How to tackle the unmet advice needs of high-net-worth investors

On a recent episode of The IFA Show, Matt van Dijk, General Manager Distribution Queensland/Northern Territory at Praemium, joined host Maja Garaca Djurdjevic to delve into the  world of high-net-worth (HNW) investors.

Recent Praemium research revealed a surprising statistic: a staggering 53% of HNW investors desire better tailored advice. As the number of HNW investors and their combined investable assets (currently exceeding $2.8 trillion) continue to climb, Matt sheds light on these unmet needs and how advisers can effectively address them.

With a hefty $1.9 trillion projected to be transferred from HNW investors to their children, and over half of these investors are currently managing inheritances themselves, there's a clear need that advisers can position themselves to meet. 

Tune in now for more great insights.

Transcript

Maja Garaca Djurdjevic : 0:19

Hello, hello and welcome to the IFA podcast. I'm here, the editor for IFA. I have a very special guest joining me today. His name is Matt van Dijk and he is the general manager for distribution in Queensland for Praemium. Welcome to the show, Matt. How are you doing?

Matt van Dijk: 0:38

Doing very well. Maya, Thanks for having me along.

Maja Garaca Djurdjevic : 0:40

No worries at all. Thanks for making time in your busy schedule to join me today from not so sunny Brisbane today. But, matt, before we sort of get started and get into the nitty gritty of our conversation today, can you tell me a little bit about yourself and how you sort of got to where you are at Praemium today? Ok, sure.

Matt van Dijk: 1:04

Look, I've worked in financial services for just a tad over 20 years now. I think, like a lot of good people, start off as a commercial teller for one of the banks before moving into an investment advisory role, so working from an investment in advisory capacity for a number of years, and then, shortly after I commenced my postgraduate studies, I focused on more distribution roles and trying to reach a wider audience. Quite happy to say that I did complete my Masters in Applied Finance and I specialised there in investment analysis, focusing particularly on how behavioural finance affects investment decision-making outcomes and also really testing some of the trisms around sustainable investing and what that means for long-term returns for investors. So it's a really great way, I think. In the current role, I work for and look after a team of consultants and it's great to be able to try and really benefit people in our community by providing better financial outcomes, better investment outcomes to advisors and their brokers and people that deal with them and make sure that people can be better off as a result for dealing with all those parties.

Maja Garaca Djurdjevic : 2:07

So two decades in the financial services space. You've certainly seen a lot sort of go down in this space. We've had a lot of changes, particularly in the financial advice space. Has it been sort of tough on you personally with all the changes in regulation and sort of making that move throughout the banks and then to premium where you are today?

Matt van Dijk: 2:32

Yeah, look, great question, I think, really any sort of. Personally speaking, if I'm not challenged by something, then it's probably not something that I'll find myself doing, and my view on change has always been that I'm probably more worried about things staying the same rather than things actually changing. One of the really great things that I've been able to observe, particularly over probably more the last five to 10 years, has been the improvement through a lot of advice networks on what good investment management really ought to look like, and I think part of that's come certainly with the lifting of the education standards that's been rolling through, but also probably the work that people like ourselves, our peers, competitors have been doing to really try and help educate advisors on what they can do to deliver the right risk, return outcomes and the right portfolios to meet clients' needs. So it's actually been great to have been a part of the journey and hopefully provide a little bit of influence along the way.

Maja Garaca Djurdjevic : 3:27

Definitely Now. Matt Praemium has undertaken research on the high net worth investor over the last few years and has a large client base of advice firms that service this investor segment. Can you share some of the key insights you've discovered in this research?

Matt van Dijk: 3:46

Yeah, so this is going to be an interesting one to sort of choose where to start. We've been sponsoring this research. Now we're in our fourth year. We've done it for the last three years in conjunction with investment trends. What we've seen is that the high net worth investor segment in Australia has really continued to grow over time. They now account for somewhere north and the number will change, I think, depending on who you look at but somewhere north of about $3 trillion in actual investable assets. That's excluding superannuation and property. So it's a really important segment of the advice industry.

Matt van Dijk: 4:20

We're seeing more and more advice groups start to look at how do we focus on this and meet the needs? What have we got to do differently for this particular client segment? Part of the reason behind that is that there are a very clear segment in what we would call high net worth investors. It starts when you see people grow out of what I would call the mass affluence segment and you look at the emerging high net worth that have about $1-$5 million worth of assets. Now they've often sort of accumulated those assets and those investments is very different to where you would see the more established sort of private client type of investor right through to significant high net worth investors of $7100 million plus worth of investable assets For a firm.

