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Almost half (46 per cent) of survey participants with less than US$1-million in investible assets said wealth management firms don’t offer the value-added services they’re looking for, such as tax and estate planning or portfolio management.skynesher/AFP/Getty Images

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Advisors should be targeting more investors before they reach high-net-worth individual (HNWI) status to grow and diversify their businesses for the long term, a new report says.

The Capgemini World Wealth Report 2023, released on June 1, says not enough wealth management firms focus on people with less than US$1-million in investible assets – investors it notes are “ripe for taking” if offered a better experience. The report classifies HNWI as people with more than US$1-million in investible assets, not including primary residences.

“If captured in their early life and wealth stages, [they] can grow within the wealth management ecosystem to become future HNWI clients,” the report states, adding this less wealthy cohort is “more likely to seek growth assets and pursue long-term investments.”

The report also notes that aging HNWIs are a slower-growing segment given their lower appetite for risk and increased withdrawals to fund retirement.

“Targeting and capturing the [less than US$1-million] segment can help firms to balance their client mix,” the report states.

Adding investors with smaller accounts could be particularly helpful during volatile market conditions, like today, when assets often decline. For example, the report shows the global HNWI population dropped by 3.3 per cent to 21.7 million in 2022, while the value of their wealth decreased by 3.6 per cent to US$83-trillion – the steepest drop in a decade.

Wealth management firms’ revenue is “stressed and operational costs remain high, denting profits,” the report adds, forecasting “sluggish” growth and low returns for the “foreseeable future.”

“As a result, firms are shifting gears to fortify value, reinforce productivity, and unlock new value streams to catalyze long-term sustainable growth,” it states.

The global report, which includes Canada, polled more than 3,100 HNWIs as well as 95 wealth management executives and more than 800 relationship managers. It also surveyed about 3,200 so-called “affluents,” which it categorizes as investors with US$250,000 to US$1-million in investible assets.

Despite holding almost US$27-trillion in assets, or about a third of total HNWI wealth assets, 34 per cent of firms are not exploring this investor segment because they’re considered less profitable, the report states.

‘Start thinking differently’ about the next generation

Colm Sparks-Austin, president and managing director of Capgemini Canada Inc., says advisors who overlook these potential future millionaires are missing a major growth opportunity.

“Wealth managers will have to start thinking differently because this next generation coming up will suddenly have money,” he says, which includes growth in their investments and money transferred and inherited from wealthy parents and grandparents.

Mr. Sparks-Austin notes this investor cohort is also hungry for better and broader wealth management advice.

Only 18 per cent of “affluents” surveyed said they were satisfied with their current wealth management service, the report shows. About 58 per cent said they lack the knowledge and support to make investment decisions during times of volatility, such as in 2022, while 42 per cent were unaware of investment-related risks and that their investment strategies weren’t aligned with life goals.

Almost half (46 per cent) said wealth management firms don’t offer the value-added services they’re looking for such as tax and estate planning or portfolio management, and about a third said the robo-advisor service they use “does not answer their questions effectively.”

“All of these data describe a wealth band that could benefit from experienced guidance,” the report states.

Mr. Sparks-Austin says now’s the time for advisors to step in and offer wealth management services this segment wants and needs.

“Unless they get on top of it, there will be new entrants, and those investors will gravitate toward those services,” he says.

Mr. Sparks-Austin cites the example of the rise of robo-advisors in recent years, which filled a gap in online investing, particularly among more tech-savvy investors. Many robo-advisors are also steadily expanding to include broader wealth management services.

And it’s not just “affluent” investors looking for more value-added services. The report shows 56 per cent of HNWI survey participants say value-added services, such as the availability of tax and estate planning and legal advice, influence their selection of a wealth management firm. The percentage was even higher in North America at 71 per cent.

Still, only half said they were satisfied with their current advisor’s capacity to deliver on those services. Almost a third (31 per cent) said they would likely switch advisors in the next 12 months.

How advisors can attract future HNWIs

Advisors need to step up their game to attract and retain clients, the report notes, even amid ongoing economic uncertainty that’s affecting their operations. That includes higher interest rates, pressure on corporate earnings and real estate prices, and market volatility.

“As a result, HNWI expectations throughout 2023 will likely be more demanding, complex, and diverse: value-added services will take on greater importance to retain client loyalty,” the report says.

Advisors can make their operations more resilient by investing in the latest technologies to increase productivity and provide a more seamless client experience, the report adds.

“As technology advances, firms can reduce cost-of-service significantly,” it says. “They can expand personalization from commoditized modular offerings to tailored products that resonate with affluent segment aspirations.”

The report also suggests paying more attention to the asset mix offered to clients, focusing more on alternative investments, such as hedge funds, private equity and structured products that align with HNWI’s portfolio objectives. The report encourages advisors to focus on sustainable investments and avoid “greenwashing challenges.”

“Wealth management firms are at a critical inflection point as the macroenvironment is forcing a shift in mindset and business models to drive sustainable revenue growth,” says Nilesh Vaidya, global head of banking and capital markets at Capgemini in New York, in a release.

“Agility and adaptability are going to be key for high-net-worth individuals as their attention gears toward wealth preservation.”

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