Recent market volatility has put the spotlight on capital preservation, but a new study shows that advisors to wealthy clients were honed in on that objective well before the onset of the coronavirus pandemic.
A survey by Cerulli Associates in the third quarter of last year showed that 100% of advisors viewed wealth preservation as very (83%) or somewhat (17%) important, topping all other objectives, including tax minimization, wealth transfer strategies and risk management.
The results were based on a survey of more than 50 advisory firms that focus on providing wealth and estate planning services to high- and ultra-high-net-worth individuals, whom Cerulli defined as clients with more than $5 million and $20 million in assets, respectively.
Although the survey was taken before the onset of the pandemic, the findings should indicate to advisors how important wealth preservation strategies are to clients during the crisis, Cerulli said.
"Asset and wealth managers currently servicing or seeking to grow their marketshare in the high-net-worth market must be prepared to address investor needs with specific and targeted strategies that can protect client capital in increasingly volatile markets," Cerulli said in a press release.
"As more HNW investors re-evaluate their financial situation amidst the Covid-19 pandemic, providers must ensure that they are well aligned with their clients’ long-term objectives," the firm added.
The survey, part of "The Cerulli Report—U.S. High-Net-Worth and Ultra-Net-Worth Markets 2019," found that after wealth preservation, advisors considered their "very important" objectives to be tax minimization (64%), wealth transfer (61%), risk management (57%) and income generation (44%). Viewed with lower importance were liquidity management (36%), absolute returns (31%), inflation and/or deflation protection (31%) and concentrated stock positions (25%).
Advisors need to keep in mind that wealthy clients usually require a broad range of investment solutions, the report said.
"Where HNW practices can truly differentiate themselves and deliver on their key investment objectives is through investment in, and expertise on, alternative investment strategies," the report's authors wrote.
Among these strategies, direct investments in operating businesses are among the most popular with sophisticated investors because of their relatively low fees and the control they offer to investors compared to a private equity fund, Cerulli said.