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.
- 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
- 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.
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.