There are a variety of challenges facing today’s ultra-high-net-worth-individuals (UHNWIs), according to the 10th edition of “The Wealth Report” — published by global real estate consulting company Knight Frank.
The 2016 Attitudes Survey is based on responses from approximately 400 of the world’s leading private bankers and wealth advisors who were surveyed in the 4th quarter of 2015. Their answers — concerning the UHNWIs in their client base — tell a story of growth slowdown, changes in family and succession dynamics, increased scrutiny and economic pressures.
Here are six of the most interesting findings from the report (in our opinion):
- Two-thirds of respondents believe that their clients’ wealth will increase at a slower rate over the next 10 years than it did over the previous decade.
While a positive trend has lasted nearly a decade, the forecast for the next decade is slightly bearish, with growth expected to slow down. The main issues creating a challenge for wealth creation then — and now — include succession and inheritance considerations, increasing taxes, and the worldwide economy. Other important concerns include the fact that more families have members spreading out around the world, personal security and safety, and personal and family health.
- Threat to future growth #1: Succession and inheritance issues.
More than 85% of respondents agree that their clients are more active in managing their wealth — so 92% believe that they need to work harder to earn their clients’ trust. These advisors also have to take a look at how they engage with clients, since nearly 80% of them see women taking a more prominent role in managing their family’s wealth — and UHNWIs are getting their children more involved in the family business at an earlier age.
Also, UHNWIs traditionally have been concerned that future generations would not be successful in maintaining the family’s wealth — almost expecting the third generation to waste much of it. Recently, however, the attitude has been that the second generation is more likely to fail at growing the family’s fortunes. When asked, 62% worried that their children would be encouraged to earn their own wealth, and nearly 50% felt that they wouldn’t know how to handle the family’s investments.
- Threat to future growth #2: Wealth taxes.
Nearly 70% of respondents agreed that their clients feel that they are under increased scrutiny by the public and authorities, so they are more aware of displaying their wealth publicly. One example of this increased attention is in the U.S., where “the 1%” are being criticized for currently favorable tax rates, as well as corporate tax benefits.
- Threat to future growth #3: The global economy.
Many respondents felt that UHNWIs are being scapegoated by governments who are failing to address wealth-inequality issues.
- The majority of respondents said that their clients will be increasing their philanthropic activities.
As always, philanthropy is an important part of the UHNWI agenda — perhaps more so than ever before. According to the survey respondents, most of them noted indicated that their clients would be expanding their philanthropic activities, which continues the trend over the past decade.
Approximately 67% of UHNWIs had already been growing their philanthropic efforts over the past 10 years, while nearly 80% noted that they would continue that growth over the next 10. The main reason cited was “a sense of personal fulfillment,” although religious beliefs were also mentioned as an important reason (specifically in the Middle East).
- 30% of UHNWIs are considering a residential purchase in 2016.
Another important part of the Wealth Report is the coverage of the current attitudes of wealthy individuals with regard to property — whether as a place to live and/or as an investment.
Over the past decade, more than half of respondents noted that their clients were allocating more of their investable wealth to residential property, while more than 40% expected that to increase over the next decade — with 30% of them being likely to think about a residential purchase this year.
According to the report, UHNWIs have designated about a quarter of their investable wealth for residential properties, and another 11% on commercial real estate. The major motivators for this expected growth in residential real estate purchases? The most popular reason (55%) was as a re-sellable investment, while other key factors include as a safe haven for funds (47%) and investment diversification (46%).
In addition, commercial real estate interest is growing. Nearly half of wealth advisors foresee increases in their clients’ portfolio allocations in the next 10 years. Their most likely targets include offices and hotels (the standard investments of choice), although warehousing and logistics are increasingly popular.
While new challenges are out there, 2016 should be a year of opportunity. Even with a variety of issues facing UHNWIs and the professionals who work with them — from slowing growth and changes in family/succession planning to increased public and media scrutiny and economic pressures — these challenges should be viewed as opportunities for advisors to develop creative solutions and prove their value.