Financial Planning: HNWI

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Financial Planning Trends: High-Net-Worth Individuals

Recently there has been an upward trend in the number of family offices globally and the move toward multi-family offices. The use of bespoke planning or wealth management involves comprehensive and personalized planning that is ideally suited to high net worth individuals. Increasing Millennial involvement in this group has seen a move is one contributor to the movement toward co-investing.

Increase in the Number of Family Offices

  • The family office was created to look after the wealth of high net worth individuals and families. There are two types of family offices. The single (or traditional) family office serves as the wealth management and advisory firm for one high net worth family. The multi-family office is becoming more popular and serves a number of families.
  • There has been a significant increase in the number of family offices in recent times. This trend is expected to continue for the foreseeable future.
  • Research by Camden Wealth suggests that globally, family offices hold assets worth more than $5.9 trillion. This means that family offices are now capable of making transactions that were previously the domain of major corporations. This has the potential to be a massive disruptor to the market.
  • Since 2011 over 36 Wall Street Hedge Funds have been converted into family offices, and the number is steadily on the increase. The trend is such that several large investment banks have appointed banking specialists to manage family offices.
  • There are several reasons for this trend. Firstly the growing number of individuals with a high net worth has been increasing steadily in recent years, and they are looking for reliable financial advice and wealth management. Additionally, a range of new investment options, complex statutory requirements, global volatility, and the highly litigious nature of today's society have contributed to the evolution of this trend.
  • There are now 7,300 individual family offices globally. This is up 38% from 2017. 3,100 are in North America. Growth in family offices in North America has increased by 42% over the last two years.
  • Family offices are seen as a way for individuals to take more responsibility for their portfolio and the investments made.

Bespoke Planning/Wealth

  • The number of individuals who are high net worth has been steadily increasing over the last few years.
  • Bespoke planning sees individuals develop a comprehensive and tailored plan to meet their individual financial needs. It can include budgeting, tax planning, workplace benefits, college planning, investments, risk planning, estate planning, and retirement planning.
  • This type of financial structuring is complex and occurs over multiple levels.
  • Bespoke allows for an early and strategic approach to succession planning, which minimizes the risk litigation eroding family wealth. It provides for an orderly transfer of wealth between generations.
  • The personalized nature of bespoke planning allows for individual circumstances to be taken into account when making plans instead of the traditional one size fits all.
  • It is a testament to its increasing popularity that it frequently appears first on the landing page of a number of wealth management and investment firms

Increased Co-Investing

  • The younger generation is becoming increasingly aware and increasingly involved in the family business from a younger age. Not only is this sound succession planning, but it is also financially astute in creating strong family partnerships.
  • With the increased involvement of the Millennial generation, in particular, there is growing emphasis on putting money to use for good — social causes, including co-investing.
  • The younger the high net worth individual, the more likely there will be a preference to co-investing privately with like-minded individuals.
  • The level of control, ability to invest with similar individuals, greater diversification, and access to larger deals are driving this trend. 67% of those surveyed by Campden Research said the demand for co-investments would increase in the next 12 months.
  • A track record for value creation (86%), industry expertise (84%), and co-investing experience (84%) will determine who individuals co-invest with.
  • After several years of no investment, co-investing is back with several private equity investment plans. There has been a gradual increase in interest over the last few years.
  • Private equity funds are increasingly looking to high net worth individuals for investment. There has been a corresponding demand from high net worth individuals to access top equity funds making this trend somewhat inevitable.
  • Technology has developed to a point where co-investment with multiple intricacies can be offered without an organization compromising the high-quality service. This means that traditional institutions are more open to this type of investment.

Research Strategy

We extensively reviewed a range of industry publications, media articles, expert discussions, and surveys to determine planning trends among high net worth individuals. The first issue we encountered was the varying definition of high net worth made it difficult to determine whether the information was relevant to the group defined as net worth around $5million. There was a lot of information about the ultra-high net worth individuals but very little about the specified group. We have, therefore, used a broad approach to specify the group and included all groups in the same region.

After reviewing our sources, we developed a list of trends in the financial planning of high net worth individuals. We considered each trend individually, noting the trends mentioned in multiple sources, subject to expert discussion, and with hard data to support them. By following this process, we identified three of the current trends in the financial planning of high net worth individuals.
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Pain Points in Financial Planning: High-Net-Worth Individuals

Some pain points related to financial planning among high net worth individuals in US include balancing competing priorities, having low financial knowledge, and uncertainty related to external factors.

Competing Priorities

  • According to a survey conducted by U.S. Trust and Bank of America concerning 1,000 high net worth (HNW) and ultra-high net worth (UHNW) Individuals including real estate and business owners, it was found that 90% of the respondents stated that competing priorities are the biggest obstacles standing in their way of financial planning.
  • The survey indicated that less HNWI have clear purpose (47%) or a plan (49%) for their wealth, as they are not clear on what they want to use their money for or have taken deliberate steps to make the most of it.

Low Financial Knowledge

  • A study by Financial Planning, through their Financial Wellness Survey, revealed that most high net worth individuals in the United States demonstrate a lack of basic money management skills and inadequate financial literacy, which leads to making poor wealth and financial planning choices. These areas include poor life insurance choices, low retirement savings, and others financial matters.
  • Most wealthy Individuals, including high net worth individuals in the US, need more support and guidance in wealth planning related issues related to estate planning, tax planning, and strategic philanthropy, as they tend to not feel overly confident in their decisions and results.

