A new report released today reveals what it describes as "a new pattern of HNWI wealth creation," among other significant industry trends.

The population of US high net worth individuals jumped 17 per cent to 4 million while investable wealth rose by 18 per cent to $13.9 trillion in 2013, according to a report today which identified a new pattern of HNWI wealth creation and other significant industry trends.  

Growth rates of both the HNWI population and HNWI wealth in the US exceed the global averages of 15 and 14 per cent respectively, the US Wealth Report 2014, compiled by RBC Wealth Management and Capgemini, said.

The findings will be welcoming news to those in the business of managing people's wealth, as they suggest a continued - if not heightened - demand for such services. However, as the HNW population gets seemingly younger and sources of wealth change, industry players must consider both the challenges as well as the opportunities that come with evolving client needs and preferences.

“Steady GDP growth, reduced unemployment, a falling deficit, and an energy renaissance boosted investor confidence and energized risk appetites in 2013,” said John Taft, chief executive at RBC Wealth Management - US. “These factors contributed to record wealth levels in the US. Over the last five years, some of the strongest growth in wealth occurred in the energy and technology-centric cities of Dallas, Houston and San Jose, indicating that a broader mix of geographies and industries is driving wealth creation in the US.”

The top 12 cities (ranked by HNWI population) are home to 69 per cent of US HNWIs and represent 75 per cent of US HNWI wealth. They are: New York; Los Angeles, CA; Chicago, IL; Washington, DC; San Francisco, CA; Boston, MA; Philadelphia, PA; Houston, TX; San Jose, CA; Dallas, TX; Detroit, MI; and Seattle, WA.

Interestingly, while New York holds nearly three times more HNWIs (894,000) and wealth ($3.2 trillion) than second-ranked Los Angeles (330,000 and $1.2 trillion), it logged the second-lowest growth rate (12 per cent) in HNWI population of the top 12, the report said.

Trends

Built from the World Wealth Report 2014 and its Global HNW Insights Survey, the report also sheds light on a number of industry trends which is said could help wealth managers improve their value propositions by aligning their offerings with certain investor demographics that are driving these shifts. 

Namely, the Texas cities of Dallas and Houston led HNWI population growth - at 20 and 18 per cent respectively – and wealth growth, at 24 and 22 per cent respectively. Of note, Dallas entered the top ten HNWI population centers for the first time, edging out Detroit.

Meanwhile, the report noted that while HNWI wealth remains mostly concentrated on the East and West Coasts, three of the four fastest-growing cities in HNWI population and wealth between 2008 and 2013 were those with ties to energy (in the case of Dallas and Houston) and technology (in the case of San Jose).

Indeed, the controversial “fracking” revolution in energy has - globally but particularly in the US - gained a lot of attention and has led to a surge of energy wealth, which will be music to the ears of advisors seeking new populations of high net worth individuals (click here for a feature on this topic). 

“Surging” trust in the wealth industry

Results from the Global HNW Insights Survey suggest that HNWIs’ trust in “all aspects of the wealth management industry” surged between early 2013 and early 2014. Trust in wealth managers and firms rose 12 percentage points to 84 and 87 per cent respectively, putting US HNWIs “well above their peers in the rest of the world,” which log on average 71 and 72 per cent respectively.

This in turn catalyzed greater appetite for risk, the report said, with portfolio allocations to alternative investments up by four percentage points to 13 per cent, while equity allocations (representing a third of portfolios) remained the highest globally.

Additionally, it emerged that US HNWIs were more inclined to invest beyond North American borders, their international allocations having increased to 33 per cent in early 2014 from 20 per cent of portfolios a year earlier.

“This trend was particularly driven by HNWIs aged under 40 who invested 53 per cent of their wealth in foreign markets,” the report said. However, the assessment of wealth manager performance by HNWIs dropped by six percentage points to 73 per cent. That said, this figure is still “much higher” than the global average of 59 per cent.

“Declining scores signal opportunities for firms to reposition their offerings to meet specific HNWI preferences, especially for HNWIs under 40 versus their counterparts aged 60 and over,” the report said. According to the findings, younger HNWIs are more likely to say their needs are complex (38 per cent versus nine per cent). They are also more likely to as seek family wealth advice (35 per cent versus 13 per cent) and demand digital contact over direct personal contact (39 versus 15 per cent).

“There is great opportunity for wealth management firms to reposition and strengthen their offerings in response to declining performance scores,” said Jean Lassignardie, chief sales and marketing officer at Capgemini Financial Services.

Meanwhile, over half (54 per cent) of HNWIs also showed a “pronounced preference” to work with a single firm, while 11 per cent said they prefer working with multiple firms.

Potential shift in causes supported

Somewhat unsurprisingly, it emerged that making a positive impact on society through investing time, money or expertise is important to 88 per cent US HNWIs and extremely or very important to 56 per cent. But - adding weight to previous industry research - it is those under the age of 40 who were found to be particularly focused on driving social impact, with 81 per cent citing driving social impact as extremely or very important.

The report noted that, given the rising wealth among younger HNWIs, “there could be a shift in the types of social issues that get the most attention in the US moving forward.”

Younger HNWIs, for example, favor different causes than those aged 60 and over. They cited social programs, race relations, gender inequality, energy security and unemployment as their top five priorities, while their older counterparts favored child welfare, education and health.

“Female HNWIs are likely to have a greater influence on driving social impact going forward,” the report added. Female HNWIs “place great value on driving social impact,” with 62 per cent citing it as extremely or very important compared to 50 per cent of male HNWIs.

The findings may help wealth managers align their value propositions with specific investor demographics, as the industry increasingly comes to realize that one size certainly does not fit all.