There are 771,120 and 62,410 high net worth and ultra high net worth households in the US respectively, according to a new report by Cerulli Associates, which looks at a number of related trends.

There are 771,120 and 62,410 high net worth and ultra high
net worth households in the US
respectively, according to a new report by Cerulli
Associates, which looks at a number of related trends.

The Boston, MA-based research firm analyzed data supplied by
the Federal Reserve and US Consensus Bureau in collating these estimates.

Combined, the firm said, the US HNW marketplace is represented
by 833,530 total households, which own some $9 trillion in investable assets.
This, it added, means that 0.7 per cent of all US households own 31 per cent of
the country’s investable assets.

Cerulli believes that the average age (62 years) of these
investors reinforces the notion that multi-generational wealth preservation and
transfer strategies – as well as “soft services” like family meeting
facilitation - are common traits among the most successful industry channels
and individual advice providers.

“The scale and scope of services offered by the
time-honored HNW providers, mainly wirehouses and private client groups (e.g.,
Goldman Sachs), continue to dominate overall HNW assets; however, registered
investment advisors (RIAs), MFOs, and, interestingly enough, state-registered
bank trust companies are gaining substantial traction,” the firm said in its
latest report, High Net Worth and Ultra High Net Worth Markets 2013:
Understanding the Contradictory Demands of Multi-generational Wealth Management.

“For many legacy providers, including wirehouses and bank
trusts, this should be considered a critical step to improve the likelihood
that heirs do not follow in the footsteps of their wealth-creating peers, who
are progressively shifting their assets to providers that offer greater levels
of flexibility and control, including direct providers (e.g., Fidelity and
Charles Schwab),” it said.

Relationship consolidation

According to Cerulli's data, HNW investors increased the
number of provider relationships they have in 2013 to an average of 4.4.

“It may seem logical to assume these actions are a direct
result of capital market performance since this trend accelerated during and
immediately after the recession. However, HNW investors have the most optimistic
economic outlook among all wealth tiers, yet the number of providers continues
to expand,” the firm said.

Rather, it cited “blemished brands and reputations” that
many financial institutions have endured. “And, as we will examine many times
over, investors and advisors contemplating relocating channels are increasingly
pursuing boutique-like service models (e.g., RIAs, MFOs, state-registered trust
companies).”

Fee compression

According to figures in the report, almost 75 per cent of
HNW providers have stayed committed to their “stated fee schedules” over the
past three years, while the other quarter reported an increase.

The most common motives for increasing fees involved offsetting
escalating compliance costs and the expenditures required to upgrade
infrastructures. Cerulli emphasized the “stated fee schedule” as there remain
major differences between HNW providers’ stated fees and the fees that are
actually being imposed, it said.

“Given the intensifying competition for HNW assets, it
should come as no surprise that a client’s investable assets continue to be the
pivotal element in determining fees,” it added.

A lucrative business line

Over half of all asset managers believe that the HNW
marketplace is more appealing than other business lines, due to the
sophistication of investors (56 per cent), the various vehicles used (53 per
cent) and long holding periods (50 per cent). Less attractive industry
characteristics include HNW providers’ required revenue sharing, pricing
flexibility and time-consuming sales processes.

“Asset managers can gain significant insights when viewing
these attributes by the individual distribution channels that are advising the
clients,” Cerulli said.