The inaugural State of Wealth report by Crestone Wealth Management and CoreData has found that the majority of high-net-wealth and ultra-high-net-wealth individuals invest in just three asset classes, cash, Australian equities and residential property.
Head of strategy and development at Crestone Wealth Management, Clark Morgan said most of the respondents had very concentrated investments in just these three areas which surprised him.
“It is a bit of a shock how relatively unsophisticated the portfolios are – the HNW/UHNW investors appear to have a stated risk profile that is not actually matched by the portfolio, and their lack of diversification poses significant risks,” he said.
Eighty-one percent held cash, while 56.4 per cent held Australian equities and 41.6 per cent held properties, making them the three biggest asset classes by quite a margin.
Only 23 per cent had investments in international equities and only 9.6 per cent having international bonds with the barrier to investing internationally cited as cost.
The report classified high-net-wealth individuals as those with over $1 million in assets outside of super or primary residence and ultra-high-net-wealth as those with over $10 million.
A sophisticated investor by ASIC’s standards mean an investor who has net assets of at least $2.5 million which many of the respondents of this would fall under.
Head of marketing and client experience for Andy Ridings said that many of the investors in focus groups, including one woman with eight investment properties weren’t making any money.
“These investors are not that sophisticated, to measure someone’s sophistication by the amount of wealth they accumulate is insane,” he said.
“The woman with eight properties, she’s not a sophisticated investor by any measure but she would be classified as one based on her assets.”
Mr Morgan said that these investors needed education on how to better manage and take control of their investments.
“These individuals need education on how to better manage their portfolios, including developing optimal investment strategies, managing the efficient transfer of wealth to younger generations, and diversifying into non-traditional investments and asset classes,” he said.
However, the report found that this education was severely lacking due to an advice gap as 20 per cent of individuals did not use any form of financial advice and 50.5 per cent did things themselves and just sought confirmation from either professionals or other information sources.
Only 20.5 per cent of respondents relied on a trusted professional to help them deal with their investments.
Simon Hoyle, head of market insight at Coredata said most of these individuals fell into a category they called coach seekers, those that sought validation.
“More than half of respondents can be classified as coach seekers, they are seeking validation on the decisions they are making but would seek professional help to make those decisions,” he said.
Mr Hoyle said that the single biggest circumstance that would trigger individuals to use a financial adviser was if they found one they could trust.
“The relativity low uptake of financial advisers in this cohort is a surprise but the barriers to taking up advice are around trust. The issue of trust flows through to how individuals seek advice or whether they perceive value in the services they provide,” he said.
However, it resulted in the advisers having unsophisticated portfolios and left them open to risk said Mr Hoyle.
“We have a cohort of investors who are poorly diversified and therefore are exposed to a greater level of risk within their portfolios,” he said.
“They are reluctant to seek professional advice and they are not high users of professional advice which is why they find themselves in the situation they are in.”
This report was constructed to help advisers to answer that question and help advisers approach investors said Mr Morgan.
“There is a need for the providers of financial services to understand what the target market wants, not only in terms of trust and competence in their advisers but a degree of independence,” he said.
“And it’s a matter of creating a forum to dealing with the broader issues around next generation and succession.”
