Nearly all ultra high net worth investors recently surveyed by Spectrem understand the term "wealth management" although less than half currently use these services.

Nearly all ultra high net worth investors recently surveyed by Spectrem understand the term “wealth management,” with financial planning, investment management and tax information among the top services they think should be included in an offering.

However, less than half (43 per cent) currently use wealth management services while 39 per cent believe the term “makes them feel that they are paying too much,” the research firm said.

The largest percentage (33 per cent) described themselves as “self-directed,” (they make their own investment decisions); 29 per cent “event-driven” (they use an investment advisor for specialized needs); 28 per cent “advisor-assisted” (they regularly consult with an investment advisor but make most of the final decisions); and 11 per cent “advisor-dependent” (they rely on an investment professional or advisor to make most or all decisions).

“This provides an opportunity for the advisor to discuss wealth management services, get full portfolio disclosure and gain additional outside business while becoming the client’s wealth manager,” Sprectrem said in its latest report on the UHNW sector, entitled Asset Allocation, Portfolios and Primary Providers. “Advisors need to be careful to understand the specific expectations of wealth management services of the UHNW investor to ensure the service can be delivered.”

A total of 507 individuals with $5-25 million in net worth (not including primary residence) took part in the Q4 2014 survey. 

Investment behavior

Spectrem found that UHNW investors under the age of 42 are more likely to be aggressive in their investing. For example, 71 per cent of those surveyed invest in private equity compared to just 13 per cent of all UHNW investors. Likewise, 67 per cent invest in precious metals compared to 20 per cent of their older counterparts.

“An advisor must take care in not only understanding the risk tolerance of the young UHNW investor, but also in educating them on the various investment types and products that exist,” the firm said. “They are likely to have an interest in learning about new avenues of investing and this provides the advisor an opportunity to educate the young investor on new products and methods of tax reduction, etc. and also to strengthen the relationship between the investor and the advisor.”

Overall, 68 per cent of the UHNW investor’s portfolio is comprised of investable assets, followed by principal residence (16 per cent), according to the research. When investable assets are broken down, they largely invest in equities (59 per cent) and fixed income (21 per cent). Within equities, over 80 per cent have individual US stocks with a mean value of over $1.5 million, 40 per cent own domestic exchange-traded funds and over half own international/foreign mutual funds.

The UHNW are also more likely to invest internationally than their less wealthy counterparts, 56 per cent compared to 26 among the mass affluent, with Europe the top choice of countries in which to invest.