Sydney – Global wealth redistribution and intergenerational shifts continue to reshape high net worth investor (HNWI) requirements and preferred asset allocations. Whereas the core relational advisory framework remains intact, private banks and other HNWI advisors are facing increased pressure to offer alternative asset classes, facilitate entrepreneurial networking partnerships, support offshore investments, enhance digital platform capabilities and provide avenues for impact investing, not to mention incorporating environmental, social and governance (ESG) investment principles.

HNWI geographic population and wealth redistribution continues to be shaped by the rebalancing of wealth and investment yield from developed to developing markets. Among the major markets, HNWI wealth growth remains led by Asia, with ongoing gains derived from an increasingly affluent middle class, enhanced productivity and property asset price appreciation. As the largest HNWI market, the US has been the willing beneficiary of a sustained rally in the equity market driven by capital inflow and currency appreciation. The recent resurgence in merger and acquisition (M&A) and initial public offering (IPO) activity is also driving wealth growth steadily higher.

Comparatively, Europe remains beset by low yields and flagging economic growth, characterised predominantly by inherited wealth and ‘old money’. Private banks have consequently been pursuing partnerships with fintechs to provide access to venture capital, peer-to-peer lending and alternative investment platforms. National Australia Bank’s Private Bank, for example, announced a partnership with crowdfunding platform Our Crowd in June 2017, offering their HNWI clientele investment access to capital raisings by global technology startups. As banking regulations increasingly transition to an open data regime and competitors outside traditional financial services acquire financial services licenses as is the case with Tyro in Australia and many challenger brands in the UK, pressure to innovate product offerings will continue to escalate.

Asian HNWI dynamics

East & Partners (E&P) research focuses on leading finance C-suite executives from the Top 100 corporates by revenue across ten Asian markets. Representing self-made HNWIs still engaged in wealth creation, this demographic is viewed as a leading benchmark of wider HNWI market trends. Insights from around 940 HNWIs reveal a clear shift towards engagement of financial investment professionals over self-management.

Over half now engage a private bank, business bank or financial advisor in managing investable wealth. Discretionary mandates whereby a HNWI entrusts a manager with direct investment decisions is utilised by only one in ten reporting investors, however further uptake is occurring slowly on the back of strong service satisfaction metrics.

Fintechs and digital expectations

The core HNWI service proposition of investment management and personalised advisory services relating to estate, tax and retirement planning is expected to persist. However, fintech competition has heightened digital platform expectations with HNWIs increasingly demanding integrated portfolio return on investment (ROI) models and real-time analytics.

Clients with complex investment portfolios are demonstrating rising awareness and interest in ‘robo-advisory’ services that dynamically facilitate portfolio rebalancing and optimise tax harvesting from complex investment structures. Personal interaction with a trusted advisor nevertheless remains core to the wealth management proposition, particularly with older HNWIs as indicated by steadfast advisor loyalty.

Similarly, whereas investment banks previously acted as gatekeepers to capital markets investments, the proliferation of exchange traded products and fintechs offering access to a diversity of asset classes has undercut this point of differentiation.

Networking and SRI

Complementing access to a broad suite of asset classes are demands to facilitate networking hubs between HNWIs seeking better access to share floats, bond issuance or exclusive business opportunities.

HSBC, with US$112 billion of private bank client assets under management (AUM) in its core Hong Kong and Singapore markets, is building upon the Bank’s existing investment plaatform and network as a new entrant to the Australian market as of November 2016.Capitalising on its existing commercial and global banking relationships both locally and globally, HSBC is targeting more sophisticated, self-funded business owners and C-Suite executives in the lucrative wealth accumulation lifecycle phase.

While engagement remains low, HNWIs are increasingly adopting sustainable, responsible and impact investing (SRI) – the integration of environmental, social and governance factors in investment allocation alongside financial return. In line with other assets classes, allocation into sustainable investments rises with HNWIs’ knowledge and engagement of the product, and the market sees significant uptick in Western Europe compared to regions with less overall exposure. Personal ethical considerations rather than regulatory pressure or a perceived favourable risk profile are primary motivators, with HNWIs avoiding undesirable investments more frequently than seeking out SRI targeted investments. In this regard, considerable scope exists for HNWI advisors to capture a ‘guidance’ relationship within this niche.

Catering to a growing interest in SRI led by millennial uptake, financial institutions servicing HNWIs have been building out access to investment vehicles such as Social Impact Bonds (SIBs), Donor Advice Funds (DAFs) and Program Related Investments (PRIs). These emergent asset classes offer philanthropic outcomes with a contingent equity stake, loan participation or direct input in grant decision making. Younger generations, who increasingly view themselves as global stakeholders motivated by social and environmental engagement are expected to be strongly receptive to investments that offer active participation over the traditionally passive nature of philanthropic initiatives. The beneficiaries of this new generation of HNWI investors will be those HNWI advisors that can assist in realising their clients’ goals of personal fulfilment and self-actualisation.

HNWI acquisition and growth

Private banks and other HNWI advisors are facing rising demands spearheaded by a younger, self-made, digitally savvy customer base. Banks are further facing competitive pressure to deliver integrated platforms, diversify product offerings and facilitate networking and SRI engagement.

Identifying specific HNWI advisory and digital platform requirements by demographic and market will enable providers to effectively create and target product offerings, efficiently allocate resources and maximise customer capture and retention within this lucrative segment.