Rise of the validator highlights advice gap for Australia’s High-Net-Worth Investors
Australia’s High Net-Worth investors (HNWs) have a number of unmet advice needs, yet few are seeking advice from a financial adviser to meet them, with increasing numbers opting to go it alone or only using advisers to validate their own investment decisions, according to new research sponsored by Australian investment platform provider Praemium Ltd.
The 300-page report compiled by independent research company Investment Trends, which involved polling 7,500 investors, found that 60% of Australian HNWs (defined as someone who has at least $1 million of investable assets) identify as validators, seeing advice as a collaborative relationship for confirming their own investment choices. Whilst they are confident in making investment decisions for their wealth, they acknowledge several areas where they could receive additional advice, up from 52% in 2021.
The key areas that HNWs would like better or more advice on are inheritance and estate planning; strategies to reduce tax obligations; retirement planning and investment strategy reviews.
There are 625,000 HNWs in Australia in 2022 (down from 635,000 in 2021), who control $2.82 trillion in investable assets, excluding superannuation, family-owned businesses and the family home, but including SMSFs.
Australia’s most affluent expect to pass down $1,950 billion worth of assets to the next generation, equating to around 69% of their total assets. The need for advice in managing this intergenerational wealth transfer is therefore not surprising, with tax optimisation and wealth preservation being the key areas where additional advice is wanted.
Financial advisers are the main port-of-call for intergenerational planning discussions. One in five HNWs who use a private wealth adviser do not currently discuss these matters with their adviser but are interested in doing so.
However when it came to seeking advice upon receiving an inheritance, less than 10% retained the benefactor’s adviser (if there was one) with 47% preferring to manage the inheritance themselves.
The reasons given by HNWs for not seeking advice were: prefer to seek advice only when I need it (39%, up from 37% in 2021); can manage my own financial affairs (38%, up from 34%); advisers’ conflicts of interest (33%, up from 25%); the cost of advisers (31%, up from 26%); lack of confidence in advisers’ expertise (30%, up from 26%); and previous poor experience with financial advisers (28%, up from 22%).
Of those who did receive advice, the most popular source of advice was a financial adviser (15%, down from 18% in 2021), accountants (9%, same as last year) and full-service stockbrokers (8%, down from 9% last year).
HNWs also desire to have a single source of wealth through a digital experience yet currently 53% track their wealth via a spreadsheet. They prioritised a digital wealth management experience and cited the key benefits of investors platforms as annual tax reporting taken care of; online access; simplified record keeping; less paperwork and the ability to buy/sell managed funds.
Other key findings of the survey:
- HNW investors have recalibrated their investment goals, with many more looking to protect their wealth against a market downturn. 14% say their main goal in selecting assets this year will be protecting assets and income against market falls (8% in 2021).
- The typical HNW portfolio in 2022 is made up of: 30% direct shares (29% in 2021), 5% managed funds (7%); 7% ETFs (5%); 35% property (32%); 9% cash (10%); 4% term deposits (5%); and 11% other investments (12%).
- Financial advisers are the main port-of-call for intergenerational planning discussions. One in five HNWs who use a private wealth adviser do not currently discuss these matters with their adviser but are interested in doing so.
Anthony Wamsteker, CEO Praemium Ltd, said the findings outline some perception challenges for the advice industry that may take a little more time to overcome. However there are also some real opportunities for advisers to deliver an advice service that provides the collaborative relationship these investors are looking for and focuses on meeting the strategic needs of high-net-worth investors, particularly around the intergenerational transfer of wealth.
He said that the challenge for platform providers like Praemium will be to continue to produce technology solutions that provide advisers with tools that clients value and improve both adviser performance and client confidence.
‘A big chunk of Australian HNWs’ wealth does not sit on platforms, which makes advisers’ jobs harder. Advisers and their clients need a platform that can cater for data feeds, custody and non-custody assets to create that total wealth view. The challenge for platform providers is giving advisers the full picture of their clients’ assets, coupled with easy-to-understand reporting, easy-to-use software and excellent support. As the leading platform provider for the HNW market Praemium is focused on helping advisers to deliver the digital advice experience that their clients are looking for and providing them with the tools to free up time and make it easier for them to service clients to the highest standard.’