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Portfolio > Portfolio Construction

Many HNW Investors Call Themselves ‘Self-Directed,’ Despite Complex Portfolios

By Danielle Andrus

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Almost 30% of high-net-worth investors consider themselves self-directed, a survey from Cerulli Associates found, which “helps explain the dispersion of assets among providers,” Donnie Ethier, associate director at Cerulli, said in a statement.

“Although the direct channel’s surge in the high-net-worth market share gains have stemmed in more recent years, providers continue to boost their high-net-worth capabilities and presence among younger, tech-savvy wealth creators,” Ethie added. “For wealth managers, they represent increasingly worthy competitors that will likely test traditional managers’ willingness, and aptitude, to adapt to next-generation investors.”

The “High-Net-Worth and Ultra-High-Net-Worth Markets 2014: Addressing the Unique Needs of Wealthy Families” report found investors with $5 million or more in investable assets control about $11.3 trillion and represent about 0.9% of the U.S. population.

Ethier said that as assets increase the self-directed model becomes “less favorable” relative to other models as the difficulty of managing a more complex portfolio increases.

“In addition to dealing with complex portfolios, advisors are an added expenditure, which can explain their lower use among retail clients,” Ethier added.

Private banks and wirehouses dominate the market for HNW assets, the report found, and Cerulli expects that trend to continue. The wirehouse channel holds 42% of the HNW market share, according to the report, while private banks hold 28%.

While private banks and trust companies (which control 17% of HNW assets) “share the advantages of scale and scope of services,” the report also pointed out that they’ve suffered “tarnished brands and reputations [from] relying too heavily upon proprietary funds, past and present.” Some improvements have been made, according to the report, but direct providers and broker-dealers have enhanced their HNW service offerings and made themselves more competitive.

One of the smallest distribution channels, RIAs and multifamily offices, controls only 4% of assets, about $266 billion, but Cerulli said they are “ever-increasingly [a] threat to all providers.” Licensed RIAs offer “the most comprehensive, customized financial and nonfinancial service models in the industry,” the report stated.

“High-net-worth and ultra-high-net-worth clients that are using a self-directed model represent a significant opportunity for asset managers that pass due diligence screenings,” Ethier said. “In the end, direct providers are yet another avenue for external managers to reach the pool of high-net-worth assets.” 

— Check out The Split-Dollar Triple Tax Savings Package for HNW Clients on ThinkAdvisor.

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