Thursday 21st September 2023
The three reasons high net worth investors don't seek advice
People stepping up from the $1m-$2.5m bracket to the $2.5m-$5m bracket are the most likely HNW investor to be unadvised, data shows, with a greater allocation to direct shares and property.
A staggering 65 per cent of high-net-worth (HNW) investors did not receive any investment advice in 2022, and while people with upwards of $1 million of investable assets acknowledge their unmet advice needs and are willing to pay more when they do get it, less are actually doing so according to research from Investment Trends and platform provider Praemium.
Data from the 2023 High Net Worth Investor Report shows the proportion of HNWs that didn’t seek advice increased a full 5 per cent in the last year. Despite the number of people considered ‘HNW’ increasing from 625,000 to 635,000 and holding almost $3 trillion in combined assets, the quantum of advised investors is on the decline.
According to the report the three key reasons HNWs give for not seeking advice are “prefer to only seek advice when I need it; can manage my own financial affairs; and lack of confidence in advisers’ expertise”.
This confluence of factors ties into the rise of ‘validator’ investors, ie those that eschew holistic advice in favour of self-directed investing, but relish having their predilection ‘validated’ by an investment professional.
“This group of investors retain a preference for episodic advice and the number identifying as validators remains high at 57 per cent with a slight shift upward in those classifying as self-directed,” Praemium noted.
The perception that advisers cost to much, however, fell markedly from 32 per cent in the 2022 report to 22 per cent this year.
Of the four wealth segments examined ($1m to $2.5m, $2.5m to $5m, $5m to $10m and $10m to $70m), the $2.5m to $5m segment saw the most significant growth in the past 12 months. The number of people in this segment grew by 24 per cent. The report notes that the people who have recently graduated from the $1m to $2.5m bracket are the cohort that is most likely to be unadvised and have a greater portfolio allocation to property and direct equities.
According to Praemium CEO Anthony Wamsteker the data shows that the wealth management industry has a huge opportunity before it, especially with adviser numbers at a low ebb.
“There remains demand for several key advice areas among HNWs – including inheritance and estate planning, strategies to reduce tax, portfolio review, retirement planning and intergenerational advice – but challenges and opportunities remain for advisers, and others in the financial advice industry, to offer services tailored to what investors want,” the CEO commented.
