Louisville, KY—October 23, 2019—Nearly six in ten High Net Worth (HNW) investors (59%) and nearly two-thirds of Ultra HNW investors (65%) anticipate market volatility will increase in the next twelve months. A similar number of the HNW and Ultra HNW say that market volatility will increase their likelihood of working with an advisor in the next twelve months (57% and 69%, respectively). These are among the latest findings from the fifth annual Advisor Authority study of nearly 1,600 RIAs, fee-based advisors and individual investors commissioned by Nationwide Advisory Solutions and conducted online by The Harris Poll.
Helping more affluent investors address top concerns and manage the dynamics of today’s complex markets are key for gaining their trust and earning their business. Among 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, roughly one-fourth still do not have a financial advisor (27% and 22%). The opportunity is substantial. Advisor Authority reveals actionable insights and proactive strategies to help RIAs and fee-based advisors compete more effectively for this valuable client segment, by profiling the unique needs of the HNW—and how their needs change as they ascend to the ranks of the Ultra HNW.
“While managing taxes and protecting assets remain among their top financial concerns, High Net Worth and Ultra High Net Worth investors need help to identify potential blind spots and bridge the preparation gap, especially in times of uncertainty. More affluent investors say a top benefit of working with an advisor when markets are volatile is staying focused on long-term goals,” said Craig Hawley, Head of Nationwide’s Annuity Distribution. “RIAs and fee-based advisors say targeting the High Net Worth and Ultra High Net Worth is among the top three factors that will enhance the profitability of their practice, and our latest Advisor Authority study uncovers the key factors they need to attract and retain these more affluent clients.”
Identify Blind Spots And Bridge Preparation Gap
With volatility top of mind, having more wealth does not always translate into a substantially more optimistic financial outlook. While the optimism of Mass Affluent investors fell eight percentage points, to 52% in 2019 from 60% in 2018, optimism of HNW investors fell ten percentage points, to 55% in 2019 from 65% in 2018, as concerns about markets, economics and politics at home and abroad, continued dominating the headlines. Optimism of Ultra HNW investors increased six percentage points, to 64% in 2019 from 58% in 2018, potentially fueled by the prospects of a finance-friendly tax plan, cuts to regulations and a business-friendly majority in the Senate.
The HNW are less optimistic than the Ultra HNW, yet they are also less aware of the potential risks in the market and the economy, and they are less prepared. The HNW are somewhat less likely than the Ultra HNW to say their outlook for the U.S. Stock Market over the next twelve months is optimistic (47% vs. 58%) and somewhat less likely to say their outlook for the U.S. economy over the next twelve months is optimistic (51% vs. 58%). And yet, HNW investors are somewhat less likely than Ultra HNW investors to be concerned about a U.S. bear market over the next 12 months (54% vs. 63%) and somewhat less likely to be concerned about a U.S. economic recession over the next 12 months (56% vs. 66%).
Protecting Assets: Top Priority To Attract The More Affluent
More wealth means affluent investors have more to lose as markets fall and the economy slows. Protecting assets is a top financial concern for investors at every level—especially for the more affluent. While the number-one financial concern of the HNW and Ultra HNW this year is taxes (38% and 34%, respectively), protecting assets is a close second (37% and 33%), and the cost of healthcare is a more distant third (27% and 19%). Protecting assets was HNW investors’ number-one financial concern by a wider margin in prior years (45% in 2018, 41% in 2017, 41% in 2016). Likewise, protecting assets has been Ultra HNW investors’ number-one or number-two financial concern in prior years (28% in 2018, 40% in 2017, 33% in 2016).
More than one-fourth of HNW investors (26%) and more than one in ten Ultra HNW investors (14%) don’t have or don’t know if they have a strategy to protect their assets, but a solid majority do have a proactive strategy to protect their assets against market risk (74% and 86%). The HNW and Ultra HNW who have a strategy to protect assets against market risk are equally likely to rely on diversification to manage market risk (64% and 63%). However, these Ultra HNW are far more likely than the HNW to employ a more diverse range of solutions. This includes fixed annuities (54% vs 22%), liquid alternatives (49% vs 27%), market linked CDs (41% vs 25%), fixed index annuities (37% vs 15%), and smart beta ETFs (31% vs 8%).
Even The More Affluent Need To Protect Lifetime Income
The retirement income challenge is real—even for the HNW and Ultra HNW. While Mass Affluent investors (28%) are more than twice as likely to say that saving for retirement is a top financial concern when compared to the HNW (13%) and Ultra HNW (12%), all three are equally likely to say that generating reliable income during retirement is a top financial concern (12% Mass Affluent, 15% HNW, 12% Ultra HNW). In fact, more than one-fourth of HNW investors (28%) and one in ten Ultra HNW investors (10%) don’t know or are not sure which solutions they should use for generating retirement income during periods of market volatility.
While the vast majority of more affluent investors do have a strategy in place to protect against outliving their savings, the Ultra HNW are more likely to have a strategy than the HNW (93% vs. 84%). The Ultra HNW are somewhat less likely than the HNW to rely on Social Security (66% vs. 77%) and they are far more likely to employ a diverse range of different income generating annuities. These include variable annuities with living benefit riders (42% vs 25%), Longevity Insurance/Deferred Income Annuities (or DIAs, 35% vs 9%), Qualifying Longevity Annuity Contracts (or QLACs, 32% vs. 8%), Single Premium Immediate Annuities (or SPIAs, 30% vs 11%) and Contingent Deferred Annuities (CDAs, 29% vs 7%).
The More Affluent Seek Holistic Unbiased Advice
Year-over-year, more affluent investors consistently say by a wide margin that the single most important reason for having a financial advisor is to feel more confident in their financial future, cited by roughly one-third of HNW (35%) and Ultra HNW investors (30%) in this year’s study. In recent years, more affluent investors frequently cite advisor experience, personalized advice for a holistic financial picture and a fiduciary standard among their top three reasons for choosing to work with an advisor. This creates a clear opportunity for RIAs and fee-based advisors. In fact, this year’s study shows that nearly three-fourths of the HNW (72%) and more than 8 in ten Ultra HNW (82%) say there should be one federal fiduciary standard across the financial industry.
The fifth annual Advisor Authority study explores the investing and advising issues confronting RIAs, fee-based advisors and investors—and the innovative techniques that they need to succeed in today’s complex market. These latest findings are to be followed by a series of ongoing reports that will be released through the first quarter of 2020.