Growth of the High Net Worth Individual (HNWI) population and wealth in the United States reached record levels in 2014 maintaining its status as the largest HNWI market globally, according to the US Wealth Report 2015 by Capgemini.
In 2014, the population of US HNWIs grew by 8.6 per cent to reach 4.4 million and overall US HNWI wealth expanded by a 9.4 per cent increase to reach USD15.2 trillion. While strong equity market performance and GDP growth propelled HNWI population increases in the 12 largest US metropolitan statistical areas (MSAs)2, the highest levels were concentrated in Texas and the West Coast. However, despite robust growth in US wealth, the preferences and behaviours of younger and wealthier HNWIs are continuing to challenge the traditional relationship between HNWIs and the wealth management firms that serve them.
US HNWIs continue to dominate the growth of global wealth, representing 29 per cent of new HNWI global wealth since 2008. Twelve US cities – Boston, Chicago, Dallas, Detroit, Houston, Los Angeles, New York, Philadelphia, San Francisco, San Jose, Seattle, and Washington, DC – represent two thirds of the US HNWI population. The HNWI investable wealth within these cities grew by USD1 trillion (10 per cent) to USD11.4 trillion during 2014. While New York remains the city with the highest HNWI population overall, the top six cities for HNWI growth were in Texas and the West Coast, driven by strong real estate market. Houston’s HNWI population grew the fastest in 2014, at 14 per cent, moving it to seventh from eighth place from the previous year’s ranking. Seattle was second in US HNWI population growth at 12 per cent while cities in the Midwest and on the East Coast grew more slowly. Chicago, suffering from a subdued economy and higher unemployment rates, had the lowest level of HNWI growth, at 7 per cent.
Triggered by lower levels of trust and confidence in their advisors, 85 per cent of US based HNWIs under-40, nearly 10 percentage points more than HNWIs over-40, say they are more likely to leave their wealth managers or firm if their needs are not being met.
The report also finds that attitudes, concerns, and investment activities of US HNWIs under-30 are even more pronounced than those of under-40 HNWIs. In particular, younger HNWIs in the US are also seeking more sophisticated financial planning services, including global investing on top of strong preferences for digital offerings and automated advice platforms. The wealthiest US HNWIs also were outliers when it came to shifting investment preferences. Motivated to seek out diverse specialties to better manage their complex financial portfolios, the report found that the wealthiest US HNWIs (those with more than USD20 million in assets) were twice as likely to work with multiple firms as HNWIs with between USD1 million and USD5 million in assets.
“The habits of younger and wealthier US HNWIs and demand for digital services point to the shifting dynamic of the traditional wealth manager-HNWI relationship,” says Sankar Krishnan (pictured), Vice President, Banking, Capgemini Financial Services. “Established wealth management firms that are able to combine high-quality advice delivered both directly from agents as well as from automated platforms will have the opportunity to raise their profile and secure market share from all segments of the US HNWI population.”
More than 87 per cent of under-40 US HNWIs expect all or most of their wealth management relationship to be conducted digitally in the next five years. While under-40 HNWI demand for digital interaction is high, it is important to recognise that nearly 50 per cent of over-40 HNWIs also preferred digital channels. HNWIs’ affinity for digital services and the wealthiest HNWIs’ desire for diverse investment options are two important drivers for developing low-fee automated investment management platforms. New entrants to the market that offer digital portfolio management and advisory services are expanding at a rapid pace with the assets under management (AUM) from the top US automated advisors increasing 265.7 per cent from March 2014 through September 2015. Automated services complement traditional wealth management firms’ offerings by offloading basic tasks giving wealth managers more time to focus on client relationships.
With US HNWIs willing to allocate an estimated USD1.5 trillion of assets to automated advisors by 2017, wealth management firms must act now to add the automated advisory capabilities HNWIs so clearly want or risk being left behind.
Female HNWIs in the US were found to have a distinct set of top concerns including fear of identity theft and personal financial crime, anxiety about the environment, and the threat of income not keeping up with inflation. Aspects of asset allocation and social impact investing also distinguish female HNWIs from male HNWIs. For example, female US HNWIs are more likely to hold cash (26 per cent) than males (21 per cent), and are less likely to hold equities (29 per cent) than their male counterparts (40 per cent). Female HNWIs also rated professional guidance in measuring social impact effectiveness as more important than males (9 percentage points). These characteristics offer new motivation for wealth management firms to begin offering services designed specifically for female HNWIs.