Uncertainty Related to External Factors

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Opportunities in Financial Planning: High Net-Worth Individuals

Opportunities for financial planners among high-net-worth individuals include charitable giving, advances in financial technology and retirement readiness of the clients.

Charitable Giving

  • For high net worth individuals, financial advisers are a trusted source of information on charitable giving.
  • According to the U.S. 2016 Trust study, which surveyed 300 advisers and roughly 100 people with $3 million or more in investable assets who actively make charitable gifts, less than half of high-net-worth clients reported being satisfied with the philanthropic discussions they’ve had with their advisers.
  • The study showed that more than three-fourths of advisers say they have noticed a positive impact to their bottom line after having philanthropic discussions: 60% said it helped them find new clients, 74% said it deepened existing client relationships and 63% found it allowed them to build relationships with the client’s extended family.
  • The takeaway is that while high net worth individuals are seeking guidance more often, they’re not getting the help they desire. There is a huge opportunity for financial planners who understand charitable giving.

Advances in Financial Technology

  • Digital advances have improved financial planner's ability to serve clients. Tasks such as portfolio rebalancing and data aggregation are now done by software. Also, digital systems keep tabs on the particulars of each client’s situation.
  • A survey conducted in 2017, by MyPrivateBanking (now acquired by Cutter Associates, wealth management research and consulting firm), of 600 HNWIs in the U.S. and U.K. and found that more than 70% of respondents think online and automated investment tools can positively affect their financial planner's advice and decision-making.
  • A study by Schwab Advisory Services, show that 58% of advisory firms in the US plan to invest in new technology in 2019.
  • Fintech companies are now developing AI and machine-learning tools for advisers to use for accurate predictions for their clients whenever they need advise. This frees up advisers to help clients develop the right plan to meet their lifetime financial goals.
  • There is an opportunity for financial planners in the US to equip themselves with tech power to expand their offerings through partnerships with wealth-tech platforms.

Retirement Readiness

  • According to TD Wealth's Business Owner Retirement Readiness survey of over 1,000 high net worth individuals who own a business, 95% of those surveyed were confident that their financial plans will be able to generate the income needed during retirement. According to the survey, 77% of the millennials and 64% of the baby boomers, were more likely to work with a financial planner.
  • The findings of a global survey by The Economist Intelligence Unit (EIU), commissioned by RBC Wealth Management, show that 34% of U.S. HNWIs cite saving for retirement as a top goal, with 26% also saving their wealth for their children. A higher proportion of HNWIs at the $5 million and above wealth level cite health/healthcare expenses as an obstacle to achieving financial goals.
  • A CNBC survey show that high net worth individuals are more likely to consult with a financial pro or use a money management app.
  • According to Craig Hawley, a leader of Nationwide’s advisory solutions business, transparency and experience for financial planners matters when it comes to trust from clients. Financial planners that haven’t been in the industry for long should partner with a more experienced planner to build a multi-generational team.
  • Also, data from the Adviser Authority 2017 report, shows that the key goal for planners is tapping into emerging HNWI and understanding their current needs and any potential changes with changes in wealth.

From Part 03
  • "Many of those who trust the firm with their personal funds will also enlist it to manage their philanthropy."
  • ""If somebody's about to make several million from a dotcom IPO, one of the first conversations they almost always want to have is about setting up or managing their charitable foundation," Mr. French said."
  • "For high-net-worth clients, there are few sources as trusted as financial advisors for information on charitable giving."
  • "“Philanthropy can be a differentiator for a manager. It can strengthen a client relationship over the long term and even extend to multiple generations,” says Henry Berman, CEO of Exponent Philanthropy, a philanthropy membership association. That’s a fact many advisors have already witnessed. More than thre"
  • "Among independent advisory firms, 58% plan to invest in new technology this year, with the top reason being the hope to serve more clients."
  • "Advisors say that software programs help encourage clients to be more active participants in their planning."
  • "Those programs also reduce the amount of time that advisors spend number-crunching so they can focus on strengthening client relationships."
  • "Any robo-advisor would like to access the huge client base that banks have at their disposal. "
  • "High net worth individuals (HNWIs) enthusiastically adopt technology."
  • "69% of high net worth individuals (HNWIs) are now using online/mobile banking but only a quarter of wealth managers currently offer digital channels beyond email "
  • "Artificial intelligence (AI) has garnered much the same reaction in the financial-services industry that robo-advisors generated several years ago."
  • "Custodial companies and fintechs are now developing AI and machine-learning tools that advisors can use to more accurately predict when and how clients may need certain advice, freeing up advisors to do what they do best—help clients develop the right plan to meet their lifetime financial goals. "
  • "According to TD Wealth's Business Owner Retirement Readiness survey of over 1,000 high net worth individuals who own a business, 95 percent of those surveyed are confident (very or somewhat) that their financial plans will be able to generate the income needed during retirement. "
  • "Despite a strong environment for wealth creation in the U.S., when asked about their most important financial goals, investors cited protecting their wealth ahead of increasing their wealth "
  • "Not surprisingly, those making more than $150,000 a year were more likely to consult with a financial pro or use a money management app, the CNBC survey found. "
  • "The face of philanthropy is changing, and recent studies show a big part of that change is in how donors (and financial advisors) are connecting with charities. Craig C. Wruck could not have said it any better in Planned Giving in a Nutshell *."
  • "An advisor's level experience is the main consideration (54%), followed by the importance of a fee-based fiduciary standard (31%) and finally a personalized holistic approach (22%"