HEALTHCARE AND WELLNESS

• Contemporary High Net Worth Individuals (HNWIs) are attracted to healthcare and wellness products that are unique in the market. They are interested in these ‘self-gifts’ for themselves.
• The number of HNWIs traveling for health and medical treatment is increasing, with an estimate of around 1.9 million Americans traveling outside the US for medical care, in 2019.
• Sports are also an interesting attraction among the high net worth population of the US. Golf, football, skiing, basketball and baseball are the most common sports they participate in.

CHARITABLE DONATIONS AND PHILANTHROPY

• Philanthropy is one of the primary interests of the wealthy, particularly among the ultra-wealthy, with 36% of the rich, and 57% of the super-rich identifying it as one of their primary interests.
• The most popular charitable causes among the high net worth individuals in 2018 included education support, social services, arts and culture, and healthcare support.
• One of the reasons high net worth individuals engage in giving to charitable causes more is tax purposes. Their contributions address both valuation and deduction limits.
• According to the Tax Policy Center, this is expected to lower the number of tax returns itemizing deductions for charitable gifts from about $37 million before a law that went into effect in 2018, to about $16 million, after the law was effected.

ENTERTAINMENT/HOBBIES

• Wealth-X reports that 35.8% of top-tier high net worth individuals are interested in art.
•  Art collection continues to stem from high net worth individuals' appreciation of aesthetics, support for creativity and the desire to secure long-term investments.
• According to Wealth-X, 26.4% of high net worth individuals across the globe are interested in aviation. Flying is most popular among American high net worth individuals: 45.2% of HNWIs in the US are aviators.
• Jet owners spend about 1% of their net worth on private aircraft, with an average value of US$16.4 million per plane. These wealthy individuals want to enjoy a global lifestyle. Also, extensive domestic and international travel is usually a requirement for high net worth individuals with at least US$30 million in assets.
•  Real estate is not only a major hobby among billionaires, but it is also an industry that is responsible for a lot of their wealth.
• Real estate is viewed as a top wealth indicator since having a property is the most obvious indicator that a person is a high net worth individual.

RESEARCH STRATEGY

INVESTING FOR IMPACT

• Environment-related goals have become increasingly popular when it comes to family investment selections.
• Family offices in the U.S. are making more inquiries to financial advisors and consultants about sustainable investment strategies.
• The trend has been largely influenced by the shift in the social-cultural mindset when it comes to environmental and social governance.
• In addition, a number of family offices such as the Omidyar Network and Pritzker Group have made announcements regarding impact and sustainable investments.

DIRECT INVESTMENTS AND CO-INVESTMENTS

• Investment drivers and allocations are evolving in the family office environment. As it stands, more emphasis is being placed on direct investments and co-investments.
• Currently, direct investments make up about 39% of family office investments and the trend is expected to continue in the coming years.
• Co-investment deals are also becoming popular especially among offices that are focusing on negating risks. Families are gradually starting their own fund structures and are partnering with different family offices.
• Co-investments enable families to directly invest in real estate, hotels since traditional investment pathways are projected to have low-returns in the future.
• An example of a family office with a direct investment program is the Vinik Family Office. 

SUCCESSION PLANNING

• Succession planning has been primarily driven by intergenerational wealth transfer, which remains a priority for family offices.
• Succession planning for the principal has always been the focus of family office executives. However, family office executives are now planning for their own succession.
• Family office executives tend to have long tenures that are six years or more. Therefore, to prevent potential disruptions upon their retirement or resignation, succession planning has become an important concern.

RECRUITMENT OF SPECIALIZED EXPERTISE

• Family offices are focusing on recruiting specialist expertise in order to meet the objectives of the family.
• The lack of specialized expertise in family offices has resulted in this trend.
• Having specialist in-house expertise, such as a legal counsel will help speed up the decision-making process in the family office environment.
• Securing the right talent requires an understanding of the market rates and the different reward structures for such skills.

