Facing stiffer competition, wealth management firms are increasingly using segmentation strategies to meet the individual needs of high-wealth clients, according to a recent report from WealthInsight.
The report, Innovation in Wealth Management Practice, states that firms looking to stay competitive in the post-recession are providing more customized services. These include targeting the needs of older millionaires and hiring more female advisors.
There is a growing client base to serve—the economic recovery has boosted the size of the world's millionaire population by more than 60 percent, from 11.4 million in 2008 to 18.4 million at the end of last year. And they have more to invest, as the wealth of millionaires has risen at a compound annual growth rate of nearly 13 percent, from $39.8 trillion in 2008 to $72.3 trillion in 2013, "primarily as a result of the growing millionaire population base in emerging markets such as China, India and Turkey," according to the report.
The Wealth-X and UBS World Ultra Wealth Report 2014 recently disclosed that the population of ultra-high-net-worth individuals (HNWIs)-—those with at least $30 million in net assets—rose to 211,275 worldwide this year, with a total of $30 trillion in assets.
To keep pace with or beat the competition, wealth management firms have been adapting to meet the complex needs of clients by targeting their individual interests, behaviors and attitudes toward investing. Firms will need to continue to do so, as the demographics of high wealth individuals continue to shift.
For instance, millionaires age 65 and older are the second largest age group of high wealth individuals, holding about a quarter of the total asset base, or nearly $18 trillion. (Those age 45-64 comprise the largest share, with about $42 trillion, or 58 percent of assets.) Wealth managers have been increasingly focusing on retirement planning and estate and succession planning services. The focus on intergenerational wealth transfer will continue to grow over the next 15 years as more investors reach retirement age, according to the report.
"Wealth management firms can target the older HNWIs by offering them help with succession planning and philanthropic services," said Roselyn Lekdee, an analyst at WealthInsight. "As wealth is expected to be passed on from one generation to the next, intergenerational fund transfer is expected to increase," so firms should also be targeting the younger recipients as well.
While the vast majority of high wealth individuals are still men, according to the report, the number of women among the HNWI ranks is growing: last year, 12.2 percent of millionaires were women, compared with 9.3 percent in 2008. Firms in the male-dominated industry have been responding: HoyleCohen of San Diego has a separate practice group to work with female millionaires; Morgan Stanley has created a Women Financial Advisors Forum on its website; firms like Wealthcare For Women and Stonebridge Financial Advisors cater exclusively to females.
Lekdee said women have unique financial needs, with marriage, divorce and remarriage often affecting women more than men and, "during difficult times when women need an understanding financial advisor," some have chosen a person without those qualities and have felt as if they were talked down to.
"Women need a financial advisor that can understand their own needs and present them with investment options, rather than a financial advisor who is just trying to sell them some financial products," she said. "Additionally, female advisors are likely to be more compassionate and strategic towards financial planning when dealing with female clients," especially when assisting with children's education planning.
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