Matt van Dijk: 5:06

It's really about deciding how do we meet those needs? What are understanding really what their unmet needs are? Look, I don't get out much anymore so I find some really interesting stats out of this, but there's around a bit over half of high net worth investors that really say they are in need of quality advice and they're quite open to that. But it's a matter of firms really understanding where they differ to maybe, if I can call it, a retail offering from a legislative perspective and what that looks like, and making sure that for owners of firms or senior advisors in firms, if they put their commercial lens on, it's understanding what have we got to be doing about our strategic competitive advantage, what's our client value proposition to really look after this segment? And that's going to come from understanding what they value, what they find important and what's going to make them seek advice to either confirm or validate some of their investment decisions.

Maja Garaca Djurdjevic : 6:04

Well, that's very interesting and from what you're saying there, it seems like it's not your typical approach to advice, where you outsource the decision to an advisor right.

Matt van Dijk: 6:16

We think there's probably about three key segments that come through. You will actually get a group that quite rightly we would call the Delegator, and they're going to be the people that either are genuinely not interested they understand that their skills and talents lay elsewhere around portfolio management and they're going to be looking to partner with someone on a very deep and rich level to look after that portfolio. That accounts for somewhere between about a fifth to a quarter of all high net worth investors, so it's not an insignificant number. On the opposite end of the scale, you've got people who often won't spend a lot of time with advisors, and often because they won't perhaps understand where they can help, and I'll talk about the middle segment next. We've got to remember that for a lot of high net worth investors the average age is 60, I believe 60 or 61 is the average age of someone who would be considered a high net worth investor. But that number is actually coming down and that's often driven particularly through the transfer of wealth between generations, as it's coming down now from sort of the boomer's to either the X's, the Y's and the millennials that segment that often won't talk to an advisor just yet. If we look at that average age, we've got to remember that A lot of these clients are some of the most investment savvy that they've ever been. They've taken part in some of the big IPOs and floats, they've held direct shares, they've held multiple properties, they've often run their own businesses. They're often not without a fair degree of savviness and understanding, but often some of the more detailed nuances, education and understanding on how they can really create a better or more risk return-aligned portfolio isn't something they do, but they'll stick to their knitting and what they're comfortable with.

Matt van Dijk: 7:56

You do see a large part of the segment, which is about 40 to 50% of what we call our validators, and it's this segment that's really interesting in that you can add a lot of value to, particularly because they may be comfortable making some investment decisions themselves, and particularly while they've got the capacity to do so.

Matt van Dijk: 8:13

Obviously, as you've got an aging population and people holding a lot of wealth and age, there are capacity issues that come in certainly from not only the ability to make decisions from an investment perspective, but also then whether they've got the capacity to act as either a trustee or a director of a company.

Matt van Dijk: 8:30

But it's these validators that are really looking to partner with advisors and firms that can share information, share insights and give access to opportunities that they might not be able to take off the street and that might be looking at certain types of assets or asset classes.

Matt van Dijk: 8:46

Certainly, we've seen an uptick in interest in assets like OTC bonds and people trying to capture opportunities where the size of the parcel or the time that you may need to remain invested to have a better chance of not collecting the return from that investment is much easier when you've got that larger amount of wealth to consider investing.

Matt van Dijk: 9:04

So the validator segment is a really, really important one for firms who are operating this space now and trying to say how can we do things better, or for firms that would like to move into the space to say how can we cater for not only investment management, where the advisors are used to the client giving them some money to look after, but how can we also cater to the investment administration? How can we provide good reporting that allows people to really make great decisions? I think reporting often seems a hygiene issue rather than a great decision making tool, and that's certainly something the segments after is being able to look at their assets that they might be managing themselves, but be able to work with someone to identify underperforming assets or opportunities that they may have to invest that they wouldn't have normally considered themselves.

Maja Garaca Djurdjevic : 9:52

And you talked about this segment having unmet advice needs. Can you go into a little bit more detail as to what those particular advice needs are?

