Although ultra high net-worth (UHNW) American investors spend a considerable amount of time thinking about their financial goals, this may be of little benefit if they fail to utilize the services of a financial advisor fully, suggests a study produced by Oaks, Penn.-based investment manager SEI Investments Co. and London, U.K.-based Scorpio Partnership, which specializes in providing market research on high net-worth individuals.
The research, which focuses on the attitudes and behaviours of UHNW Americans toward their investments, finds the average UNHW individual spends 15 hours a week thinking about his or her financial goals. However, 38% of these UHNW American investors refer to themselves as self-directed investors while only 23% report only using a financial advisor for assistance with complex investments.
“These individuals lose the benefit of a boardroom approach to wealth management, which features a single trusted advisor who leverages a deep understanding of the client family and financial expertise to meet client objectives and goals,” the research states. “Indeed, on average, UHNW are $10.8 million away from achieving their life’s financial ambitions, reflecting that a self-directed approach is not facilitating the financial freedom that UHNW individuals are seeking or expecting.”
Jeff Ladouceur, director of SEI Private Wealth Management, argues in a statement that wealthier investors have a greater need for this “boardroom approach” and that without the help of an advisor, UHNW investors will spend most of their time tracking relative performance and not planning on how to put their wealth to use.
The study also finds that UHNW investors have high expectations for their portfolio returns although their anxieties and actions toward those investments represent a stark disconnection in their attitudes.
Specifically, UHNW investors in the U.S. believe their investments will grow, on average, by 15.8% in the coming year. That level of return is generally associated with greater market risk, the research notes. However, 59% of respondents say their biggest anxiety is running out of money.
“It is not surprising that investors want to have their cake and eat it too. However, it’s dangerous to become overly focused on double-digit returns at the expense of preservation goals like future lifestyle,” Ladouceur says. “It remains crucial that families create well-defined and measureable goals supported by portfolios specifically designed for preservation and growth objectives.”
UHNW respondents under the age of 40 are expecting greater portfolio growth of 24%, but 44% report running out of money as their top concern. Those between the ages of 40 and 59 expect 14.2% growth in their portfolios, yet 65% are worried they will run out of money.
UHNW Americans are also anticipating an increase in their spending. Many respondents under the age of 40 indicate that their spending will jump dramatically, with 22% saying their spending is likely to increase between 25% and 49%, and 7% of respondents stating their spending will jump by at least 50%.
“Again, the results are incongruous,” Ladouceur says. “The same respondents who expect a high rate of return are the same respondents who fear their spending will outpace their returns. A lack of alignment between portfolio goals and capital uses is clearly evident.”
On the other hand, the older UHNW group, which expects lower returns, is more nervous about losing money and is expecting a much less dramatic increase in spending. More than four-fifths (82%) of these respondents say their spending will increase by less than 25%.
The data in this digital survey come from the responses of 275 UHNW American investors, with each respondent having an average amount of $18 million in financial assets.