Ultra High Net Worth Individuals-What They Need-It's Not All About Money

There have been a number of studies looking at the needs of Ultra High Net Worth Individuals ("UHNWI"). One of the more recent reports is one prepared by CapGemini, the consulting firm - the 2015 United States Wealth Report. It was prepared in conjuction with RBC Dominion Securities-an arm of the Royal Bank of Canada.

The report provides some interesting trends that are developing in wealth management for the UHNWI group, but some of the more relevant ones to me are as follows:

1. There is a developing split between younger members of the group and older members. This is not terrribly surprising. The younger members are looking at the delivery of wealth management services through digital channels. The older group members are moving towards digital delivery, but mores slowly.

2. The group is using more advisors for different purposes, not relying on one global relationship for the delivery of all their investment needs. They are comfortable working with multiple firms. Using multiple firms was simply a consequence of their belief that they needed to seek out diverse specialties to better manage their very complex financial portfolios.

3. Under 40 UHNWIs were less likely to believe that wealth managers understood their needs.

4. Many younger UHNWIs were looking for an expanded credit relationship with their wealth management services provider. This would seem to give a competitive edge to those who include a credit product in their suite of services. But this also means that many may have a portfolio of debt to manage as well as assets. The reason for having this credit available is to have the capacity to seize investment opportunities when they arise.

This research supports my contention that the back office component of the needs of the UHNWI should be separated from the front office or portfolio management component. If the trend is towards using multiple managers, then their accounting needs are greater than ever. With multiple managers, no single one can or should take overall responsibility for the financial reporting.

The study makes no mention of family offices. Notwithstanding what I believed anecdotally, many family offices focus on investment management through the many different vehicles that UHNWIs may use-holding companies, trusts, etc. As such, it makes, in my opinion, sense to centralize the back office function apart from the family office function. It's hard enough to manage mutiple relationships without having the accounting function embedded within the family office or any other serrvice provider.

In addition, a UHNWIs mobility with respect to a family office or other investment manager is impeded by embedding the accounting within that firm. Moving investments is difficult enough without adding the complexity involved in moving the accounting if things change.

Lastly, the report reveals that younger UHNWIs are getting involved in more complex investments. This requires a level of skill and knowledge that should reside in those responsible for the accounting records. Professional accountants who are working "in house" without any particular basis or conflict. There is a natural conflict of interest between the investment managers and the recording of transactions. The accounting function should be independent of the investment function. It just makes common sense.

This particular report dealt with UHNWI individuals in the United States. Two other reports look at this from a global and Asian perspective. I'll comment on these other reports in later posts.

#UHNWI #independentfinancialreporting #digitaldocuments #documentation