The good news is, there are more high-net-worth individuals than ever.
As always, though, there's a catch. Those people want more of everything — more expertise, more risk management and more of their advisors' time.
According to the annual World Wealth Report, prepared by Merrill Lynch and Capgemini, the number of high-net-worth investors worldwide rose to 7.7 million, a 7.5 percent increase, or a net 500,000 people. As a group, they now control $28.8 trillion in assets. North America saw the greatest percentage increase — 13.5 percent to a total 2.5 million people. (For the purpose of this report, high-net-worth investors are those with more than $1 million in financial assets.)
According to Alvi Abuaf, head of the securities and capital markets practice at Capgemini, these investors are very interested in wealth preservation and generational transfer issues because “about 70 percent of them are over 55 years old.”
What the group is demanding, in short, is someone to be their CFO. And with comprehensive services starting to move down-market, and with increased competition from family offices, some firms have started to form “virtual service networks,” a sort of stripped-down version of the family office that provides access to tax specialists and other professionals necessary for assisting — usually ultra-high-net-worth individuals, with more than $5 million in assets — with these types of services. Merrill, meanwhile, has started to provide back-office brokerage services to smaller family offices, according to James Gorman, president of Merrill Lynch's private client group.
The high-net-worth universe hasn't grown so sophisticated yet that it needs a family office-type structure, Gorman said. “For the $1 million to $5 million area, this is less compelling,” he said.
They are, however, becoming more demanding of services at a lower cost. They're mimicking the style of institutional investors in that they, as a group, have become less emotional about investing, are adhering more rigidly to a “wealth management process” and are increasingly interested in alternative investments.
What does this all mean for the advisor? It means a lot more data mining and data integration to keep track of the client's every need. It also translates into more cross-selling opportunities.
Capgemini estimates that wealth held by high-net-worth individuals will increase to $40.7 trillion by 2008 (based on a 7 percent annual compounding rate). The vaunted “wealth transfer” should occur in the next 50 years, shifting between $41 trillion and $136 trillion in the U.S. to a younger generation, and, as Abuaf says, the provider market is “very fragmented.”