The affluent investor: Insights and opportunities for advisors

44 Pages·2015·9.05 MB·English

The
affluent
Insights and
investor
opportunities
for advisors
Research overview
Almost six years after the end of the financial crisis,
investor confidence has significantly improved, yet
uncertainty remains. Investor concerns continue to be
driven by issues such as prolonged legislative gridlock,
the prospect of an eventual slowdown in the run of
exceptional equity returns, and a potential backslide
in U.S. economic growth in the wake of economic
struggles across the globe.
In this uncertain environment, affluent investors in all
wealth segments are paying greater attention to domestic
and global events, and as a result, your guidance as a
financial professional has never been more important.
Our research confirms that it’s critical to provide education
and guidance to help clients avoid reactionary decisions.
We’ve also found that advisors who want to increase
client satisfaction would do well to thoroughly understand
clients’ individual expectations, especially in terms of their
investment needs, financial circumstances, communication
preferences, and next-generation heirs.
This report explores:
Methodology and sampling . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Key findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Who are the affluent? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
What’s on their minds? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
What do they expect from advisors? . . . . . . . . . . . . . . . . . . .20
How do they want to communicate? . . . . . . . . . . . . . . . . . . .30
Action plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
How Vanguard can help . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Wealth segments
Mass affluent:
$100,000 to $1 million in net worth1
Millionaire:
$1 million to $5 million in net worth1
Ultra-high-net-worth (UHNW):
$5 million to $25 million in net worth1
1 Does not include primary residence.
Methodology and sampling
There are currently 9 million households with at least $1 Respondents were assigned to a category based on the
million in net worth in the United States. That’s more than aggregate total of the household’s indicated net worth.
ever before. In fact, the numbers of households with a net The surveys were completed by the individual primarily
worth of at least $1 million, $5 million, and $25 million have responsible for making the household’s day-to-day
reached or surpassed prerecession levels. financial decisions.
Each quarter, Spectrem Group, a market leader in consumer In many cases, the surveys asked respondents to indicate
research for the financial services industry, conducts online to what degree they agreed or disagreed with a particular
interviews with affluent investors across the United States. statement. Throughout this book, we’ve documented
Each survey includes about 1,500 mass affluent, 1,000 the percentage of respondents who selected “agree” or
millionaire, and 500 UHNW households. The research “strongly agree.”
presented in this report was conducted from the fourth
quarter of 2013 through the third quarter of 2014.
Total households in millions, 2007 to 2013
25.7 2266..66 2266..99 2277..22 28.4
25.7
23.6
22.9
77..99 6.7 77..22 77..44 77..77 8.4
5.8 6.7
5.8
11..22 00..88 11..00 11..11 11..11 11..11 1.2
2007 2008 2009 2010 2011 2012 2013
Net worth1
Mass affluent: $100,000 to $999,999
Millionaire: $1 million to $4.99 million
UHNW: $5 million+
Note: This report does not include data from investors with more than $25 million in net worth.
1 Does not include primary residence.
4 © 2014 Spectrem Group
Key findings
Wealth and optimism continue to grow Responsiveness is critical
Today there are more millionaire households in the Client satisfaction is similarly influenced by how
United States than ever before. Accordingly, 80% of the quickly an advisor responds to client calls and emails,
UHNW and 68% of millionaires feel that their financial with expectations higher than many advisors realize.
situations are better than they were a year ago. Among mass affluent and UHNW clients, 25% and 31%,
respectively, said they expect a response within two hours.
For investors aged 44 years or younger, this expectation
Opportunity remains to gain client assets
was even more prevalent.
On average, mass affluent investors reported that they
control 59% of their assets with no professional help.
Investors may be open
Millionaire investors reported that they invest 46% of
their assets on their own. to small advisor teams
Although a majority of investors prefer to work with a
Long-term care is a single advisor, many are open to working with advisor
teams of three or less. Of respondents in the three
widely anticipated need
wealth segments, UHNW investors expressed the most
Of services investors expect to seek from advisors in willingness to work with a primary advisor and supporting
the future, three clearly stood above the rest: planning for team members.
long-term care, creating an estate plan, and implementing
tax-advantaged strategies. Yet, many investors said they
Clients willing to introduce
have not discussed these topics with an advisor.
families to advisors
Client satisfaction strongly Many clients are open to talking about their heirs and
their financial legacies. Among millionaires and the mass
affected by communication
affluent, 55% and 39%, respectively, said they planned to
Across all wealth segments, client satisfaction directly introduce their children and grandchildren to their advisors.
correlates with the frequency of advisor contact. Clients However, advisors may need to be proactive in initiating
who heard from their advisors at least once per quarter the meetings.
were significantly more satisfied than those who received
outreach semiannually. For millionaires, satisfaction
Expectations are growing
dropped 28 percentage points for clients contacted twice
per year as compared with those contacted every quarter. for communication options
More than 50% of wealthy investors are willing to video
chat with their advisors, a number that has increased
substantially in recent years. Among millionaires aged
36–44, nearly one third said they wanted to text with their
advisors. To an increasingly prevalent degree, affluent
investors expect advisors to accommodate a variety of
communication options.
Who are
the affluent?
6

