Ambitious HNW advisers sharpen focus on alternatives

Advisers in the high-net-worth (HNW) space seeking to build out long-term growth plans are likely to find alternatives to be a key part of the puzzle, according to Praemium’s head of private wealth.

Speaking at a webinar hosted by the Stockbrokers and Investment Advisers Association (SIAA) this week, the platform’s head of private wealth, Matt Walsh, unpacked key trends shaping the future of private wealth management and advice, drawn from its research with CoreData.

Surveying practices’ approach to growth in the next five years, taking economic concerns aside, he noted the majority (90 per cent) of HNW advisers have growth plans in place for their business, with 27 per cent possessing “detailed, structured roadmaps to guide their growth expansion”, Walsh said.

In comparison, around 84 per cent of non-HNW advisers have growth plans and 21 per cent have detailed plans in place. 

“The difference here does highlight a trend among HNW advisers towards proactive planning, which is enabling them to adapt to industry changes and seize emerging opportunities more effectively,” Walsh observed.

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Money Management previously found that advice firms with greater revenue streams are more optimistic about future growth plans. Some 63 per cent of companies who reported seeing a rise in their revenue have plans to expand their adviser numbers and scale up their business, Adviser Ratings found.

Appetite for alternatives 

One such industry trend that is likely to help HNW firms is the growing demand from those investors for alternative products with private credit and private debt, in particular, notching up significant inflows over the last 18 months. 

Praemium and CoreData found alternatives are gaining momentum among this segment, with 69 per cent of HNW advisers largely expecting to hold alternatives in client portfolios in the coming years compared to just over a third of non-HNW advisers.

Presently, HNW-focused advisers allocate around 9 per cent in alternatives, and this figure climbs to 14 per cent for advisers who are managing client portfolios of $20 million or more. Meanwhile, non-HNW advisers are allocating only 4 per cent to alternatives. 

According to PwC, alternative assets are set to reach US$21.2 trillion ($31.9 trillion) by 2025, when they will account for 15 per cent of total global assets under management. 

“One of the things that’s happening is that alts are definitely becoming more mainstream. That’s one of the ways the HNW segment is looking to generate some alpha,” Walsh pointed out.

“It’s because [investors] are risk-on. It’s also because some understand [alternatives] and they have the cash flows to support it. So, there’s definitely demand for it,” Walsh said.

Reflecting on Praemium’s own experience, he shared that the custodial platform’s investment governance team, tasked with evaluating new funds and strategies on the approved product list, has seen an increased number of alternative submissions in the last year.

“In the last 12 months, our investment governance team has looked at 200 new fund submissions across the market. If we looked [closely] at them, 50 per cent of those were in alternatives,” he said.

However, alternatives can be hard for advisers and investors alike to access, resulting in a “significant gap” in the market.

“I feel like there’s a gap in the market with advisers being able to talk to the high-net-worths on alternatives and also give them easy access to it. For those who can articulate that, that can potentially be a core separation or core value proposition which will hold you in good stead compared to some of your peers,” Walsh elaborated.

Money Management previously explored how alternatives are growing in popularity with financial advisers for diversification purposes and a higher return, and why advisers are urging fund managers to improve their education and communication about alternative funds as they actively target them towards retail clients.

Being a future-ready firm

Beyond alternatives demand and offering other investment opportunities, Walsh also shared several questions that HNW advice firms need to consider when thinking about future growth plans. These include embracing technology, utilising client portals and personal reporting to enhance engagement.

The ability for advisers to access investments seamlessly and getting the systems and processes right to support that will prove crucial, Walsh said.

“In looking forward, you need to have a clear plan. Is your business future ready? And as part of that, you need to have the right approach from a technology and platform provider to do that at scale. These are some of the things we would encourage from a future-ready perspective.

“What are you doing around your growth plans? Do you have a strategy planned for your business and a clear direction in terms of how your business is going to grow?”

He added: “We commonly see traditional investment advisers are good at what they do in terms of covering markets and focusing on individual investments, but sometimes we’re challenging those advisers – is that an enduring business model for you to run well and truly into the future? Is it scalable and is it going to be able to adapt to market conditions?”