Investment Trends has recently released its flagship 2015 High Net Worth Investor Report, the largest annual study of Australia’s wealthiest investors, drawing on responses from 2,998 Australian millionaires, who collectively hold $11.5bn in investable assets.
Some key highlights of the report:
- Turbulent year on financial markets halts growth of Australian HNW investor numbers
- HNWs are increasingly open to part with their cash, but still struggle to identify good investment opportunities
- Adviser usage is on the mend, but advisers are – now more than ever – under pressure to demonstrate value
Turbulent year on financial markets halts growth of Australian HNW investor numbers
The number of Australian HNW investors was largely steady over the past year, with an estimated 440,000 individuals controlling investable assets** over $1m as at October 2015, edging down from 445,000 in October 2014.
“Direct shares and property make up two thirds of a typical Australian HNW investor’s portfolio,” said Irene Guiamatsia, Senior Analyst at Investment Trends. “Whilst the property market remained buoyant, the slump in commodity prices and sharemarket volatility throughout the year weighed down on overall asset growth.”
We estimate HNWs’ collective wealth now amounts to $1.55 trillion, down very slightly from $1.57 trillion in October 2014.
|Dec 2010||Dec 2011||Dec 2012||Nov 2013||Oct 2014||Oct 2015|
|Number of HNW investors||310,000||330,000||370,000||400,000||445,000||440,000|
|Change in property prices*||–||-2.2%||+0.3%||+7.6%||+9.1%||+9.8%|
|Change in the ALL ORDs^||–||-13%||+6%||+20%||-1%||-1%|
*Average for eight capital cities, ABS residential property price indexes, Quarter to June of each year
^Monthly average, corresponding to conclusion of data collection
**Investable assets refer to total worth net of debt, excluding own home and own super, but including SMSF assets.
“The property boom of recent years certainly played a significant role in minting millionaires,” said Guiamatsia. “Over 60,000 Australian HNWs indicate the main source of their fortune to be profits made from their property investments, up from 30,000 in 2013.”
HNWs are increasingly open to part with their cash, but still struggle to identify good investment opportunities
Portfolio rebalancing was all but very subtle at an asset class level in the past year. Whilst 2012/2013 saw a decisive shift in HNWs embracing growth, bringing their cash reserves from 20% of their collective portfolio down to 17%, very little progress has been made since. As at October 2015, the typical HNW investor held, on average, 16% of their wealth in cash and term deposits.
“HNW investors are keeping a sizeable part of their wealth in the most liquid form at the moment, despite uninspiring cash rates,” said Guiamatsia. “Our research indicates this state of affairs could, however, evolve rather quickly under the right circumstances.”
HNWs are showing signs of increased ‘readiness’ to reinvest their cash reserves, relative to a year ago. On average, they deem 42% of their cash reserves to be ‘excess’, or ready to be invested once the volatility subsides, up from 37% a year ago.
Adviser usage is on the mend, but advisers are – now more than ever – under pressure to demonstrate value
Usage of advisers, particularly of financial planners, has recovered from last year’s slide, with 42% (up from 40%) of HNWs using at least one adviser as a source of investment advice. There is plenty of room for advisers to lift their offering to their HNW clients; advised HNWs are still more likely than their unadvised peers to have unmet advice needs, which puts pressure on advisers to demonstrate value.
The 58% of HNWs who do not seek investment advice also represent a largely untapped opportunity open to accountants, financial planners, full-service stockbrokers and private banks.
“Preference for control remains the largest barrier to taking up advice among HNWs, but next comes the question of the adviser’s expertise which is central to building perceptions of value,” said Guiamatsia. “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.”