The global population of high net-worth individuals (HNWIs) is growing – and so is their wealth, as well as their faith in wealth managers and firms, according to Paris-based Capgemini SE’s 2017 World Wealth Report. However, these individuals’ satisfaction lags in regard to the advisory services they receive and the fees they have to pay.
The study on which the report is based found that the global population of HNWIs rose by 7.5% to 16.5 million in 2016 from 15.4 million in 2015, while their wealth increased by 8.2% to US$63.5 trillion from US$58.7 trillion during that time. Notably, Canada’s HNWI population rose by 11.3%, to 356,900 in 2016 from 320,800 in 2015, and their wealth rose by 11.7% to US$1.1 trillion in 2016 from US$985 billion in 2015.
In addition, the average Canadian HNWI’s investments overseen by a wealth manager increased in value by 22.6% in 2016, says Tej Vakta, senior leader of global capital markets practice with Capgemini. However, that number is slightly below the global average increase of 24.3%.
The recent growth in wealth provides an opportunity for financial advisors and their firms to strengthen relationships with HNWIs by demonstrating value to these clients.
This trend is especially pertinent at a time when digital technology is entering the financial services space and 56.2% of HNWIs say they’re open to working with big tech players, such as Mountain View, Calif.-based Alphabet Inc. (the parent company of Google) and Seattle, Wash.-based Amazon.com Inc., says Chirag Thakral, deputy head of Capgemini’s marketing intelligence strategic research group.
The good news is that HNWIs place a lot of trust in key aspects of the wealth-management industry, probably due to the recent growth of this demographic’s wealth and their investments’ positive performance. HNWIs in particular warmed to their wealth managers recently, with trust levels rising globally to 78.8%, up by 19.4 percentage points from 2015. Trust in firms also was strong, with 79.6% of HNWIs giving them a vote of confidence.
Trust in regulatory bodies and institutions received a more modest score, at 69.2%, but still up significantly (by 22.8 percentage points) year-over-year, signifying, the report states: “perhaps a reflection of greater stability due to stronger regulations aimed at normalizing the markets following the financial crisis.”
However, HNWIs’ trust and confidence in wealth managers and their firms did not equate to overall greater satisfaction levels. In fact, only 58.5% of HNWIs’ were satisfied with their wealth managers, while only 56.3% were satisfied with their firms. Canadian numbers were better than the global average, Vakta says, with 69.8% of HNWIs satisfied with their wealth managers and 71.6% content with their firms.
Room for improvement
Still, there is much room for improvement. One category that wealth managers and firms can enhance is their “ability to deliver high levels of satisfaction and value around a full range of services,” the report states.
Although HNWIs rated investment management and financial planning as the most valuable wealth-management services, they also attributed considerable value to non-investment services, such as tax advice, estate management, retirement planning, banking, insurance and philanthropy.
“[The phrase] ‘more money, more problems’ characterizes the financial circumstances of many high net-worth individuals and their families,” says Rosemary Horwood, vice president and investment advisor with Toronto-based Richardson GMP Ltd. “As the high net-worth category of investors grows, the complexity of stewarding great wealth creates the need for comprehensive wealth-management services.”
Another grievance that hampers satisfaction among HNWIs is fees. For example, only 47.8% of HNWIs, averaged globally, said they are “fully comfortable” with the level of fees incurred for wealth-management services. Canadian HNWIs had an even lower opinion of fees: only 38.6% said they’re comfortable with fees, Vakta says. In fact, Canadian HNWIs’ comfort with fees lags the North American average (61.6%), Asia-Pacific excluding Japan (57.4%), Latin America (51.4%) and Europe (44.1%).
Value and transparency
Although 18.9% of HNWIs, globally, said that the overall level of fees is an issue, they’re more concerned with the value delivered (22.9%) and transparency on fees and services (20.9%). “Value added” was a particular concern for younger HNWIs under 40 years of age.
On the other hand, self-directed HNWIs were most troubled by transparency. Older HNWIs (over age 60) were skeptical of the overall fee level, probably because they were receiving lower returns than younger investors were, the report suggests.
Overall, this dissatisfaction with fees and lack of comprehensive wealth-management services appears to have a significant impact on how likely HNWIs are to refer their advisors and firms to a friend, family member or colleague. Canadian HNWIs have lower rates of referral than the North American average. Although 45.2% of HNWIs in North America said they’re likely to refer their advisory firm, only 12.9% of Canadian HNWIs said the same, Thakral says.
Says Vakta: “This is something that wealth managers and wealth-management firms need to take note of.”
For more on meeting HNWIs’ high expectations, see Investment Executive’s first HNW Guide, included with this issue.
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