Surveys

Mind The Gap: When Wealth Expectations Don't Fit Reality

Tom Burroughes, Group Editor, 26 July 2020

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One of the most important tasks for wealth managers is helping set realistic goals for clients, sometimes telling uncomfortable truths about what's attainable for the level of risk and work a person is comfortable with. This report sheds light on how expectation "gaps" can be wide indeed.

A study of 10,000 affluent individuals in countries ranging from China to the United Arab Emirates shows, perhaps unsurprisingly, that people’s lifestyle hopes don’t match up with the amount of wealth they are likely to have when they reach 60. 

The Wealth Expectancy Report 2019, from Standard Chartered, examined savings and investment habits in China, Hong Kong, India, Kenya, Malaysia, Pakistan, Singapore, South Korea, Taiwan and the UAE. 

Nearly six out of 10 people face a “wealth expectancy gap” of 50 per cent or more. This highlights the difference between the wealth that individuals with disposable income to save and invest can expect in retirement, and what they say they need to live comfortably.

Such surveys shine a harsh light on how a vital task for wealth advisors is helping to frame clients’ expectations realistically. In an age of ultra-low or even negative interest rates, market volatility and expanding human lifespans, old assumptions of what people need to retire on are being torn up. 

Even with a global average wealth expectancy of more than $1 million, most are at risk of not being able to afford the retirement lifestyle they aspire to. The problem is most acute among the emerging affluent: with an average wealth expectancy of $420,000, 62 per cent will fall short of their aspiration by at least half. 

For the affluent with an average wealth expectancy of $821,000, more than half (53 per cent) face a wealth expectancy gap of 50 per cent or more. Some 46 per cent of the high net worth individuals will not meet their aspiration by at least half, at a global wealth expectancy of $2,022,000.

Some 59 per cent of respondents in this study rely primarily on savings accounts to achieve their top three financial goals, potentially missing out on higher-return investment solutions to drive up their wealth expectancy. Only 37 per cent use stocks or equities and only 36 per cent invest in mutual funds or unit trusts, showing that available wealth management options are significantly underutilised.

While retirement is among the top goals people are working towards, funding their children’s education is the highest priority for savers, with 28 per cent putting this as one of their top three financial goals.

This is followed by investing in property (23 per cent), retirement (20 per cent) and establishing or funding their own business (20 per cent), the survey said.

Digital access is making wealth management simpler and more accessible. At 61 per cent, most savers believe that being able to manage their investment products online has given them the confidence to invest in products that they would not have considered previously. Forty per cent use their bank’s website or mobile app, while one-third use online investment portfolio apps, online-only banks and online stockbrokers to help them meet their financial goals.

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