TRANSPARENCY

• The demand for accountability and transparency from corporations has resulted in private family offices operating more publicly than before.
• Wealthy families are now under scrutiny from the media and other entities to ensure that their businesses are compliant with regulations and that they are operating in an ethical manner.
• Family offices are operating in a transparent manner to protect their reputation.
• In addition, transparency has become important for family offices because it influences participation and support of the future generation.  

RESEARCH STRATEGY

ENTREPRENEURS VIEW ON WEALTH MANAGEMENT

• About 85% of successful entrepreneurs are strongly inclined to use the services provided by wealth managers. This is because they believe that by delegating wealth management responsibilities to them they can focus more on their expertise, their business.

• Entrepreneurs are the ones behind the idea and implementation of any business creation. It encompasses new products or services rather than using existing business models.

• Entrepreneurs have a greater appetite for risk and have strong decision-making skills causing them to have a different mentality when it comes to timelines.

• Entrepreneurs are considered "first-generation wealth creators" in the family and have a more difficult time discussing wealth with the next generation.

• Experts say that these wealth generators who are in their late 30s or early 40s choose to converse about wealth management earlier in life rather than later.

• They want to give their children “enough money so that they would feel they could do anything, but not so much that they could do nothing”, hence, the entrepreneur wants to manage wealth more effectively early on.

BUSINESS OWNERS VIEW ON WEALTH MANAGEMENT

• While entrepreneurs are more risk-takers who face unknown risks, business owners tend to be involved in existing business models and deal with "known risks".

• Business owners who are "near retirement" seek wealth management expertise to help them manage health or family-oriented circumstances to keep their financial plans on track.

• Based on a UBS Global Wealth Management survey, 81% of U.S. business owners are optimistic about their business and healthcare costs are their top future concern (third among U.S. high-net-worth business owners) when considering wealth management.

•  Only 43% of all high-net-worth business owners take deliberate steps to manage their wealth as intended.

• Business owners need a different approach to wealth management. They are more focused on maintaining their income flow after retirement for their financial goals, including benefits and insurance.

• Since business owners are considered to take fewer risks, they are concerned about managing future risks in their investment portfolio when it concerns wealth management.

ATTRACTIVE INVESTMENT SEGMENTS

•  About 70% of wealthy American business owners invest in tangible assets.

• Of this, roughly 50% invest in real estate or farmland that produces income and which appreciates over time.

• On the other hand, American entrepreneurs are investing in foreign start-ups.

• In San Francisco, the highest percentage (16%) of entrepreneurs' venture capital spending occurs.

• Having the "know-how" to create new companies and concepts, they are inclined to choose to spread businesses and have investments abroad.

2018 High Net Worth Investor Survey

• According to the 2018 High Net Worth investor survey, 55% of affluent investors allocated their assets in stocks, 21% in bonds, and 15% on cash.
• In 2018, 51% of Millennials allocated their assets on stocks compared to 25% in the previous year.
• About 58% of affluent investors value making more connections, friends, and family because they believe that it would make life better.

The 2018 U.S. Trust Insights on Wealth and Worth

• In 2018, a nationwide survey of 892 high-net-worth and ultra-high-net-worth adults was conducted in the United States — $3 million or more investable in assets, not including the value of their primary residence. About 72% of high-net-worth individuals are interested and proactively protecting and sustaining their wealth.
• An estimated 65% of affluent investors have wealth managers.
• Approximately 46% of affluent millennial investors gravitate into stocks.
• About 87% of affluent millennial investors are interested in impact investing.
• An estimated 33% of affluent millennial investors are interested in buying arts as an asset that can be leveraged to build wealth.
• In terms of employee-related spending, 59% of affluent business owners consider increasing wages and compensation — 53% intend to increase employment levels.