Matt van Dijk: 10:01

Absolutely, and look, the number one unmet advice need across every single segment of high net worth investors is around inheritance and estate planning. It's their top unmet advice need, and I was talking just before about the intergenerational wealth transfer, which is a topic I think most of the audience would be reasonably cognizant of and aware of, and so that's not really surprising. What these investors are really looking for is how can they support and educate their children to manage the wealth when they're going to inherit it, and that's a really challenging one. I think one of the. If I look at my social circles and people ask me, what do I do? How do I do it, I have to remind them that there's a lot of knowledge that my team have. We can take and help what advisors have.

Matt van Dijk: 10:47

I think one of the greatest thing advisors can often forget is that their expertise and what they're able to do every day is because they've done this often for a very long time, and they can sometimes forget that it's something that is not a skill that people are born with. They need to be taught and inherited, and there's a lot of value that they can really deliver their clients by sharing some of that knowledge that's in place and so being able to bring the family together, and it can start from a very, very early age. I often like to give the example of how I run a couple of very simple ETF portfolios for my children that I started when they were quite young, and the idea is to be able to show them the impact of contributions and volatility and the benefits of diversification over a long period. So when they're 18 or 21 or 25, depending on how mean I'm feeling at the time and we hand the money to them, they've been able to really see and participate and be involved with some core financial theories and principles, and do it in a tangible and meaningful way. So that's a very simple example, but it's absolutely true as well. And then it becomes even more relevant once you're dealing with larger amounts of wealth, often complex tax structures, entities and multiple layers that get involved. So that's a really, really big one. The next biggest one is probably no surprise to many, but also strategies to reduce tax. That's something that's fundamental to a lot of investors and there's a lot of interesting reasons why that's important to them.

Matt van Dijk: 12:10

The next one is that, and probably more, an important note to make is that when we look at the emerging high net worth or emerging affluent and the established affluent.

Matt van Dijk: 12:20

They do have slightly different advice needs. The emerging affluent will really have a much greater focus on retirement planning because they're often coming from a salaried or small business background. Retirement is a very ingrained concept for these investors. That's going to be a different conversation when you're looking at planning for regular income as opposed to a more traditional high net worth clients, where there's going to be more of a focus on protecting and maintaining wealth rather than thinking about wealth from an income replacement perspective, because they've generally got more than enough money to cover, they've met their needs and it's now they're one, or it's thinking about how do we avoid the third generation trap problem, where you can pass money to the second generation, which often understands how it was accumulated and they value it, but often the third generation has never seen the trials and regulations that the earlier generations have gone through. They don't value or appreciate what it took to get to that position in life as much and can often struggle to maintain the family wealth, A category you mentioned.

Maja Garaca Djurdjevic : 13:25

they're not so worried about retirement planning.

Matt van Dijk: 13:27

They're probably quite well off and retired already. You do actually touch on a really good point there, I think too, because when I think about some of the firms that I'm fortunate enough to work and consult with here in Brisbane and my time that I spent in Sydney, a lot of these clients will be thinking about how do we find meaning and purpose in our lives, and that's often going to be through some sort of philanthropic or charitable work. When I look at the businesses that I think are great examples of private client management done well, a lot of them will have senior advisors or firm owners working with charities and participating on the boards of philanthropic trusts and the like themselves. So there's a lot of commonality then between their clients and what they're thinking about and how they want to participate and give back to their community and what the firm is actually doing themselves.

Maja Garaca Djurdjevic : 14:19

Yeah, definitely, we've been talking about the wealth transfer. So, according to premiums research, australia's wealthiest investors have around 2.8 trillion in investable assets and, with the intergenerational wealth transfer likely to accelerate over the next decade, that's a significant sum of money to potentially shift from that one generation to the next. So how can advisors support this wealth transfer?

Matt van Dijk: 14:46

It's an incredible number. It's something. If you talk trillions, most people can't get through it and it's actually hard to picture amounts a lot less than that for many, many people and this is for our audience today, certainly for you and I that work in the field. We can think about millions, possibly billions, but you get up to trillions and it almost becomes an abstract right.

Maja Garaca Djurdjevic : 15:08

Exactly.