Demographic snapshot
Mass affluent Millionaire Ultra-high-net-worth (UHNW)
Net worth1 $100K–$1M $1M–$5M $5M–$25M
Population (estimated 28.40 million 8.36 million 1.24 million
number of households)
Using an advisor 68% 81% 81%
Tenure with advisor 3–10 years: 38% 3–10 years: 38% 3–10 years: 35%
10+ years: 38% 10+ years: 41% 10+ years: 49%
Average age 59 years 63 years 66 years
Retired 39% 57% 59%
1 Not including primary residence.
Occupations
Mass affluent Millionaire UHNW
Educator 13% Manager 17% Senior corporate executive 17%
Manager 13% Educator 13% Manager 12%
Information technology 9% Information technology 9% Educator 8%
Health care 7% Health care 8% Consultant 7%
Accountant 6% Senior corporate executive 7% Information technology 7%
Salesperson 5% Accountant 5% Physician/dentist 7%
Homemaker 4% Consultant 5% Attorney 6%
Consultant 3% Salesperson 4% Entrepreneur/business owner 6%
Craftsman 2% Attorney 3% Accountant 5%
Entrepreneur/business owner 2% Entrepreneur/business owner 3% Health care 4%
Senior corporate executive 2% Homemaker 2% Salesperson 4%
Attorney 1% Physician/dentist 2% Homemaker 2%
Financial advisor 1% Craftsman 1% Financial advisor 1%
Investor 1% Financial advisor 1% Investor 1%
Operator 1% Investor 0% Craftsman 0%
Physician/dentist 1% Operator 0% Operator 0%
Other 29% Other 20% Other 14%
Note: Includes former occupations for those in retirement.
8 © 2014 Spectrem Group
Distribution of assets
Investors with higher levels of wealth tend to have a larger
portion of their investable assets in equities, and a smaller
portion in cash.
Total investable as sets
Mass affluent Millionaire UHNW
38% Investable assets 55% Investable assets 68% Investable assets
31% Principal residence 16% Principal residence 9% Principal residence
12% Defined contribution 11% Defined contribution 7% Investment real estate
11% Insurance and annuities 9% Insurance and annuities 6% Defined contribution
5% Investment real estate 7% Investment real estate 5% Insurance and annuities
3% Restricted stock 2% Restricted stock 5% Restricted stock
Note: May not total 100% because of rounding.
Investable assets
Mass affluent Millionaire UHNW
38%
55% 68%
38% Investable assets 55% Investable assets 68% Investable assets
37% Equities 49% Equities 59% Equities
25% Cash and liquid assets 18% Fixed income 21% Fixed income
21% Other/unknown 15% Cash and liquid assets 13% Cash and liquid assets
13% Fixed income 15% Other/unknown 5% Other/unknown
4% Alternative investments 3% Alternative investments 2% Alternative investments
Pie charts
100% CMYK Blue 301
60% CMYK Olive 456
80% CMYK Purple 2593
100% CMYK Green 576
30% CMYK Blue 301
30% CMYK Olive 456
Product ownership
The growth in ETF ownership has been primarily wealth- This is likely a result of the general lack of awareness about
driven. From 2009 to 2013, the number of UHNW investors ETFs. Wealthier investors tend to benefit from a deeper
who owned at least one ETF more than doubled, while level of education and guidance from their advisors. For
the millionaire segment had a more modest increase, and similar reasons, wealthier segments are more likely to
the mass affluent segment had an increase of only four diversify with international investments.
percentage points.
ETFs Mutual funds
U.S. stock mutual funds
52%
70% 70%
62% 62%
30%
22% 25% 59%
16%
12%
38%
Mass affluent Millionaire UHNW
10% Domestic 20% Domestic 34% Domestic
6% International 10% International 18% International
Mass affluent Millionaire UHNW
2 009 (No breakout)
2013
International stock mutual funds
Insurance
40% 41% 41%
31%
59%62% 60% 25%
15%
Mass affluent Millionaire UHNW
25%27% 29%
19% 22%
15%
Municipal bond mutual funds
Life insurance Fixed annuities Variable annuities
41%
36% 34%
28%
Mean value (in thousands) 22%
16%
$636 $665 Mass affluent Millionaire UHNW
$524
$226 $200
$96 $58 $63 $84
Other U.S. bond mutual funds
Life insurance Fixed annuities Variable annuities
2013 28%
24% 25% 24%
Mass affluent 20%
Millionaire 12%
UHNW
Mass affluent Millionaire UHNW
2009
2013
Percentage of respondents who own at least one product.
10 © 2014 Spectrem Group