Meeting the ultra-wealthy

(May 2006) Canada has many things going for it. A large population, however, isn’t one of them. When it comes to attracting and retaining affluent individuals, professionals face an uphill battle. Simply put, there aren’t a lot of them to go around.

This is especially true of Canada’s ultra-high-net-worth (UHNW) population. Over the past decade, various Wall Street firms (Goldman Sachs, Merrill Lynch/CapGemini, Citigroup, U.S. Trust and others) have all issued detailed studies of America’s ultra-affluent population (generally defined as those with more than $10-million in investable assets). But here in Canada, the ultra-affluent have remained something of a mystery — if only because there aren’t a lot of them to study.

In November of last year, my partners and I set out to change that. We commissioned a detailed survey to send to our clientele and other UHNW individuals we knew of through professional contacts from across the country. A total of 165 surveys were completed and returned.

The survey asked a variety of financial and personal questions, on topics ranging from investment selection to charitable giving to hobbies and collecting. The answers were then confidentially compiled and analyzed by Sensus Research, in consultation with Irving + Company, and published as the 2006 T. Stenner Group TrueWealth Report.

Allow me to review some of the survey findings with you now.

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• Who are they? • Passions and interests • Worries and anxieties • Protecting wealth • Philanthrophy and values

WHO ARE THEY? • 77% of survey respondents are male, and the vast majority (78%) are married.

• 41% identify themselves as between 40 to 55 years old, while another 32% are between 56 and 65.

• Almost 85% of respondents report their net worth as over $10 million; 45% report their net worth as over $25 million.

• 70% of respondents report their annual income is greater than $1 million.

• 51% identify a privately held business (one they still own, or one they have sold) as the primary source of their wealth.

Implications: (a) With an annual income of more than $1-million, even a dozen of these clients represent a sizeable growth opportunity for the financial professional. (b) Because of their high incomes, marketing strategies should focus on client satisfaction and asset capture rather than bringing on more clients. (c) To serve this market well, it makes sense to supplement your professional education with specialized training in business succession planning and/or corporate finance.

PASSIONS AND INTERESTS • 53% of respondents identify travel as one of their favourite hobbies or activities; London, New York, and Paris are their top three travel destinations.

• 44% say they are most likely to reserve hotel space at Four Seasons properties. A further 22% prefer to stay with Ritz-Carleton.

• 53% of respondents own a Mercedes, 44% a BMW , and 33% a Porsche.

• 90% of respondents say they are collectors of art. Seventy-two per cent say they collect antiques, and 69% collect wine.

Implications: UHNW individuals have diverse interests; identifying with one or more of these activities could be an excellent way to network with UHNW prospects.

WORRIES AND ANXIETIES • Fully 60% of survey respondents “strongly disagree” with the assertion that managing wealth is easy.

• When asked if managing wealth could be characterized as a “burden on their time,” 80% agree, either strongly (23%), or somewhat (57%).

• Asked to identify the wealth-related issues that cause them anxiety, 75% of respondents admit they worry about their ability to maintain their current lifestyle. Fifty-seven per cent say they worry about whether their kids will be less motivated to succeed because of the family’s wealth.

Implications: (a) UHNW individuals are looking for experts who can simplify financial decisionmaking and eliminate financial hassles. (b) Even with ultrawealthy clients, professionals should be prepared to address basic planning questions like “will I have enough?”

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• Who are they? • Passions and interests • Worries and anxieties • Protecting wealth • Philanthrophy and values

PROTECTING WEALTH • 55% of respondents expect an average annual return of 7% to 8% before tax over the next five years. An additional 16% expect even less than that.

• 75% of respondents say they use a family trust to protect their wealth; 68% use a corporate holding company; 59% use a custom-built insurance structure.

• 89% view Canadian real estate prices as either expensive (45%) or somewhat expensive (44%).

• 67% believe the real estate market is likely to suffer a downward turn in the near future.

• Asked where they would invest their money if they had to allocate 20% of their net worth tomorrow, 49% chose the stock market. Only 12% chose real estate.

Implications: UHNW individuals place great value on wealth preservation. Professionals who can offer products to match this desire for security with a conservative investment approach should appeal to this demographic.

PHILANTHROPY AND VALUES • 87% of respondents plan to leave a substantial portion of their estate to charitable causes and/or religious groups.

• 70% of survey respondents say they have made a donation of more than $100,000 in the past 12 months.

• 70% of respondents say they are most committed to supporting charities or causes that assist children. Causes involving the arts are next, with 55% of respondents noting their commitment. Religious causes (42%) and health care (38%) are other popular choices.

• The survey presented respondents with a number of possibilities as to why they give: 60% of respondents identified the personal tax and estate benefits that come with charitable giving — but a mere 7% ranked it as the primary reason for giving. By contrast, 50% identified an obligation to support people less fortunate, with 23% ranking it their primary reason.

Implications: UHNW individuals are among Canada’s most generous citizens. Professionals who can offer expert-level planned giving services will have a significant competitive advantage when it comes to attracting and retaining UHNW clients.

For more information about the 2006 T. Stenner Group TrueWealth Report, please go to www.truewealthreport.com.

Thane Stenner, CIM, FCSI, is a First Vice President and Investment Advisor with the T. Stenner Group of CIBC Wood Gundy. The views of the author do not necessarily reflect those of CIBC World Markets Inc. This article is for information only. CIBC Wood Gundy is a division of CIBC World Markets Inc., a subsidiary of Canadian Imperial Bank of Commerce and Member CIPF. thane.stenner@cibc.ca www.thestennergroup.ca

This article was orginally published in the April 2006 issue of Advisor’s Edge Report.

Thane Stenner