By Craig Hawley
Affluent investors are worried. In fact, the optimism of high net worth investors fell a full 10 percentage points, to 55% in 2019 from 65% in 2018, as concerns about markets, the economy and politics at home and abroad continued dominating the headlines.
As the partisan divide grows wider with the 2020 presidential election approaching, while the threat of trade wars and geopolitical tensions continue overheating, it creates greater uncertainty — and drives greater volatility.
Nearly six in 10 HNW investors and nearly two-thirds of ultra-HNW investors anticipate market volatility will increase, according to Nationwide’s fifth annual Advisor Authority study of roughly 1,600 RIAs, fee-based advisors and individual investors. To win the confidence of affluent investors — and win their business — here are three things you need to know.
Volatility — and Demand for Advice — are on the Rise
As uncertainty is on the rise, so is the demand for advice. Nearly six in 10 HNW investors and more than two-thirds of ultra-HNW investors also say volatility will increase their likelihood of working with an advisor. Yet despite their concerns and the complexity that comes from having more wealth, not all affluent investors seek the help they need. Roughly one-fourth of affluent investors still do not have a financial advisor.
The opportunity for you is substantial. The key is understanding what matters most and solving their top concerns. The HNW, with investable financial assets ranging from $1 million to less than $5 million, and the ultra-HNW, with investable financial assets of $5 million or more, can benefit from holistic planning that moves beyond the basics of portfolio management, to include comprehensive services such as risk management and the skillful use of insurance, tax planning, wealth transfer and estate planning.
Attract the Affluent by Protecting Their Assets
All investors worry about protecting assets — even the HNW and Ultra HNW. Year over year, it’s a top concern of the affluent, especially as markets waver and the economy slows. After all, more wealth means they have even more to lose.
Facing sweeping reforms this year, the number-one financial concern of the HNW and Ultra HNW in 2019 is taxes (38% and 34%), while protecting assets is a very close second (37% and 33%). In prior years, protecting assets was the HNW’s number-one concern by a wide margin (45% in 2018, 41% in 2017, 41% in 2016) and the number-one or number-two financial concern of the Ultra HNW (28% in 2018, 40% in 2017, 33% in 2016).
While a clear majority of HNW and Ultra HNW investors have a proactive strategy to protect assets against market risk (74% and 86%), a closer look reveals a need for your expertise. The HNW and Ultra HNW are most likely to rely on diversification as their number-one solution (64% and 63%). Meanwhile, the HNW are far less likely than the Ultra HNW to employ a more diverse range of solutions including fixed annuities (22% vs 54%), liquid alternatives (27% vs 49%), market linked CDs (25% vs 41%), fixed index annuities (15% vs 37%), and smart beta ETFs (8% vs 31%).
Clearly, many affluent investors could benefit from a holistic approach to protecting their assets. More importantly, over one-fourth of HNW investors (26%) and more than one in ten Ultra HNW investors (14%) still don’t have a strategy in place.
Even Affluent Fear Retirement Income Challenge
While the HNW and Ultra HNW are far less likely than all investors to worry about saving enough for retirement, they are just as likely to say that generating retirement income is a top financial concern. The vast majority of HNW and Ultra HNW investors have a strategy to protect against outliving their savings (84% vs 93%), but not all know the solutions to help protect their retirement income for life.
The HNW are more likely than the Ultra HNW to say Social Security (77% vs 66%) is their top solution. Meanwhile, the HNW are far less likely than the Ultra HNW to protect retirement income with a diverse range of annuities. These include variable annuities with living benefits (25% vs 42%), Longevity Insurance/Deferred Income Annuities (or DIAs, 9% vs 35%), Qualifying Longevity Annuity Contracts (or QLACs, 8% vs 32%), Single Premium Immediate Annuities (or SPIAs, 11% vs 30%) and Contingent Deferred Annuities (CDAs, 7% vs 29%).
By investing a portion of assets in a guaranteed income stream, affluent clients can invest other assets more aggressively for greater growth potential, to be passed along to heirs.
The Win/Win: Creating Confidence—and Enhancing Profitability
Year over year, affluent investors say the single most important reason for having a financial advisor is to increase their confidence in their financial future. With volatility top of mind—and a top factor for seeking an advisor—the HNW and Ultra HNW need your help now. Help create safe havens in an uncertain world by protecting their assets at every stage of the financial lifecycle—from accumulation, to generating retirement income, to leaving a financial legacy—to attract and retain this influential market and enhance your firm’s profitability.
The fifth annual Advisor Authority Survey was conducted online within the United States by The Harris Poll on behalf of Nationwide Advisory Solutions from February 15 – March 4, 2019 among 1,021 financial advisors and 824 investors, ages 18+. Among the 1,021 financial advisors, there were 507 Registered Investment Advisors and 514 Broker/Dealers. Among these respondents, a “trended group” of 766 RIAs and fee-based advisors, who meet the same qualification criteria as in prior years of our Advisor Authority research, continue to be the primary focus in this year’s series of Special Reports and releases. Among the 824 investors, there were 205 Mass Affluent (Household Investable Assets of $100,000 to less than $500,000), 205 Emerging High Net Worth ($500,000 to less than $1 Million), 207 High Net Worth ($1 Million to less than $5 Million) and 207 Ultra High Net Worth ($5 Million or more). Advisors are weighted where necessary by employment status and active management to bring them in line with previous years’ profile. Investors are weighted where necessary by age by gender, race/ethnicity, region, education, income, marital status, household size, investable assets and propensity to be online to bring them in line with their actual proportions in the population.
Craig Hawley is a seasoned executive with more than 20 years in the financial services industry, is head of Nationwide’s Annuity Distribution. Email him at email@example.com.