Advisers urged to ‘tailor-fit’ SMSF advice for emerging affluent investors
Advisers are being encouraged to “tailor-fit advice” as SMSFs emerge as the vehicle of choice for high-net-worth individuals considering a wealth transfer.
According to the 2023 Investment Trends High Net Worth Investor Report, the Australian wealth management landscape is evolving with the number of affluent investors increasing over the last year to 635,000 investors, with $2.98 trillion in investable assets.
Another 45,000 individuals graduated into the $2.5 million to $5 million wealth bracket with those between $2.5 million and $10 million now considered the “established affluent.”
“These new graduates are more likely to be unadvised investors who acknowledge a need for professional guidance,” the report stated.
“This creates a striking opportunity for advice providers to cater to this growing and lucrative investor segment.”
Statistics from the report show that an SMSF is a preferred vehicle for growing and transferring wealth.
“More [wealthy Australians] than ever have self-managed super funds, and the wealthier they are the greater that percentage,” the report stated.
Namely, SMSFs are held by 56 per cent of the emerging affluent ($1 million to $2.5 million), 69 per cent of the established affluent ($2.5 million to $5 million), 77 per cent of HNW ($5 million to $10 million) and 90 per cent of ultra-high-net-worth (UHNW).
The average age of Australia’s affluent is 65 years, and a sizeable portion (50 per cent or more in each bracket) are not retired, with the average time to retirement for non-retired HNWs being nine years.
The research also found that the UHNW bracket are more likely to be business owners in contrast to the emerging affluent of which only 39 per cent are business owners.
“The high-net-worth investor has expressed a consistent and growing need for advice to help support the transfer of wealth. They recognise the importance of legacy planning, with 95 per cent expressing their intention to leave an inheritance,” the report noted.
“Established HNW investors, while more experienced, still face the challenges of managing their wealth as their financial situations evolve.
“Their focus on income generation underscores the importance of crafting investment strategies that align with this priority.”
More than 30 per cent of HNW individuals with an SMSF currently use their fund or are intending to use it for a wealth transfer, the report stated.
For those that have initiated transfers, testamentary trusts (25 per cent) and individual accounts (20 per cent) are mentioned more frequently.
While individuals who have begun the wealth transfer process appear to have a diminished requirement for estate planning (59 per cent compared to the overall figure of 62 per cent), they recognise the importance of enhancing the financial literacy of their beneficiaries.
Furthermore, a greater number of those who have started the process (eight per cent) express interest in actively engaging their entire family in the advisory process, as opposed to the overall figure of six per cent.
The report also noted that the unadvised affluent investor stands out as a focal point for advisers.
“As these individuals enter higher wealth brackets, they often lack the comprehensive financial education and professional guidance needed to navigate the complexities of their newfound wealth.
“This presents an opening for advisers to connect with this demographic, understanding their unique challenges and tailor fitting their services to bridge the advice gap and provide a solid foundation in wealth management strategies, setting the stage for long-term success.”
