Financial market volatility on the back of political and economic uncertainty on both sides of the Atlantic is driving uptake of financial advice in the high net worth (HNW) space. Investors are hunting for returns, and perhaps a little reassurance, in increasingly risky parts of financial markets, according to GlobalData, a recognized leader in providing business information and analytics.
The company’s latest report analyzes asset allocation strategies in the HNW space in 17 countries. While there is no single driver influencing HNW preferences, as investment choices are determined by an interplay of factors, such as risk preference, economic forces, and investor attitudes, HNW investors are more inclined to seek professional investment advice as volatility rises.
2016 was an eventful year and 2017 is not expected to be much different. Admittedly, the VIX Index measuring volatility looks almost tired, but it is very much linked to the S&P 500 Index, and a promise of stimulus and tax cuts in the US has temporarily buoyed financial markets.
However, Heike van den Hövel, Senior Financial Analyst at GlobalData, explains: “The strength of the US dollar, concerns surrounding the sustainability of the commodity price rebound, Trump’s protectionist agenda, ongoing Brexit negations, as well as elections in a number of key countries across Europe, have the potential to significantly upset markets.”
Indeed, volatile markets represent an increasingly important challenge to the global wealth management industry, as the disconnect between financial markets and economic fundamentals deepens, and providers struggle to achieve decent returns for clients.
However, according to GlobalData’s research, 82% of wealth managers believe that HNW investors are becoming more inclined to seek professional investment advice because of market volatility. The trend will be seen particularly in developing countries such as China, South Africa, and the UAE, where uptake of advice is currently low.
Van den Hövel explains: “This trend is magnified by HNW investors’ increasingly complex portfolios and growing allocations to more complex alternatives. Millionaires’ self-directed investments are allocated mostly to straightforward securities or non-financial asset classes such as real estate, meaning the shift towards alternatives reinforces a desire for professional advice.
“However, only those wealth managers that can offer a wide range of investment products, including sophisticated and exclusive alternative investments, will be able to capitalize on this trend.”
– Information based on GlobalData’s report: HNW Asset Allocation Trends 2017.