Affluent Investors Art Collectors Habits and Interests

• An estimated 62% of affluent investors interested in art collection see aesthetic value as their primary reason.
• About 78% of art collectors anticipate making a purchase next year, including nearly all (97%) of Millennial collectors, 87% of Gen X collectors, and 64% of Baby Boomers.
• Approximately, 85% of Millennials plan to sell their art in the next year while 41% of Gen Xers and 24% of Boomers plan to sell this year, — indicating that younger collectors tend to be more dynamic, and selling works as they build their collections.
• In 2018, 43% collectors bought art online compared to the year prior, 78% of Millennial collectors have bought art online in the past year, compared to one-fourth of Baby Boomers — the biggest growth in online acquisitions was driven by women — 16% in 2017 and 36% in 2018.
• About 30% of collectors intended to donate one or more pieces to nonprofit arts organizations, while 21% plan to donate to other nonprofits—transactions that would likely have tax implications.
• In 2018, 42% of affluent investors incorporated art collection into their wealth management strategy compared to 29% in 2017.

Business Owners Affluent Investors Habits and Interests

• Affluent business owner investors have the habit of involving the family in the business. About 66% of businesses owned by these investors have family involvement.
• An estimated 65% of affluent investors use personal and family money to fund their business.
• About 71% of midsized/large companies owned by affluent investors are interested in expanding into new products and territories.
• Approximately 51% of affluent business owners are interested or planning to leave their businesses within the next five years, and 28% of them consider selling or transferring ownership to the family as an exit plan.
• About 63% of affluent business owners were reported to have a business succession plan, but only one third has a documented plan.

Spending Habits of the Wealthiest Americans

• This Spectrem's study in 2016 has Ultra High Net Worth (UHNW) investor with a net worth between $5 million and $25 million as respondents.
• About 67% of UHNW spent $1-$9,999 for their household staff, and 18% of those with assets $25 million above spent over $50,000 for household staff.
• An estimated 17% of investors with assets more than $25 million spent over $50,000 on boats.
• About 48% of UHNW spent up to $9,999 on vacation or leisure — in 2016, 29% of investors with assets higher than $25 million spent over $50,000.

Affluent Investor Demographics

• Affluent investors are 59% male, and 41% female. 
• Affluent investors are primarily Caucasian, but 36% more likely than average to be Asian American.
• Approximately 6% of the affluent investors are 39 years old or younger, 14% are in the age group between 40 and 49, 29% are ages 50 to 59, 39% are between the age of 60 and 69, and 13% are over the age of 70.
• When it comes to marital status, 6% are single, 84% are married, 3% are divorce, 3% are widowed, and 4% are living with a partner.
• Regarding location, 18% of affluent investors live in the West, 20% in the South, 25% in the Midwest, and 17% in the Northeast.
•  The cities with the most affluent individuals are San Francisco, Washington D.C., Hartford, Boston, New York, Honolulu, and Baltimore.
• Most (39%) of affluent investors are retired, 12% are business owners, 12% are self-employed, and 8% are investing based on inheritance only.
•  Affluent investors put a high premium on their education. The group rates education second only to hard work as the primary factor in their wealth creation.
• All Mass Affluent investors have completed high school, with 72% having a college degree. Additionally, approximately 25% have earned an advanced degree, such as an MA or PhD.
• When it comes to occupation, 13% are educators, 13% are managers, 9% work in IT, 7% in healthcare, 6% are accountants, 5% are salespeople, 4% are homemakers, and 3% are consultants.

Research methodology

TAXES

• According to the 2018 Advisor Authority Special Report, 42% of ultra-high net worth (UHNW) individuals are worried about taxes, making it the number one concern among this group.
• For UHNW, greater wealth means they have more to lose due to higher taxes, and that 74% believe it is unlikely they will benefit from tax reforms.
• Another report states that taxes are one of the top problems of UHNW individuals as they pay a "large share of the income tax revenue." The report states that 39% of their sizeable income goes to taxes, which effectively reduce their wealth and thus greatly impact their financial health.

