Wealth is becoming increasingly concentrated as the rich get richer, which makes the high net-worth segment more attractive to advisors and money managers than ever, Keith Sjogren, director of research and advisory services at Investor Economics Inc. told a conference of the Toronto CFA Society Wednesday.
“More than two-thirds of wealth in the high net-worth group is controlled by people with more than $1 million in assets,” Sjogren said. “In addition, high income earners are controlling more of the income. It’s no surprise that banks are putting more effort into their private client business. It reflects the concentration of wealth amongst a smaller group of people.”
In 2010, there were 339,000 Canadian households with $500,000 to $750,000 of investable assets, and 562,000 households with more than $1 million. By 2020, Sjogren projects these amounts will grow to 544,000 households with $500,000 to $750,000 and at least 900,000 with more than $1 million.
The geographic distribution of wealth is shifting to the west as resource rich provinces of British Columbia and Alberta benefit, creating a major opportunity to expand in those regions, Sjogren said. Between 2006 and 2010, high net worth households grew 5.1% in B.C., and 6.3% in Alberta, more than Ontario’s growth rate of 3.5% and the Canadian average of 4.9%.
“Alberta is gaining a greater share of the new generation of millionaires, and the average age of these millionaires is younger than the Canadian average,” Sjogren said. “Not only are there more wealthy individuals in this province, but wealth management relationships are increasingly longer term because the clients are younger.”
Between 2010 and 2020, Sjogren predicted that $738 billion in Canadian investment assets will move to the next generation. Research has shown that if assets are transferred to a spouse after death, about half of these spouses will remain with the same advisor. But if they go to the next generation, only 5% retain the same advisor.
“Holding on to assets in motion will be a major challenge in the future,” Sjogren said.
Of the assets being transferred, 35% will go to people in the 45 to 54 age group, while 30% will go to the 55 plus age group. These clients increasingly want to have a partnership with their advisor rather than simply delegate decisions, and this is time consuming, Sjogren said.
“Clients want to be closer to their money than they did prior to the 2008 financial crisis,” Sjogren said. “Meetings are taking longer and clients are showing up better prepared. They’re not just listening, they want a dialogue. Some advisors are cutting back on the number of clients they deal with because they don’t have time.”
In addition, as wealth is transferred advisors are dealing with more families than single clients or couples. Estate planning becomes more important, and this can also be time consuming.