Although the pool of high net-worth (HNW) Canadians with more than $1 million in investible assets is not deep, a significant proportion of those HNW individuals manage their own assets, according to a recent survey. This suggests that there is a large and potentially lucrative opportunity for financial advisors to expand their practices.
About 4% of Canadians surveyed had investible assets of more $1 million. The majority (69%) of those individuals take advantage of professional advice, but more than a quarter (26%) choose to manage their own assets.
These findings are part of the most recent edition of the ongoing Financial Comfort Zone Study, a national consumer survey conducted by Credo Consulting Inc. of Mississauga, Ont., in partnership with Montreal-based TC Media’s investment group, which publishes Investment Executive. This edition of the survey examined the characteristics of the average HNW investor and the near-high net-worth investor (NHNW), the latter of whom has between $500,000 and $1 million in investible assets.
HNW investors who are open to professional advice relationships are looking for advisors who think outside of the investment-management box, incorporate services such as tax and estate planning, and understand how to treat all facets of wealth, says Tony Maiorino, vice president and head of wealth-management services with Toronto-based Royal Bank of Canada (RBC).
“In this industry, we often think about wealth being money, but it’s not actual money. [Wealth] could be the [family] cottage, the vacation property in Palm Springs, [Calif.], the art collection,” he says. “[Wealth] could be anything the client has that is of value [and] that either needs to fund the existing lifestyle or is going to be transferred to somebody else.”
Canadians who choose to handle their own financial affairs are likely to be confident professionals who feel comfortable with the task, suggests Hugh Murphy, managing director of Credo. “There’s going to be a proportion who choose not to work with the [financial advisory] industry who are very capable,” he says. “Accountants and lawyers and the like usually are very capable individuals.”
Most HNW Canadians (62%) surveyed place their investible assets with the big banks and their affiliated investment dealers, while 38% choose to invest through independent advisors.
A greater proportion of both NHNW individuals (43%) and low net-worth (LNW) investors (44%) participating in the survey who have less than $500,000 in investible assets choose to work with independent, non-bank affiliated advisors.
“The big banks have that appearance of stability, so it confers on its advisors a degree of comfort and confidence,” says Murphy.
Regardless of the preferred advisory firm, HNW investors are looking for a plethora of investment options. They’re more likely than their NHNW and LNW counterparts to invest in private equity, real estate, stocks and exchange-traded funds (ETFs). For example, 36% of HNW investors look to real estate to complement their portfolio compared with 20% of NHNW individuals and 6% of LNW individuals.
“It is important for those investors with greater wealth to look at other investment solutions, simply from a diversification standpoint,” says Maiorino.
HNW investors are looking for diversification within their portfolios, and advisors who want to serve these investors must offer a variety of products – from mutual funds and stocks to ETFs, insurance and securities related to private placement, he adds.
The research suggests that most HNW Canadians are equipped to participate in discussions about complex products and investment decisions. HNW investors are more financially literate than LNW investors and also much more likely to be comfortable in speaking with financial professionals than LNW investors are – at 67% vs 38%, respectively.
HNW investors are used to complex financial situations, says Maiorino, who points out that the wealth of more than half of the HNW client group at RBC Wealth Management originates with the ownership of a business.
“[These clients] have confidence; they have opinions; they’re less risk-averse because they’ve put capital at risk to start a business,” he says. “They’re a little more willing to be out there to drive results.”
Nevertheless, a significant portion of HNW individuals are not confident that they will have enough money for retirement. More than one-third (35%) of HNW Canadians were in medium or strong agreement with the statement: “I’m afraid I might outlive my finances.” That percentage jumps to 43% for NHNW Canadians.
The data support Maiorino’s experience in working with HNW individuals. These Canadians tend to define their wealth around their liquid assets while excluding the value of property or possessions, he explains.
Thus, advisors have an important role in helping these clients understand their overall wealth and whether difficult decisions must be made in order to fund retirement, such as selling a property, Maiorino says.
The online Comfort Zone survey polled more than 11,000 Canadians. The survey is meant to gain insight into the relationships among financial advice, financial well-being and overall life satisfaction in Canadian society. Canadians are polled monthly, and the number of survey participants will grow to 12,000 within 12 months.
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