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Why the ultra-rich are changing how they invest

High-net worth investors are switching investment strategies, according to new data

By Katharine Swindells

In the uncertain economic climate, ultra-wealthy investors aren’t hunkering down, but are choosing to make significant changes to their portfolios and investment strategies, new research shows. 

UHNWs, along with younger investors, are choosing to pursue active investments, while many millennials are also opting for a de-risking strategy.

In fact, close to half of wealth management clients surveyed for the latest Global Wealth Research report by EY are choosing to switch their assets to a new provider, either entirely or in part, in the coming years.

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And if the market volatility continues, even more say they will make radical changes to their investing approach, with 45 per cent of clients saying their investing needs have become more complex in the past few years.

Why are HNW investors changing investment strategies?

Millennials are the age group most likely to say that their investing needs have increased in complexity, while investors from Latin America are far more concerned with the issue than other regions, EY found. 

Unsurprisingly, those who are highly financially prepared are less daunted by upcoming challenges.

‘Investment has become more complex and wealth managers will need to manage the associated operational challenges – including the rise of digital assets and ESG funds, and how investors are being influenced by market trends and economic uncertainty,’ writes Jan Bellens, EY Global Banking & Capital Markets Sector Leader.

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The instability of the pandemic, along with global political and economic events, has changed investors’ priorities. Protecting wealth is now a dominant factor, when in previous years the top priority was to ensure adequate incomes.

Investors are clearly taking a more cautionary stance, opting for defensive goals rather than offensive ones. 

‘Given the ongoing market volatility, investors have a lot of questions right now and they are hungry for advice,’ writes Mike Lee, EY Global Wealth and Asset Management Sector Leader. ‘Continued market stress is amplifying their defensive stance and appetite for both switching and adding to their portfolio.

‘The role of the wealth manager is crucial right now and will remain in the spotlight as they evaluate their risk models, provide sound advice and take a proactive approach to the interwoven complexities that have evolved rapidly in the past few months.’

Active or passive? How are wealthy investors moving their money?

As a result of this reprioritisation, investors are on the move.

Some 44 per cent of clients plan to switch or move providers in the next three years, and more than half of clients plan to move at least a quarter of their portfolio.

North American clients are less likely to switch, but when they do are more likely to transfer the majority of their portfolio, EY found. In Asia-Pacific, the Middle East and Latin America, the majority of clients are planning some sort of switch.

And overwhelmingly, clients are choosing to not switch outright, but to spread their assets across multiple providers.

EY’s forecasting anticipates a 12 per cent increase in the average number of providers a client works with over the next three years.

[See also: Stonehage Fleming on 150 years of managing wealth]

Around a third of investors have taken a tactical approach and increased their allocation to active investments. This approach in volatile markets is far more common among Asian investors than North American, where only 20 per cent say they would take this approach.

Millennials are more likely than other generations to take this approach, with 50 per cent saying they are increasing active investing, compared to 22 per cent of Boomers. UHNWs are also more likely to be proactive than those in lower wealth bands.

A third of investors also say they have sought safety by moving some of their portfolio into savings and deposits. Unsurprisingly, mass affluent investors are more likely than HNWs to take this safe approach. Perhaps surprisingly, 47 per cent of millennials say they have de-risked by switching to savings and deposits, compared to 34 per cent of Gen X and 24 per cent of Boomers.

[See also: Money on the move: why the world’s wealthy are deserting the USA]

In the event of future volatility, the percentage switching to active investment strategies will rise to 42 per cent, and those increasing exposure to savings and deposits would rise to 43 per cent.

Only 15 per cent of millennials say they will not change their investing behaviour, compared to 33 per cent of Boomers. Investors in lower wealth bands are also more likely to say they will stick with their current tack, while just 9 per cent of ultra-high net worths say the same. 

It’s clear that wealth managers and advisers need to be more reactive than ever to meet the needs of clients across the board.

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Visit our privacy policy for more information about our services, how Progressive Media Investments may use, process and share your personal data, including information on your rights in respect of your personal data and how you can unsubscribe from future marketing communications.
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