Wealth in Australia: HNW Investors 2017

Table of Contents

1. EXECUTIVE SUMMARY 3

1.1. Australian HNWs come from a range of different backgrounds 3

1.2. Key findings 3

1.3. Critical success factors 3

2. PROFILING THE AUSTRALIAN HNW INVESTOR 9

2.1. HNW investors who have accumulated their fortunes through earned income remain the largest segment 9

2.1.1. The vast majority of Australian HNW investors are approaching or have reached retirement age, making wealth preservation strategies key 9

2.1.2. Professionals dominate Australia’s wealth market, but entrepreneurs are also a lucrative target market 10

2.1.3. The financial services industry is the main wealth generator, but mining remains important 11

2.1.4. Australian HNW investors are more likely to hold director roles than their peers in the wider region 12

2.2. Expats are a below-average but lucrative segment in Australia 13

2.2.1. Expats constitute

8.3% of the local HNW population 13

2.2.2. Stricter investment criteria under the Significant Investor Visa has resulted in a drop in applicants 14

2.2.3. HNW expats from the UK and Asia Pacific represent an attractive target segment 15

2.2.4. Fear of having insufficient control and steep forex fees motivate HNW expats to invest in Australia 18

3. HNW INVESTMENT STYLE PREFERENCES 19

3.1. A lack of time is driving uptake of advice 19

3.1.1. Australian HNW investors use an average of two wealth management firms 19

3.1.2. Lack of time is motivating HNW investors to seek professional advice 20

3.1.3. The majority of HNW wealth is kept in advisory mandates 21

3.1.4. However, a multi-asset management strategy is key in Australia 22

3.2. Automated investment services are not a threat, but an opportunity 23

3.2.1. Demand for automated investment services is on the rise 23

3.2.2. Investors’ reluctance to relinquish control means that advisory mandates will maintain their leading position 24

3.2.3. Cost considerations are driving uptake of self-directed services 26

4. UNDERSTANDING ASSET ALLOCATION TRENDS AMONG AUSTRALIAN HNW INDIVIDUALS 28

4.1. A desire to further diversify their portfolios will drive uptake of alternatives among HNW investors 28

4.1.1. Equities dominate the typical HNW portfolio, exposing it to greater volatility 28

4.1.2. Equities constitute almost half of HNW investors’ managed wealth 29

4.1.3. Bond investments have decreased in popularity over the past year, and will continue to do so 31

4.1.4. Cash and near-cash investments constitute a significantly smaller part of the Australian HNW portfolio than in the wider region 33

4.1.5. Some work has to be done to convince investors of the benefits of alternatives 38

4.1.6. Commodity investments are of little interest to Australian HNW clients 40

5. HNW PRODUCT AND SERVICE DEMAND 43

5.1. Wealth managers should lead with financial planning and SMSF services 43

5.1.1. Superannuation is a critical element of wealth management, even for HNW investors 43

5.1.2. A multi-service proposition is key to competing in Australia’s HNW market 44

6. APPENDIX 46

6.1. Abbreviations and acronyms 46

6.2. Definitions 46

6.2.1. Affluent 46

6.2.2. HNW 46

6.2.3. Liquid assets 46

6.2.4. Mass affluent 46

6.2.5. SMSF 47

6.2.6. Superannuation 47

6.3. Methodology 47

6.3.1. GlobalData’s 2016 Global Wealth Managers Survey 47

6.3.2. GlobalData’s 2015 Global Wealth Managers Survey 47

6.4. Bibliography 48

6.5. Further reading 48

List of Tables

Table 1: Significant Investor Visa statistics, 2017 15

Table 2: Central bank interest rates, April 2017, and inflation rates, 2017 35

List of Figures

Figure 1: The average Australian HNW investor is male and above the age of 50 10

Figure 2: Professionals dominate Australia’s wealth market 11

Figure 3: The bulk of HNW investors have sourced their wealth from the financial services sector 12

Figure 4: Director is the most common title held by Australian HNW individuals 13

Figure 5: Expats represent a below-average proportion of the Australian HNW population 14

Figure 6: UK migrants dominate Australia’s HNW expat market 16

Figure 7: Credit Suisse targets HNW expats in Australia 17

Figure 8: HNW expats residing in Australia want to stay in control of their investments 18

Figure 9: Australian HNW investors prefer to work with two wealth management firms 20

Figure 10: Lack of time drives financial advice uptake, making convenience an implicit part of a wealth service 21

Figure 11: The majority of HNW wealth is in advisory mandates, meaning it is a critical element of every wealth manager’s offering 22

Figure 12: Australian HNW individuals demand advisory mandates, reflecting a desire for control 23

Figure 13: Demand for automated investment services is forecast to increase 24

Figure 14: HNW investors are reluctant to relinquish control over their investments 25

Figure 15: Australian HNW investors self-direct at least some of their wealth to avoid management fees 27

Figure 16: Australia’s HNW investors are heavily exposed to equities, although future growth will be in other asset classes 29

Figure 17: HNW investors prefer direct equity holdings, making market access a hygiene factor 30

Figure 18: Capital appreciation opportunities and dividend income are the top drivers of equity investments 31

Figure 19: HNW investors allocate just 7.3% of managed wealth to fixed-income products 32

Figure 20: Demand for fixed-income products is set to decrease 33

Figure 21: Less than 13% of managed HNW wealth is held in cash products 34

Figure 22: Already low HNW demand for cash products is expected to stagnate 36

Figure 23: Offering REITs is a must in Australia given the country’s strong property market 37

Figure 24: Rental income is the key driver of property investments 38

Figure 25: Alternatives constitute a minor proportion of the typical HNW portfolio 39

Figure 26: Diversification benefits are driving demand for alternatives 40

Figure 27: Commodities are of little interest to Australian investors 41

Figure 28: Commodity holdings are forecast to remain low 42

Figure 29: Financial planning services experience by far the strongest demand 44

Figure 30: Already strong HNW demand for financial and pension planning services is forecast to increase further 45