Matt van Dijk: 15:09

We're expecting about half of that money to go to the children and really out of that group, a lot of them have already inherited wealth themselves along the way. So the challenge for advisors is that over 50% of those inheriting wealth are already managing an inheritance themselves and 20% have said that there was never an advisor involved for either party. So there's absolutely an opportunity to capture this market, and that then comes back to some earlier comments around. Can you really articulate what your competitive advantage is and what your client value proposition is? But only 15% of those clients when we were polling them over the years said that they intended to continue using the existing advisor of the benefit factor. So that's been a real concern that some really good business from an advisor could walk out the door and if they've got an older client base, that puts them at real risk. I was part of a presentation recently and there was a great business consultant looking at how the advice businesses were valued and really, as soon as a client hit 70, and this shouldn't be taken as an agist comment but just purely commercially any client over 70 has a high risk premium put on the value that it would contribute to a business as a result of that, and the other real problem is. This is, I think, and looking back at that, my time on the tools.

Matt van Dijk: 16:33

Money is often the last great taboo for many people. When a client talks to an advisor about their balance sheet, their income and expenses, they inevitably tell the advisor things that they've never talked to anyone else about, sometimes not even their family about, and so when that wealth is passing from one generation to the next, the existing advisor is genuinely and often the best person to help subsequent generations with managing that money because they know the family so well. And so it's a real shame to think that you might have some great connections and relationships and someone who's perfectly capable of supporting the family on a continuing basis maybe not get a look in and there are ways that you can address that. When you're looking at and I think, two things maybe to consider if you're attracting the current investor segment, because a lot of them are going to be in their 60s and 70s, and attracting the recipients of the transfer are going to be in their 30s and 40s, you might need to really think about sorry, there's no might you really should think about how you're engaging with those two different demographics, because the type of advice, the conversations, the way they want to engage is going to be very, very different. And demonstrating the value that your advice can deliver to the older generation, that's going to be a different proposal.

Matt van Dijk: 17:48

Where it really might be around then, supporting the inheritance, the estate planning, providing education for the beneficiaries, tax effective strategies and the younger generation.

Matt van Dijk: 17:58

And again, just in case anyone doesn't know this, I'm going to tell everyone right now if you can't get access to your financial information on your phone, it's frankly weird for anyone 30s, 40s, certainly younger, and getting beyond simple valuation as a good example. So, really thinking about as a business, what's your engagement strategy around digital advice service and finding a way to deliver a personalized approach that's going to be relevant, timely and not going to bog your business down in minutiae either, and so it is possible to do. And again, if I think about examples of the businesses, I believe do it really really well? Again, they not only understand, as I said earlier, that difference between investment management and investment administration and how to provide good information to their clients. They're thinking about how that information then gets provided, what it looks like and what's the supporting information that's going behind often very, very dry numbers that clients might sort of smile and nod about sometimes but might not really understand the details as well as they're indicating that they are.

Maja Garaca Djurdjevic : 19:00

Definitely, and that's been a topic that we've sort of been writing a lot about on IFA. Obviously it presents such a great opportunity the World Transfer for advisors but it is a whole set of sort of different rules. The older generations used to like to sort of come and see their advisor in person, would get all dressed up for it, it would sort of be an event a day out, whereas the younger ones we don't even like to get on the phone, let alone walk over to someone's office and sit down and do it in person. We're a lot more used to technology, as you were saying, so it is a completely sort of a different game for the advisors when approaching the different generations. But, matt, how are platforms catering to the higher net worth investor segment? You've talked about the digital experience. What is premium doing there and how else are you using technology to make the needs offer this investor segment?

Matt van Dijk: 19:52

Yeah, cool. That's a really interesting question to unpack. I was actually talking to one of my team a couple of days ago actually. The comment that I made at the time was when I think about what we do and how we do it and what makes us different, and apologies if this sounds like more of a shameless plug than it's intended to be.

Matt van Dijk: 20:12

We've been working in the high net worth space and in the complex asset management space for 22 years. Our background was actually not being a master trust or a rapid sort of adding on different features or functions. We actually started with the hard and difficult assets first. What we then built out was underlying that engine was taking that institutional level of technology and advantage and providing it to advisors, no matter what client segment that they were really working with. By listening to our advisors over the years in terms of what they want and what would help support them, we've built a tool that allows the fans that we've got out there the people that use us, who get to meet us for the first time, get to see how we really do have a difference in terms of what we do, how we do it, depending on how they're investing.

