For most of the 2010s, times have been good for those in the HNW wealth management field. If you read reports or news updates on HNW wealth advisors, you’ll see a similar story emerge: total assets under management and returns for HNW clients have been growing throughout the decade, along with profits for their advisors.
However, after years of growth, the HNW wealth management field is facing a more uncertain landscape. Investor outlook has turned toward the possibility of continued market turbulence, and some are looking for new strategies to address the possibility of a downturn.
In the midst of this changing environment, there are several important trends that all advisors in HNW wealth management should track to ensure they are well-positioned to seamlessly address client concerns and drive business opportunities forward.
Throughout 2019, there has been a growing sense of uncertainty about most Western economies. Public stock markets have witnessed significant volatility. There has been additional international political turbulence, as the status of the United Kingdom, with respect to the European Union remains unresolved and trade tensions between the United States and China have continued to escalate.
As the longest bull market in the history of most western markets continues, the question on many minds is how much longer it will go on – and there is no obvious answer. This market uncertainty has been driving HNW investors to seek diversity in their investment portfolios to hedge against overexposure to potentially impacted sectors.
In addition to diversification across asset classes, HNW investors are seeking diversification across regions and alternative investment opportunities. Advisors in HNW wealth management need to be prepared to propose alternative investment strategies and align on investment goals in uncertain markets.
Alternatives to stocks and bonds – including real estate and private equity – represent a growing part of HNW investor portfolios, and direct stakes in smaller and private companies that require active participation are also becoming more common.
Social Investing among Younger Investors
There are other sources of interest in alternative forms of investment that HNW advisors need to track, one of which is the rise of social investing among millennials. Aimed at delivering specific social outcomes as well as positive financial returns, impact investing has grown among all groups in recent years, but younger investors have been at the forefront. Many of these investors are interested in causes related to the environment, social issues, or corporate governance (ESG). There is also a growing demand for transparency about social impact alongside return on investment.
Knowing the composition of a fund has become more important and has led to funds structured to provide investment opportunities to socially conscious investors. Many of these funds have had as much success as those not structured to target specific securities based on investor values, and the area is likely to see continued growth. Offering investment opportunities that align with these client values has moved into the mainstream. As a result, HNW wealth advisors will continue to provide opportunities for investment that have a tangible social impact.
Changing Reporting and Compliance Standards
In addition to growing market complexity, diversity in investment opportunities and rising interest in social investing, HNW wealth advisors need to track changes in tax regimes across many of the countries in which their clients live. There have been significant tax law changes in the U.S. and other countries, as well as a growing focus on transparency and reporting. HNW individuals and families with holdings and business interests across multiple countries need ensure they are maintaining compliance to make sure they do not find themselves on the wrong side of government or public opinion.
One change that HNW wealth managers need to track in 2019 is expanded adherence to the common reporting standard (CRS) across many countries in the Organization for Economic Co-operation (OECD). Initially developed in 2014, the CRS governs transfer of financial information across member countries. Many member nations began reporting in 2017 or 2018, with more to follow.
CRS is intended to limit tax evasion among member countries, but its impact on international investment is not yet clear. Advisors working with clients to help identify new international opportunities or to help geographically diversify portfolios need to weigh the potential returns against the tax implications of investment in participating regions.
Each of these trends represents a broader theme: HNW investors are looking for alternatives to the standard investment options to layer into their portfolio and drive returns in an uncertain market for public equities. They are doing so in new economic and regulatory environments that require advisors in HNW wealth management to invest more time evaluating and bringing these opportunities to their clients. Those that do so will be well positioned for the rest of 2019 and beyond.