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‘Rise of the validator’: HNW investors want more collaboration in advice, research shows
High-net-worth (HNW) investors are relying less on financial advisers to provide holistic advice and instead are turning to the professionals to validate their own investment decisions, highlighting the need for a new strategy-focussed advice paradigm for HNWs, according to Praemium.
Noting that HNW investors “continue to be the primary custodian of Australia’s investible assets”, the investment platform provider says that despite its finding that “validator” clients – those who prefer collaboration with advisers over a holistic advice service – are a growing majority, there is still a consistent need for advice on specific topics, such as estate planning and tax optimisation, as well as a growing demand for income provision strategies.
“This emphasises the need for advice providers to create a customer value proposition more closely aligned to the unmet needs of the HNW sector, with investment strategy being the output rather than the solution,” Praemium says in its High Net Worth Investor 2022 Report, based on research from Investment Trends.
Looking at the intergenerational wealth transfer and the changing habits of HNW investors, Praemium explains that while there is an “increasingly positive” attitude towards financial advice, that attitude is taking a new shape.
“The proportion of HNWs classified as ‘self-directed’ has continued to decline and the pool of ‘validators’ to grow,” the report states, explaining that validator HNW clients tend to be seeking a second opinion or validation of their investment ideas. On the other ends of the spectrum are self-directed investors that wish to do everything themselves, and delegators, who prefer a holistic advice relationship.
“With 60 per cent of HNWs identifying as a validator, these individuals would prefer to only seek advice to access certain investments, for technical advice or for a second opinion on their own investment decisions.”
The self-directed cohort has made up around 50 per cent of the HNW sector traditionally, with validators making up around 40 per cent and delegators (plus ‘others’) 10 per cent.
In October last year, however, Investment Trends reported that the validator cohort had increased to 56 per cent, while self-directed HNW investors had decreased to 34 per cent.
Advisers are still (even increasingly) the “first choice” for investment advice, Praemium states, particularly among the emerging affluent.
The results do, however, point to an increasing predilection for HNW investors to veer away from traditional, holistic advice services and towards episodic advice when they feel like they need expertise on a certain matter.
According to Investment Trends, the development has a lot to do with a change in consumer sentiment after the pandemic.
“Post-pandemic, investors are vastly more likely to indicate they would be open to working collaboratively with a financial adviser to seek a second opinion or validate their investment ideas. The ‘rise of the validator’ has certainly arrived.”
*A version of this article was first published in our sister publication, The Inside Adviser.
