That’s huge!
“The next generation is much more interested in technology, AI and digitalisation,” says Julie Gauthier, a director at Stonehage Fleming, a multi-family office, in the Knight Frank World Wealth Report. “Whether it be with cryptocurrency, tokenising assets, such as real estate or art, or using the blockchain for storage and data protection, we are definitely seeing a shift. “There is also huge interest in the environmental, social and governance (ESG) agenda and philanthropy. Many of the next gens we speak to want to operate in a more environmentally and socially responsible way, with less focus on financial returns and more on impact and sustainability.”
Ms. Gauthier goes on to say: “On the philanthropic side, we are seeing interest in working and investing in projects in emerging countries and in areas such as health, hunger, and sanitation.”
Another contributor in the World Wealth Report says: “Younger generations are often particularly focused on climate change and the environment, not for the reputational gains, but because that is who they are and where they want to drive things. The best way to align this is to think of investments and portfolios in terms of ‘what this means to us and how it fits into the family charter’, rather than following what others are doing.”
Older women control a growing share of the world’s wealth, and their needs from their advisors will be different
Second, the percentage of women in the overall client pool is rising through both inheritance and increasing female entrepreneurship. In the US, there were 114% more women entrepreneurs than 20 years ago, and 40% of US businesses are women-owned. Moreover, a recent report in the Economist showed that older women control a growing share of the world’s wealth. In 1989 the median American household headed by a woman over 65 was poorer than average. By 2019 it was 20% richer. That partly reflects the fact that older women today are more likely to have had careers of their own than their mothers and grandmothers. But inherited wealth also plays a role—and indeed will become more important in the years to come.
Some $68 trillion in wealth is estimated to change hands in America alone by 2042, in large part as baby boomers die, according to Cerulli, a research firm. A lot of it will flow first to widows, who in heterosexual couples tend to be younger and live longer than their husbands. Researchers estimate that about half of women over 65 outlive their husbands by 15 years. In a report last year McKinsey, a consultancy, reckoned that much of boomers’ wealth would be managed by women by 2030. These huge transfers are forcing wealth managers, long used to serving men, to rethink their approach to clients.
The third way the look of the ultra high net worth is changing is more unique and untraditional family structures. Traditional family structures are evolving, with an increase in single families, co-habitation arrangements, and same-sex marriage. In 2019, LGBT adults globally held a combined buying power of approximately $3.7 trillion.
Read this article on 12 of the richest LGBTQ individuals in the world.
What can advisors do
What will these new “looks” of wealth demand from their advisors? Firms will need a more diverse advisor workforce; 57% of high net worth individuals (HNWI) say they would prefer an advisor that matches their socio demographic profiles as they expect them to better understand their needs
In this context, it will be important for wealth management firms to demonstrate a deeper understanding of individuals personal needs and adapt their team and service offerings accordingly. For example, the Wealth Report survey found that only 41% of HNWIs from LGBTQ+ families thought their firm understood their unique needs compared with 50% of HNWI overall.
There are two immediate actions steps advisors can take to meet the needs and expectations of this growing segment of the wealth market.
1. Rebranding to reflect a new marketplace
In late June 2021, Victoria’s Secret announced that it will be completely rebranding its look to be more reflective of the times.
The Victoria’s Secret Angels, those avatars of Barbie bodies and playboy reverie, are gone. Their wings, fluttery confections of rhinestones and feathers that could weigh almost 30 pounds, are gathering dust in storage. The “Fantasy Bra,” dangling real diamonds and other gems, is no more.
Out with the old, “aspirational” and non-realistic look of extremely thin women in lingerie
In with the new, more realistic look of the company’s target market
What do you think of Victoria Secret’s new branding strategy?
Write your comments in the comment section of this blog.
According to the NY Times, in their place are seven women famous for their achievements and not their proportions. They include Megan Rapinoe, the 35-year-old pink-haired soccer star and gender equity campaigner; Eileen Gu, a 17-year-old Chinese American freestyle skier and soon-to-be Olympian; the 29-year-old biracial model and inclusivity advocate Paloma Elsesser, who was the rare size 14 woman on the cover of Vogue; and Priyanka Chopra Jonas, a 38-year-old Indian actor and tech investor.
