High net worth investors’ attitudes to risk, their willingness to use technology, and views on responsible investing all changed drastically because of the COVID-19 pandemic.
FactSet, a global provider of integrated financial information, analytical applications, and industry-leading service undertook its fourth consecutive survey into the behaviours and preferences of wealthy investors to gain a better understanding of the impact of the COVID-19 global pandemic on the wealth management industry. FactSet, in association with Aon, conducted a global online poll of investors with an average net worth of $1.6 million across five markets (the US, Canada, the UK, Switzerland, and Singapore).
Key findings from the research study include:
• Female investors are bearing the brunt of a challenging market environment. Women now look at their wealth and investments very differently compared with pre-crisis. Twenty-eight per cent say that they have become more risk averse because of 2020’s volatility, compared with one in five men. Thirty-five per cent of women are under pressure to reduce the daily spend. Female clients also cite a wider range of worries about their financial plans than men.
• Female clients’ expectations of the investment process have also changed since the crisis. Volatility is a primary concern for women, but not for men. Female clients have a new set of emerging portfolio priorities, including managing the risk of unsustainable levels of corporate debt (a concern for 77 per cent), adjusting to a lower dividend environment (74 per cent), and avoiding inflated valuations (74 per cent).
• The emerging threats to clients’ wealth creation vary widely by market. While there is broad consensus on the portfolio opportunities, with HNW investors in all five markets highlighting domestic and international stimulus as positive developments, different threats are perceived on the horizon. Clients in the US, the UK, and Switzerland are more focused on low and negative interest rates; those in Singapore worry about the changing dividend environment. In Canada, market volatility is the key concern.
• Diversification is now considered just one of several ways to mitigate portfolio risk. While 90 per cent want to maintain a balanced and diversified portfolio, 85 per cent of HNW clients prefer to invest principally in companies which they know and trust. Similarly, three-quarters are seeking stocks in companies that have strong ethics.
• A clear digital divide is emerging in the wealth management industry, with 42 per cent experiencing no online pain points but the remainder seeking improvements. For example, 30 per cent of investors in Singapore – who tend to be younger and more likely to self-identify as “Early Adopters” of wealth technology – cite security concerns in their digital experience. Adoption of other digital capabilities is low, with 58 per cent of investors overall choosing not to use at least one of the tools provided to them by their wealth managers, even though those who use these analytical tools report higher financial confidence.
• Clients want a 50:50 split in their digital and physical interactions with wealth firms once social distancing is eased. Fifty-four per cent of HNW clients’ wealth management activities took place online during the height of the pandemic, and now 46 per cent say digital wealth management is a better use of their time, rising to 50 per cent of US clients. More than a third of Millennials (under-35s) value the improved access to research and insights.
• 61 per cent say that a transparent investment process is the most important proof point of a responsible wealth management organisation. In 2016, this ranked second, after transparency in business performance. Millennials continue to have a broader frame of reference than other clients and are more likely to consider customer feedback and satisfaction, the use of socially responsible investing screening, and company statements on culture.
• Globally, investors’ perceptions vary widely on the definition of responsibility. Responsibility in wealth management is considered important by more than two-thirds of North American HNW clients. In Switzerland, investors are more focused on companies’ carbon footprints, diverse and inclusive workforces, and fair treatment of employees. In Singapore, clients reference companies’ corporate social responsibility (CSR) initiatives.
• Forty-three per cent of HNW clients can point to at least one recent socioeconomic trend they want (but have yet) to discuss with their advisor. This rises to 49 per cent of Millennials and 53 per cent of Generation-X (aged 35 to 54). Corporate conduct during the pandemic and environmental issues are front-of-mind global topics that clients expect to connect to their wealth management.
• Seventy-two per cent of investors are interested in learning more about responsible investing. Millennials are paying more attention to operational and reputational risk, demanding company insights on supply chain practices, labour treatment, and carbon emissions. Gen-X and Baby Boomers (aged 55-75) are more focused on governance insights, such as management profiles, executive pay, CSR efforts, and even political contributions.
Calls-to-action for the wealth management industry:
1 Help clients visualise their portfolios and understand how their risk profiles may have evolved
Eighty-two per cent of HNW clients see continued disruption from the pandemic as the greatest short- to medium-term challenge for their portfolios. To reassure them about the future, wealth advisors need tools that help clarify the investment process behind the screening and selection of securities for their portfolios.
2 Capitalise on client willingness to continue embracing digital
The pandemic has revealed investors’ widespread willingness to explore digital channels. HNW investors foresee an advisory model of 50:50 digital and in-person interactions, which could reduce the cost of serving and improving the overall experience. Complex and sensitive financial planning activities are likely to remain the focus of in-person advice.
3 Bridge the gap between in-person and digital interactions
A top technology pain point for HNW investors is maintaining a meaningful relationship with their advisors. Accelerating demands for self-service must be balanced with advisor communication tools and guidance to empower clients to act with confidence.
4 Pay attention to clients’ fast-evolving views of responsible wealth
Wealth managers need to ensure that their data, insights, and ratings deliver a well-rounded view of client investments, including in areas that are not yet easily measured.
5 Provide clients with data on governance at the companies in which they invest
Reports on corporate governance and executive pay are important proof points of responsibility for clients. Advisors will need to strengthen their monitoring and company profiling data to capitalise on rising interest among all cohorts in responsible investing.