What High-Net-Worth Clients Value and Need

Research by U.S. Trust on the attitudes and preferences of high net worth (HNW) individuals finds that their approach to investing and building wealth is shaped by their priorities and outlook, which in some cases is preventing them from planning properly to reach their financial goals.

The 2015 U.S. Trust Insights on Wealth and Worth survey identifies what the wealthy consider to be essential to a life well lived, ranking health, family and financial security as key. The research is based on a nationwide survey of 640 HNW individuals with at least $3 million in investable assets. (For more, see: How to Attract High-Net-Worth Individuals at Your Practice.)

“The wealthy are driven by a sense of purpose and desire to succeed, but what makes life fulfilling is not money; it’s what they do with it,” said Keith Banks, president of U.S. Trust, in a statement. “As wealth managers, we have the opportunity to not only help our clients grow their wealth, but also to help them plan accordingly.”

Here are some of the key findings from the survey that financial advisors should consider when giving wealth management advice to or seeking out high net worth clients. (For more, see: Asset Protection for High-Net-Worth Individuals.)

The research found that a majority of the wealthy seeks advice on one technical aspect of planning, such as portfolio performance and tax and estate planning. But only about one-third are talking with an advisor about strategies around the goals they consider to be fundamentally more important. These include identifying family needs and goals (36%) and planning for increased longevity (34%). Even fewer are having discussions about the strategic use of credit (21%), strategic philanthropy (18%) and investing for social impact (11%).

Those who are getting professional advice are farther along on measures they describe as essential to a fulfilling, meaningful life. They feel more financially secure and less conflicted by competing priorities. They are also more likely to say that their family has a healthy relationship with money and their actions are in greater alignment with their intentions when it comes to growing, preserving and passing on wealth and making a difference in the world.

HNW investors are slightly more optimistic in their outlook on the markets this year than last, but their views remain mixed. Millennials and women are the most uncertain and concerned about losses. While more than half (55%) of HNW investors say their greater priority is growth over protection of assets, 64% aren’t willing to seek higher returns if it means more risk. (For more, see: Top Tax Issues for High-Net-Worth Individuals.)

Six in 10 have more than 10% of their portfolios in cash, including 22% with more than 25%. Four in 10 have moved or plan to move even more of their investments into cash in anticipation of rising interest rates. About 20% are looking for advice on the best way to invest in a low-interest rate environment. But only 34% are having discussions with financial professionals now on how to do this.

While men and women are focused equally on growing their wealth, U.S. Trust found that women are more conservative, with 25% of their portfolios in cash. Women also are less likely than men to describe themselves as opportunistic investors and strategic users of credit as a way to grow their wealth. Most of the wealthy, younger HNW investors in particular, either currently use or are interested in adding non-traditional assets to their portfolios, including private equity and venture funds (48%). Seven in 10 own or are interested in owning tangible investments such as land, real estate, oil and gas properties and timber, primarily to diversify their portfolios. The study points out though that a lack of understanding and perceived risk is holding back one in three HNW investors from these types of investments. (For more, see: Diversification Beyond Stocks.)

The survey found that while three in four wealthy parents say it is important to leave an inheritance to the next generation, only one in five agrees strongly that their children will be prepared to handle it. Nearly two-thirds of parents, meanwhile, have revealed little or nothing about the family’s wealth to their children. This is mainly because they are concerned that it will affect their work ethic and family privacy. Even though 54% of the wealthy believe their family would benefit from developing a formal set of principles to guide the purpose and meaning of their wealth, only one in 10 has done so.

Here are some of the other key findings advisors should keep in mind: (For more, see: A Quick Guide to High-Net-Worth Estate Planning.)

• Health is the No. 1 element to “a life well lived.” In fact 98% agree that the most valuable asset they have is their health, and investing in health is as important as investing to build wealth.
• Nine in 10 respondents are willing to spend more money on their health and 31% over age 70 say they would spend any amount if they could have good health. Despite this, half have not planned financially for an unexpected or degenerative health issue.
• If long-term care were needed, more than half of the wealthy expect to stay in their own homes. Another 23% would move to a luxury long-term care facility. But 445 of respondents with long-term care plans haven’t planned yet for the cost of that care, including out-of-pocket health care expenses.
• Overall, 28% of respondents and 53% of millennials say that their wealth comes at the expense of their health.
• The younger generation is focused primarily on work and financial security. Health and family become more important later in life. Nearly six in 10 of survey participants overall, and 83% of millennials, say they struggle to balance priorities across their work, family, social and financial lives.

Many HNW individuals are not consulting advisors on areas they consider a priority. When it comes to managing their wealth, advisors need to focus in particular on making sure wealthy clients have a proper legacy plan in place. They should also manage their risk tolerance so that priorities such as growth over protection of assets is met. (For more, see: Why Advisors Should Focus on Wealthy Workers.)