The breadth of an advice firm’s service offering is one of the factors most valued by clients, according to Netwealth’s latest Advisable Australian research. How should you think beyond traditional portfolio construction to widen your approach?
When Netwealth surveyed clients across a range of demographics and levels of wealth, a key theme emerged: they are looking for a broader range of services.
When it comes to what advised clients want, breadth of service ranks second only to value for money and quality. This desire for more services also increases within the older clientele, with the Established Mass and Established Affluent segments (aged 45 years and older) valuing it even more than the younger Emerging Affluent clients. (See article 1 for a detailed description of these segments).
To meet this need, advice firms should think about how they can broaden their approach to portfolio construction, as well as expanding the services they offer.
The wealth goals of Australians
There are five main buckets of wealth goals that the majority Australians receiving advice are trying to achieve, all of which advice firms can clearly assist in. These are:
• Portfolio management: 87 per cent of clients have goals such as building a diversified investment portfolio, minimising risk, and having an income stream.
• Budgeting and savings: 84 per cent of clients are looking to manage household expenses, or save for something.
• Retirement-related: 83 per cent want to make sure there is enough money during their retirement, or manage aged care issues.
• Family and legacy-related: 82 per cent are looking to provide for their family or loved ones, leave a good inheritance, or even manage their philanthropic activity.
• And finally, 79 per cent have accounting, tax and tax minimisation goals, or business-related goals
Portfolio construction beyond the traditional
The number one financial goal for advised Australians is portfolio construction – including building and diversifying their investments, minimising risk, and developing a sustainable income stream.
Clients recognise they do not have the same knowledge as advisers and need help to achieve their financial goals, particularly in more complex areas like portfolio construction and management, – a goal which 29 per cent of Emerging Affluent and 23 per cent of Established Affluent are not confident in achieving.
At the same time, clients are starting to demand diversification and higher returns through private markets and alternatives. For example, 23 per cent of advised Australians currently invest in crypto, up from 6 per cent in 2020.
Looking at Netwealth‘s Advisable Australian client segments, however, we see a slightly different story.
For example, the older Established Affluent are significantly more likely to invest in more traditional assets like term deposits, Australian equities and property or real estate investment trusts, while younger Emerging Affluent clients are more likely to hold alternatives like bonds, private debt, equity and hedge funds. Established Mass clients generally hold Australian and international equities, but little else.
Responsible investing: doing good and making returns
Beyond this, advisers can turn their focus to responsible investment options, which are steadily growing in importance across advised clients.
According to Netwealth’s research, more than half of advised clients (52 per cent) say they have responsible investments in their portfolios, up from 36 per cent in 2021. This is particularly obvious in the Emerging Affluent clients, where 76 per cent indicate they have responsible investments in their portfolio, and Established Affluent, where 60 per cent say they do.
Not only this, but 70 per cent of those advised clients already investing responsibly intend to increase their holdings in the future.
Meanwhile, clients are also looking for different structures to hold and manage their portfolios in response to alternative asset classes and complex family arrangements.
For example, trusts have gained in popularity, with 26 per cent using them compared to 15 per cent last year, and corporate structures are up to 20 per cent from 11 per cent.
And although SMSF use has remained steady at 22 per cent, 24 per cent plan on starting in the next year. This is particularly true among Emerging Affluent with over half using them (56 per cent).
Evolving your value proposition
Advisers looking to capitalise on growth opportunities and take advantage of these trends have plenty of practical steps at their disposal.
For a start, help is available for those looking to capture the growing appetite for alternatives. They can turn to alternative investment providers like iCapital who in partnership with Netwealth can provide access to global private markets.
When it comes to responsible investing, advisers should start by understanding their options. These include negative screening, which involves eliminating specific companies; positive screening, which involves actively selecting and driving capital to companies that meet certain criteria; or impact investing, which involves investing with a specific purpose in mind.
They also need to ensure their reporting on both financial and responsible investing targets is up to the task.
Meanwhile, advice firms should look to build out their service ecosystem to cater for the services beyond portfolio construction, like estate planning and tax philanthropic advice. They can do this with a combination of approaches, including upskilling staff, hiring new staff, acquiring skills through acquisitions or through partnership.
Partnerships are a significant opportunity, as many advised clients are helped by other types of professional service providers. Six in 10 (63 per cent) of advised clients also use an accountant, 54 per cent use a solicitor, 41 per cent use a mortgage broker, and 37 per cent use a full-service stockbroker.
Thinking about increasing breadth of service can be complex and multifaceted, but well worth it to reach the full range of advisable Australians with the comprehensive service they are increasingly seeking.