They will be spearheading what may be the most extreme and unabashed attempt at a brand turnaround in recent memory: an effort to redefine the version of “sexy” that Victoria’s Secret represents (and sells) to the masses. For decades, Victoria’s Secret’s scantily clad supermodels with Jessica Rabbit curves epitomized a certain widely accepted stereotype of femininity. Now, with that kind of imagery out of step with the broader culture and Victoria’s Secret facing increased competition and internal turmoil, the company wants to become, its chief executive said, a leading global “advocate” for female empowerment.
Similarly, advisors MUST ensure that their brand is reflective of their ideal marketplace. If you are targeting tech companies, for example, but your brand and imagery is focused on a picket fences culture and family, or your website is old fashioned when you are looking to attract a user interface whiz, you may be inadvertently alienating your ideal ultra high net worth prospect.
If your focus is on family but you keep writing only technical articles that no family would have the time or energy to read, you are ostracizing your target market.
Read our articles here on branding to be aligned with your mission.
2. Training to ensure your team is equipped to meet this evolving demand
According to the Capgemini report, only 38% of wealth managers say they are confident in their abilities to understand the unique needs of millennials and engage with them effectively. For example 50% of HNWI under 40 would like the option to select purely virtual advice from their firm, compared with 39% of HNWI overall. Why are you spending so much on your office when these individuals are seeking a virtual experience?
Our team has the unique capabilities to audit your existing practice, and help you through coaching and consulting meet the discerning expectations of the HNW marketplace. Read this article to learn how we gain some of our insight.
Takeaway #2: Higher need for behavioral finance skills
As stated here in USNews, behavioral finance is the study of psychological biases that can influence investor behavior and by extension the stock market. "(It) is about understanding how people make decisions," says Kate Mielitz, accredited financial counselor and assistant professor of family financial planning at Oklahoma State University. "People are not rational, and because we are not rational, we don't make perfect economic decisions."
Not only are we inherently irrational, but we're also highly emotional beings. We assign emotions to our financial decisions which can impact our financial decisions, Mielitz says. If you get an inheritance, you're apt to treat it differently than pay from a job, even though both are just a form of income.
Truong sees behavioral finance as the integration of three disciplines: traditional finance, human psychology and neuroscience.
"While advisors are not scientists or psychologists, without some basic understanding of how the human brain works and recognition of common decision-making biases, it will be difficult, if not impossible, to make clients act on our best advice and recommendations," she says.
Since investor behavior drives the stock market, behavioral finance is also necessary to help advisors understand the financial markets and help their clients better navigate those at times mercurial waters.
According to the World Wealth Report, only 33% of wealth managers are flourishing and succeeding in the customer experience and retaining strong hold on front-end customer relationships.
Behavioral finance is a high potential tool enabling firms to study the impact of psychological and emotional influences on the investment behavior of clients and advisors. Early adopters are using it to design personalized investment propositions, such as portfolios based on an individual’s risk adversity, anxiety sparked by market volatility, and emotional response to investments.
What can advisors do?
A few months ago, we wrote in this article one simple tool you can use with your team to increase your behavioral finance skills and emotional quotient.
We’ve also created a Behavioral Finance Tool that we can use with you and your team/clients to help advance the personal investment propositions.
Apply for the tool by setting up a call with us or filling out the form below:
Takeaway #3: Evolving Fee and Service Model
According to the report, more recently, demand has grown for hybrid advice models that put HNWI in the driver’s seat via a modular, pay as you go financial planning services.
Clients want a stronger connection with their wealth manager and more personalized services, even indicating a willingness to pay more for value-add services
In the latter half of 2010’s, clients increasingly sought hybrid advice models that combined self service and wealth manager assistance, pushing wealth management firms to develop hybrid service offerings.
It is now unavoidable for wealth managers to review and refresh fee structures that keep up with HNW expectations. 32% of HNWI said there were uncomfortable with the fees charged by their firms; with top concerns around transparency (49%), value delivered (44%) and fee levels (43%).
There is a widening mismatch between existing and desired fee structures
What can advisors do?
Our firm, Select Advisors Institute, has consulted thousands of advisory practices (law firms, wealth management firms, accounting firms and more) around their desire to be more attentive and tuned in with the discerning needs of the ultra high net worth market.
One way we have helped advisory firms is through advising them around their service offerings and fee structure.
Let us help you build a revenue model that is modernized and benchmarked to the 2020’s.
Schedule a call with us around this very important matter