More HNWIs with more wealth want more from their advisors

Research finds ultra rich are shifting asset allocations from wealth preservation.

Last year saw the global population of high-net-worth individuals – and their wealth – increase as markets rebounded after a challenging previous year.

These wealthy people are now focusing once more on growing their wealth as asset allocations pivot away from those intended to preserve existing wealth, according to the World Wealth Report 2024 from the Capgemini Research Institute.

It revealed that global HNWI wealth gained almost 5% last year to US$86.8 trillion and there was a 5% increase in the HNWI population to 22.8 million. Of these, 7.8 million are in North America with a combined fortune of $27.4 trillion with these stats each rising by 7% in 2023 compared to 2022, although both are slightly behind 2021 figures.

The strength of the North American economy, rebound of the equity markets including a strong U.S. rally, and cooling inflationary pressures have driven the gains for the region’s HNWI population and wealth. These have also driven the gains in other regions, but to a smaller extent, with only Africa recording a decline in HNWI wealth (down 1%) and population (down 0.1%).

The early indications of 2024 data is that cash holdings have returned to around one quarter of portfolio totals, having reached 34% at the start of 2023, the highest for several decades, while private equity allocations are expected to increase this year.

With almost two thirds of HNWIs acknowledging that biases influence their investment decisions, they need help from relationship managers to help them manage these. This includes the use of behavioural finance integrated with AI which the report highlights is likely to identify biases that may be hard for humans to detect.

DEMAND ON ADVISORS

The report also found that among the top 1% who are ultra-high-net-worth individuals, there is demand for more from their financial advisors.

This cohort wants financial (investment management and tax planning) and non-financial (philanthropy, concierge services, passion investments and networking opportunities) value-added services, creating potential revenue opportunities for wealth management firms.

With the Great Wealth Transfer underway, aging UHNWIs want their advisors and wealth firms to support them in this and provide greater personalization of advice to align with their changing financial situation.

UHNWIs are also using more wealth management firms (an average of seven in 2023 compared to three in 2020) and more than half want to set up a family office and need help from their primary advisory firm to assist in this.

“Clients are demanding more from their wealth managers and the stakes have never been higher. There are active steps firms can take to engage and retain clients for a personalized, omnichannel experience as the great wealth transfer unfolds and growth of HNWIs continues,” said Nilesh Vaidya, Global Industry Head of Retail Banking and Wealth Management at Capgemini. “While the traditional way of profiling clients is ubiquitous, the application of AI-powered behavioral finance tools, using psychographics, should be considered. They can offer a competitive advantage by understanding individuals’ decision-making to deliver a greater degree of client intimacy. The creation of channels for real-time communication will be crucial to manage biases that sudden, volatile market movements might trigger.”