PROTECTION OF ASSETS

• Formerly the number one concern in 2016 and 2017, protecting assets now comes only second after tax concerns among UHNW individuals, with 28% responding that they worry about protecting their assets.
• Since the UHNW individuals usually have "a larger amount of assets and real property," in case they face financial problems, these assets will be targeted to satisfy payment of debts.

VOLATILITY RISK

•  Twenty-two percent of UHNW individuals are concerned about managing the volatility of the market, acknowledging that "ongoing volatility could continue to pose a threat" for them.
• Many of these UHNW individuals invested heavily in numerous funds and companies, where most of their income comes. Their portfolios can be easily reduced or vanished if the market crashes.
• Another report states that market volatility is an investor's nightmare, where market fluctuations is an inevitable fact in any investment process. Since many of these UHNW people have large volumes of investment, they bear bigger risks, which could significantly affect their financial health.

HEALTHCARE COST

• According to the 2018 Advisor Authority Special Report, healthcare cost "remains a leading concern for investors, regardless of their net worth," with 21% of UHNW individuals states that this is one of their top concerns.
• This is verified by another study conducted by UBS Watch Investors, where 49% of high net worth individuals in the US want to live longer, and 69% agree that the rising healthcare cost is one of their biggest financial concern.
• Most of the wealthier American investors are willing to sacrifice 27% of their wealth just to have an extra 10 years of a healthy life, and that their health comes first over wealth. This is "impacting the way wealthy investors plan their legacy."

INFLATION

• According to the same report by Advisor Authority, 20% of UHNW individuals responded that inflation is also one of their top concerns.
• Warren Buffet, one of the wealthiest people in the world, has been vocal on the subject of inflation, stating that "inflation acts as gigantic corporate tapeworm." He said there is uncertainty from inflation that even a business earning a decent return on capital can produce a negative return under inflation.
• According to a Forbes report, inflation is one of the factors that rich people worry about because it might greatly affect their finances as inflation has a way of reducing the value of one's wealth over time.

RESEARCH STRATEGY

robo-advisors

• According to investment executives, affluent investors seek advice from robo-advisors when it comes to financial issues.
• They see robo-advisors as being better than traditional advisor. 

• About 30% of affluent investors believe that the robo-advisors do a better job than an advisor in picking stocks.
•  Sixty-four percent of investors over the age of 61 sought investment advice for the first time through a robo-advisor."
•  Selective investors, who are mainly younger affluent investors, are looking to manage their portfolios themselves and robo-advisors are a major part of this process.
• These investors want to have access to their investments at all times, which robo-advisors allow.

Traditional advisors

• About "49% of investors who don’t use a robo-advisor said they prefer to work with traditional advisors because of the personal attention they provide.
• According to research from Accenture, "two-thirds (68 percent) of emerging wealthy and high-net-worth investors in North America prefer “hybrid” investment advice — a combination of traditional advisory services and low-cost digital tools — over either a dedicated human advisor or conventional robo-advisory services."
• Roughly seven out of ten affluent millennials are more likely to consider non-traditional financial offerings.

• According to the wealth advisors, affluent investors are getting extensive advice and support for their finances. About 77% receive help from their advisor with financial planning while fewer receive assistance with other dimensions like tax planning, insurance protection or charitable giving. 
• About 57 "percent of Millennial and Gen Xers are using a financial advisor compared to 80 percent of WWII women and 68 percent of Baby Boomers."
• Research shows that around 57% of affluent investors cited their financial advisor as their most reliable source of financial information. Roughly 23% cited newspapers and 20% financial websites as their most reliable source of financial information.