Matt van Dijk: 21:01

I think one of the big challenges that I've tried to work on and address over the years is that there was a little bit of a mismatch in the steps that many advisors took, where, as people were often licensed by a business or a group that would own the platform, it was a case of, as an advisor, as you're working on your strategy for client, when there was an investment component. You could choose any investment you want, as long as it was on this platform. That then led a lot of people being trained over the years or it being sort of burnt into them that you choose a platform and then you choose an investment. I'd argue that it's actually the other way around. Platforms are very much around execution and engagement. You should be choosing a platform based on what your investment philosophy is, what your guiding principles are, how you're really thinking about investing and the types of assets that you're going to be using for a client, because it can make such a meaningful and significant difference in the outcome that the client gets, not only from engagement perspective, but what they'll actually pay in terms of whether it's brokerage or the types of assets they can use or how they can literally see everything on one page over time. That's what's really driven premiums platform is.

Matt van Dijk: 22:09

It doesn't matter whether someone wants to use us from a custodial investment perspective where we might settle clear and trade a broader range of assets than any of our competitors in Australia to using our class-leading reporting engine. So whether the client's got real property assets in the US, they're running some form of alternative investment out of the UK or Europe, as well as very vanilla Australian listed securities managed funds. It can all be run under the one platform and we can really look at what does that particular advisor need to meet their clients and getting access to a much more sophisticated breadth of investment opportunities. So, again, when you've got clients that have much larger amounts to consider, either in terms of parcel size or they can invest for longer periods because they've got more than enough rainy day money already parked in one of their accounts, you need to be able to then consider well, what are investments that give us a true level of great diversification that are going to enhance support folio and really work well to protecting, growing and managing that client wealth across multiple generations? One of the really cool things I think from a personal perspective has been to see also the rise of ESG for consideration, and I'll be very, very clear.

Matt van Dijk: 23:30

Esg is much more nuanced than I think often gets addressed. For many it used to be sort of I think, almost, I hate to say written off, where people would say ESG is about mining or very, very sort of deforestation and some of those big headline topics. And the education's been getting out there more and more and people are understanding that ESG is a very, very personal decision for many investors. So you may have people with strong, faith-based backgrounds that would exclude companies that invest or receive material amounts of income from potentially gambling, alcohol or adult entertainment. Non-pharmaceutical animal testing the idea that Mascara and Lipstick can be tested on animals that might be a very, very personal move for someone.

Matt van Dijk: 24:13

When we looked at our research out of ESG, the 80% of high net wealth investors actually had a preference for ESG investing and when we went a little bit further and said what did that look like? The most predominant one was actually the G. It was that focus on good corporate governance and knowing that if you've got a business that is looking to be a good corporate citizen from a board level down, a lot of the rest will flow from. That was part of the idea. So I'd suggest that if again anyone in the audience has been sort of mulling over ESG or not really considering it.

Matt van Dijk: 24:45

One of the biggest risks that you've got in a business is that your best client will likely be talking to people just like them who would also be great clients of your business If you're not having that ESG conversation at part and just to at least see if there's any interest. There may not be, you're not having the conversation and your client hears about someone who is and it's of interest for them and it's not you. It might be a bit too late to have that conversation. The other part to tie into the earlier aspects of our chat today as well, maya, is that when we're looking at that wealth transfer effect, esg is a much, much higher area of interest on the radar of 20, 30 and 40-something year old clients as well. So if you're looking to again stop that money from walking out the door, it's a conversation that needs to start happening today and not in the future, before it becomes too late.

Maja Garaca Djurdjevic : 25:35

Yeah, definitely. The millennials and the younger generations are certainly sort of more interested in the ESG space, and I think we saw just this week as well that ASIC came out and stressed that ESG is not a trend. It's time for companies to get on board. So we're seeing a lot more movement in that space as well.

Matt van Dijk: 25:53

So for the investment nerds out there, there's some really interesting research as well to be had on applying concepts of basic financial theory around where sustainable investing should deliver superior returns. It can be challenged, it can be still tested. I think it's worth reading, but you can support some of this decision making with good financial theory as well, so important one to factory.

Maja Garaca Djurdjevic : 26:16

Well, thank you so much for joining me today, Matt.

Matt van Dijk: 26:19

It's been a pleasure. My thanks for giving me the opportunity to speak. I hope the audience found it to be of value.

Maja Garaca Djurdjevic : 26:25

Yeah, no worries. That was certainly an insightful chat for me and I do hope the audience enjoyed it as well. Thanks for tuning in today and I'll catch you again next week.