A Snapshot Of The US High Net Worth Investor Market - Cerulli Associates

Eliane Chavagnon

9 January 2014

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 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 , continue to dominate overall HNW assets; however, registered investment advisors , 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 ,” 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 .”

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 , the various vehicles used and long holding periods . 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.