Peer Groups and social media

• Selective investors, who have a "strong need to take control over their investments," represent 60% of affluent households and over 80% of "young Next-Gen affluent investors."
• According to Seeking Alpha, selective investors "turn to multiple sources of advice, including professionals, peer groups and social media."
• Many high-net-worth individuals turn to their peers because the "advice the value most is what similarly affluent people have to say."
• Tiger 21 is a peer-to-peer learning network for affluent investors that is made up of more than 500 investors in North America and London.
• This learning network serves as a "kind of social club for entrepreneurs and wealthy people where they can swap investing ideas and other techniques for preserving and creating wealth."
• A recent Spectrum study found that 55% of all millionaires use Facebook, 33% use LinkedIn, 30% use YouTube, and 12% use Twitter. Although not all use is for advisement purposes, it is assumed that some is.
• What's more is that 73% of millennial millionaires use Facebook, 62% use YouTube, and 46% use LinkedIn and Twitter.
• Social media is a prime communication tool for affluent investors and their financial advisors as 63% of affluent investors "access their financial advisor's page on Facebook," 50% are connected with their financial advisor through LinkedIn, and 23% follow their financial advisor on Twitter.

WEALTH MANAGEMENT ADVISORS

• Wealth management advisors help their clients save time by differentiating between good and bad investment advice. Though there is a great deal of investment advice on the Internet, the advisor can determine and relay valuable investment information to their client. The affluent consumer can instead focus matters unrelated to the technicalities of investment.
• Wealth management advisors can help affluent consumers reduce spending. The advisor can act as a neutral third-party who can hold the affluent consumer accountable for their expenditures.

• Wealth management advisors can aid in tax preparations through specially structured investments in appropriate accounts that maximize tax savings. The advisor can also guide affluent consumers through complex tax strategies and help avoid tax penalties through simple errors (e.g., drawing money from the wrong account at the wrong time).
• A good wealth management advisor has insight and experience into the world of investment that the affluent consumer lacks. A good advisor-consumer relationship is one where the former discusses and understands the wishes and needs of the latter. A good, trusted wealth advisor can help an affluent consumer avoid generalized investment advice that does not meet their specific needs.

• When an affluent consumer seeks the services of a wealth management advisor, their first step is to research the services provided by the latter. The consumer also makes inquiries about the advisor to the advisor's other clients. The consumer's objective is to find an advisor that meets their goals and will care about their portfolio as much as they do themselves.

• The next step is to verify the advisor's credentials. The consumer looks for information like the advisor's employment history and whether the advisor is a certified financial planner (CFP). The tools and databases used to facilitate this investigation include CFP software, FINRA BrokerCheck, and the Securities and Exchange Commission (SEC).
• The final step involves determining the advisor's fee for services. Some advisors charge a commission based on investment products sold, but others charge a set rate based on the size of their client's portfolio. A rule of thumb is to avoid advisors that work on a commission because they might sell products that their clients don't necessarily need.

• Most affluent consumers want a wealth management advisor that will respect their assets regardless of size. According to a survey from Harris Interactive, 27% of affluent consumer respondents indicated that they would feel comfortable meeting with a financial professional with $100,000 portfolios. The remaining respondents indicated they would feel comfortable meeting with a financial professional with portfolios smaller than the $100,000 threshold.
•  Thirteen percent indicated they would feel comfortable meeting with a financial professional with portfolio sizes between $50,000 and $99,999; 12%, $10,000 and $49,999; and 7% less than $10,000. A remaining 4% indicated that no specific amount was necessary to meet with a financial professional.

