A new report has found many high net worth clients are expressing disappointment at the value for money they receive from financial advisers.
But the report has also revealed the three key areas of advice where planners can better help wealthy Australians in the current environment.
Investment Trends has released its 2015 High Net Worth Investor Report which shows that just 42 per cent of high net worth investors – Australians controlling investable assets of more than $1 million – use an adviser.
The good news is that usage of advisers, particularly financial planners, has recovered from last year’s slide. The proportion of high net worth investors using at least one adviser as a source of investment advice rose from 40 per cent to 42 per cent.
But the report found that of those getting advice, many high net worth investors still have “unmet advice needs”.
“Those who are already using an adviser still demand more,” says Irene Guiamatsia, senior analyst at Investment Trends. “They want more for the money they are spending.”
She says that perception is putting pressure on advisers to demonstrate they add value to clients.
The report comes as advisers across all disciplines have faced downward fee pressure in recent years.
Extremely high client expectations
Guiamatsia says one problem advisers face is extremely high client expectations, so that when they receive the actual advice they sometimes leave feeling disappointed.
“It doesn’t mean the service or proposition isn’t comprehensive enough; it is more likely a matter of expectations. High net worth investors can be very demanding.”
But Guiamatsia says there three key areas where advisers can lift their game, boost their competency, and add more value to high net worth investor clients.
For a start, high net worth investors want more guidance on income. “There is a desire for growth, but what they increasingly want today is to strike the correct balance between capital growth and regular income stream.”
Another opportunity is inheritance and estate planning, including the use and establishment of trusts and self-managed super fund structures, which Guiamatsia says is a vital area of interest for high net worth investors, particularly as they age and/or grow their wealth.
“Inheritance and estate planning is traditionally viewed as a broader legal issue, but there is an opportunity for planners to bridge that gap and enhance their level of sophistication,” she says.
Offshore investing is also topical as many are increasingly worried that Australia could suffer from the China downturn and are looking at opportunities to diversify overseas.
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Gap between desire and action
But Guiamatsia says there is a gap between desire and action: while the monthly Investment Trends Investor Intentions Index report has shown, throughout 2015, a high level of demand for overseas exposure (roughly 20 per cent net), currently only just 6 percent of high net worth investors’ assets are invested offshore. She says there is a role for advisers in encouraging high net worth investors to make the move.
The number of high net worth investors was largely steady in the past year, with the numbers falling slightly from 445,000 to 440,000 due to a turbulent year on financial markets.
Their collective wealth now amounts to $1.55 trillion, down very slightly from $1.57 trillion in October 2014.
But Guiamatisa say the 58 per cent not using an adviser represents a significant untapped opportunity.
Most high net worth investors who don’t seek advice say they don’t want to give up control of their investments.
But crucially, the second most-cited reason was a lack of faith in advisers’ expertise.
“The onus is on advisers to rethink their approach to service delivery. It is about engaging investors in a way that keeps them at the helm of the decision-making process, whilst demonstrating expertise and sophistication,” Guiamatsia says.