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Young investors driving change in wealth-management sector

Globally, younger high net worth investors are almost twice as likely to use an automated service provider, such as a discount brokerage or robo adviser offering.

Younger high-net-worth individuals are driving wealth-management firms to adapt to industry changes, or risk losing the next generation, according to the World Wealth Report 2015.

The annual report, released today by RBC Wealth Management and consulting firm Capgemini, reveals that the "normally steady" wealth-management business is entering an era of change with shifting demographics, evolving client expectations, technology advancements and disruptive competition.

The report, which includes research based on survey responses from more than 5,100 high-net-worth (HNW) individuals across 23 countries, suggest the overall population is expected to grow and wealth among those with $1-million (U.S.) or more of investable assets is forecast to cross the $70-trillion mark by 2017. Asia-Pacific led the growth this year as the new leader over North America with an estimated 4.69 million HNW individuals, compared to 4.68 million in North America.

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"You are seeing those two markets dominating and doing quite well," says Bill Sullivan, head of global financial services market intelligence at Capgemini. "There was almost a million new HNW individuals last year, of which nearly 50 per cent are just from the U.S. and China."

In Canada, the number of high-net-worth individuals has increased to 331,000, up 3.7 per cent from 2014, and the amount of wealth among HNW Canadians has also increased – by 5.1 per cent – to $1-trillion (U.S.) in 2014, just below the global growth average of 7.2 per cent.

But despite the rich getting richer, global growth this year was more modest, roughly half of the growth rate from last year. This slower pace means wealth managers need to work harder at nurturing relationships within this client segment – specifically among younger investors where wealth managers are underestimating the degree to which they understand the needs of HNW clients under the age of 45, according to the report.

The survey also queried more than 800 wealth managers across 15 regions and found that 76 per cent of this group say they understand the needs of younger HNW clients – while only 61 per cent of younger HNW clients agreed with that point.

This major disconnect could lead to further challenges for investment firms as younger HNW individuals also express a greater need for support and professional advice from wealth managers than their older counterparts. In addition, younger HNW individuals showed lower satisfaction levels and a higher propensity to leave their firm or adviser in the event their wealth needs are not fulfilled.

"The high-net-worth client is the fastest-growing segment of our business in Canada and we spend a lot of time thinking about the next generation," says David Agnew, CEO of RBC Wealth Management Canada. "We realize that they don't want to be served in the identical fashion that their parents have been served under and we have to continue to evolve, and that comes down to technology."

Globally, younger HNW investors are almost twice as likely to use an automated service provider, such as a discount brokerage or robo adviser offering, with 67 per cent of the younger population saying they would consider using them – compared with 38 per cent of older clients. However, wealth managers are underestimating the appeal these industry disruptors have to high-net-worth investors, with only 20 per cent of wealth managers believing their clients are interested in them.

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When it comes to where Canadians are putting their hard-earned dollars, investors are more heavily invested in equities, making up 31.9 per cent of their portfolios. This is slightly up from the global average of 27 per cent in equities, which has now overtaken cash as the dominant asset in a HNW investor's portfolio.

The balance of HNW portfolios in Canada was allocated to cash and cash equivalents (24 per cent), fixed income (17.7 per cent), real estate (13.3 per cent) and alternative investments (12.5 per cent). More than one-quarter of global wealth is held in cash or cash equivalents. Some 35 per cent of investors worldwide claim the primary reason to hold cash is "to meet lifestyle needs." Among HNW Canadians, that number jumps to 42 per cent.

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About the Author
Globe Investor Reporter

Clare O’Hara is a reporter at The Globe and Mail. Prior to that, Clare spent eight years as a staff writer at Investment Executive, a national newspaper for financial service industry professionals. More

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