As we continue our deeper dive into customer and market segmentation strategies for financial advisers, this article examines the High Net Worth (HNW) segment, a segment which many advisers aspire to serve, and yet which remains deeply misunderstood.
While clients within the HNW segment may share some common characteristics – including their service expectations, and their capacity to pay for expert advice – they are far from a homogeneous group, varying greatly in their behaviours, motivations, and sophistication. In fact, the only universal truth for this segment may be that a ‘one size fits all’ approach is doomed to fail.
In this article we aim to explore the themes that unite and differentiate members of this segment, across dimensions such as:
- demographic characteristics
- money motivations and behaviours
- perceptions of advice and advisers
- expectations around fees and services, and
- engagement preferences.
An awareness of relevant considerations across each of these dimensions will be valuable to advisers preparing to enter this segment for the first time, and to those already active in the HNW space who are looking to fine tune their offering to this most demanding of all client segments.
Who are the HNW?
The label ‘high net worth’ conjures up many different images and meanings for people, and certainly there are several definitions that can legitimately be used, including:
- the Investopedia definition[1] – $1 million in liquid assets (family home excluded)
- the Coredata definition[2] – $1m in the share market, or earning an annual income of $450k and over (family home excluded), and even
- the ASIC sophisticated investor definition[3] (annual income over $250k or net assets of $2.5m).
To be consistent with the Australian-focused research we will refer to throughout this article – and because rocketing real estate prices are rendering the ASIC definition less meaningful all the time – this article will use the $1m in net investable assets criterion common to both Coredata and Investopedia.
Across the globe, according to Capgemini[4], there are around 21 million HNW investors. Of these, around 200k are classified as ultra-high net worth individuals, with net investable assets in excess of $30m USD.
In Australia, the HNW segment is also sizeable, and in 2021 was estimated by Investment Trends[5] to comprise around 485,000 individuals, investing more than $2 trillion AUD.
The changing face of HNW clients
Any notion of a stereotypical HNW client (male, middle aged, professional) should be abandoned. Nowadays new entrants to the HNW segment are just as likely to be female, young, and an entrepreneur or IT whiz.
The rising economic power of female investors is indeed a standout trend around the world and is redefining the way firms are approaching this segment.
Global analysis reveals that the gender wealth gap is closing fast, and females are growing their wealth at a much faster rate than males. In the US, females own around 40% of all businesses[6], and hold 37% of all wealth[7]. In Australia females hold around 32% of wealth. This same analysis predicts female wealth globally to grow almost 40% faster than male wealth between 2019 and 2023[8].
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[1] https://www.investopedia.com/terms/h/hnwi.asp#:~:text=Key%20Takeaways,for%20increased%20and%20better%20benefits
[2] https://www.newmodeladviser.com.au/3335/six-things-that-are-on-the-minds-of-australias-high-net-worth-investors/
[3] https://moneysmart.gov.au/glossary/sophisticated-investor
[4] https://worldwealthreport.com/resources/world-wealth-report-2021/
[5] https://www.ifa.com.au/news/29422-the-rise-of-high-net-wealth-advice-validators
[6] https://worldwealthreport.com/resources/world-wealth-report-2021/
[7] https://www.bcg.com/en-au/publications/2020/managing-next-decade-women-wealth
[8] Ibid