Increased Investment in Emerging Technology and Digital Platforms

•  Sixty-four percent of wealth management executives surveyed reckon that the future of asset/wealth management future is with the mass-affluent consumer segment/investors. This is a remarkable change from three years ago when only 32% signified the same.
• To further attract the mass affluent segment, wealth managers who serve this segment continue to invest in emerging technology such as artificial intelligence and data analytics to "provide personalized services and scale up quickly."
• In part, the key driver of this trend is the "democratization of the financial services industry by technology," which is forcing wealth managers to adopt financial technology platforms as well as emerging technologies.
• Wealth managers such as Openbank are latching on to this trend by setting up its own internal technologies and digital platforms. For example, it has invested in a robo-advisor for its customers to maximize its Investment Committee and another platform that's targeted at investors who like to manage their investments themselves.
• Similarly, Goldman Sachs is also developing a digital investment platform "that will be offered via its digital offshoot Marcus and target US' mass affluent segment, consisting of individuals with liquid assets between $100,000 and $1 million."
• To better put this into perspective, a 2015 report by McKinsey notes that 40% to 45% of affluent consumers that changed wealth managers in the last two years preceding the report did so to move to a firm that was digitally led.
• Over the next three years, it is expected that more mass affluent clients will adopt fintech solutions, growing from 28% today to 38% expecting to use such solutions.

Growth of Independent Financial Advisors and Third-Party Partnerships

• The percentage of investment clients who use independent advisors or wealth managers is set to increase by 18% over the next three years.
• On the other hand, the percentage of clients who use independent advisory or wealth management firms is set to increase by 14% over the same period.
• While the wealthiest clients have always engaged the services of independents, the expected growth over the next three years is driven by growth in the mass affluent segment; 34% currently, which is expected to reach 42% over the next three years.
• One of the factors driving this trend is the low rates offered by independents, as well as other newcomers and fintech startups in this space, which is forcing wealth management companies to partner with third-party firms to attract new clients.
• Additionally, independents offer more flexibility to clients as they can alter their offerings based on the client's valuation and needs, which can alter how much they also charge for their services, instead of the constraints large brokers face over set terms and agreements.
• To avoid some of their advisors going independent, wealth managers are also setting up independent channels or considering the same.

Use of Superior Customer Experience as a Unique Differentiator

• The business models in the wealth management industry continues to evolve, leading market players to find and develop offerings that are competitive and tailored to the needs of the various segments of consumers they serve or aspire to serve. For example, many are "leading with a high-touch human advice model focused on the higher end" of the market, including the affluent segment.
• The ever-evolving business models require businesses to become customer-centric and develop a convincing and riveting value proposition that attracts investors.
• A 2018 survey by McKinsey notes that firms that prioritize and score high on consumer satisfaction "enjoy materially higher wallet share and consumer loyalty." McKinsey further notes that this manifests in these firms making investments that can improve the customer experience.
• In particular, they leverage artificial intelligence and data analytics to understand the customer's journey, through which they identify key touchpoints that they can enhance to improve engagement and drive loyalty.

Integrating Other Services with Wealth Management

• Many top-tier wealth management firms are having to add other services to their portfolio that are not primarily wealth products per se, especially for high-net-worth consumers.
• This is especially true for the boomer generation whose wealth needs continue to evolve with their age.
• For example, it is becoming critical for services such as estate planning services to be bundled with other wealth products as "many prosperous households will need help with estate planning, traditionally a niche service offered to high-net-worth customers."
• Asides the boomer generation, other affluent and high-net-worth clients across other generations will also need product offerings that combine different services to amass wealth and meet other mid-life issues and retirement targets.

The Advent of Hybrid Advice Solutions

• New wealth management providers such as Betterment and Wealthfront have disrupted the wealth management industry, which hitherto had always depended on human advisors or managers to dispense advice.
• However, these services lack the human element that fosters trust and confidence that traditional well-recognized wealth managers have.
• Despite the trust and confidence deficit of these digital-only services, existing data point to greater adoption of digital services down the line. For this reason, wealth management firms, are beginning to adopt the hybrid advice services model, that is, wealth management service that combines robo-advice with the human element.
• According to the 2017 World Wealth Report, "53.7% of wealth management firms have hybrid advice programs underway."
• Some of the drivers of this trend for wealth management firms include reduced error, low cost to income ratio, increased conversions, and leveraging technology to improve productivity.
• The other resultant effect of this trend is that affluent consumers will have fewer direct interactions with advisors, as advisors prioritize their interactions with high-net-worth customers over others.

RESEARCH STRATEGY