Australia’s high-net-worth and ultra-high-net-worth individuals are highly cautious and “not that sophisticated” as investors, putting their portfolios at greater risk, a new survey has found.
Crestone Wealth Management undertook a poll of high-net-worth and ultra-high-net-worth individuals to “better understand the drivers and behaviours behind the investment profiles of the nation’s wealthy”.
High-net-worth investors are those with $1 million in investable assets, while ultra-high-net-worth individuals were considered as holding more than $10 million in investable assets.
The research revealed “a high degree of investment caution amongst the cohort”, particularly in respect of asset allocation.
Among high-net-worth and ultra-high-net-worth investors, a tendency was noted for individuals to concentrate wealth in only three asset classes: cash, Australian equities and residential property.
The report also showed that “less than 25 per cent of the segment actually have an ongoing relationship with a financial adviser”, as highlighted by Crestone’s head of strategy, Clark Morgan.
Calling such a low figure surprising, Mr Morgan considered that a lot of Australian high-net-worth and ultra-high-net-worth individuals don’t trust advice, or don’t see the value in it.
Yet another reason why high-net-worth investors may not use such services is that “some of them just think they are better than the world’s leading fund managers”, the strategist commented.
With the report noting that a lack of investment diversification can expose high-net-wealth and ultra-high-net-wealth individuals to downside risk, it said a majority of the cohort would describe themselves as cautious and unwilling to tolerate more than moderate losses on their investments.
“We call it the wealth paradox,” Mr Morgan stated, calling out the sophistication of those falling under the umbrella of high and ultra-high-net-worth classification.
“No, they are not that sophisticated,” he said, commenting that to measure someone’s sophistication by the amount of wealth they accumulate is “insane”.
“Many of these investors are inherently cautious, but due to their lack of diversification, they are increasing the risk profile of their portfolios significantly,” he continued.
“They are risk-averse risk-takers.”
Considering an example of a woman with eight properties but no money, Mr Morgan said “she’s not a sophisticated investor by any shot – but she would be classified as one based on her assets".
The strategist went on to emphasise that high-net-worth and ultra-high-net-worth 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”.
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