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Cashed-up investors not always clued-up

high net worth investors unsophisticated

Many high net worth investors are unsophisticated in their choice of investments with research finding wealth did not create good investment outcomes.

Many high net worth investors are unsophisticated in their choice of investments, with a new survey indicating they opt for Australian shares, cash and term deposits.

The survey, released by financial advice firm Crestone Wealth Management, found 81 per cent held cash in their portfolio, alongside Australian shares (56.4 per cent) and direct residential property outside the family home (41.6 per cent). The next highest portfolio holdings of international equities and real estate investment trusts were held by only one-fifth of investors.

The research behind the survey was conducted by CoreData in February among 1000 investors who were considered high net worth (HNW), with more than $1 million of assets outside superannuation, or ultra-high net worth, with more than $10 million of assets outside super.

Crestone head of strategy Clark Morgan said the survey found many HNW investors identified themselves as conservative and were interested in capital preservation and generating an income stream, which was identified by 42.2 per cent of respondents as the primary reason for investing.

“Yet when we started talking to participants in the survey, it was alarming as the conservative approach was not reflected in the investments they had undertaken, and they ended up exclusively with three asset classes that are heavily correlated and concentrated, and Australian equities are a very small subset of global equities where there is diversification,” Morgan said.

The survey highlighted only 38.1 per cent of respondents had a documented investment strategy, while another 36.7 per cent had a strategy that was undocumented and 25.2 per cent had no strategy at all.

Clark pointed out that alongside the lack of a strategy, less than 25 per cent of respondents did not receive any form of financial advice and were wary of advice providers, with 35.1 per cent of those surveyed stating they would use an adviser if they could find one they could trust.

“These are issues the wealthy are aware of but not tackling head-on. I would hope, because of this survey, participants in the HNW sector understand these are common issues and ask themselves what they should do next. If only 25 per cent are seeking professional advice and they have portfolios that don’t reflect their risk appetite, how can that end well?” he said.

CoreData head of market insight Simon Hoyle said the findings were similar to those from other research his group had conducted, but challenged the accepted view of a sophisticated investor being defined by the assets they held.

“The findings are broadly consistent with other work we have done with HNW investors,” Hoyle said.

“The definition needs work, not just based on these findings, because to measure someone’s sophistication by the amount of wealth they have accumulated is incorrect.”

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