High-net-worth (HNW) households—those with greater than $5 million in investable assets—now account for more than 43% of total U.S. investable assets, according to The Cerulli Report—U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2020. Current levels of wealth concentration will likely remain for years to come, providing a large investor base for both advisory firms and asset managers.

The rapid spread of COVID-19 in the first half of 2020, combined with dramatic falls in economic output, unemployment, and volatile financial markets, has had a considerable impact on wealth concentration among HNW investors. This has only accelerated a trend that has been well in place for the past 10 years. During the past decade, the HNW market has grown at a record pace, due to a combination of wealth creation and strong market performance. The number of HNW households alone reached record levels in 2019, with more than 1.6 million households, while ultra-high-net-worth (UHNW) households—those with $20 million or more in assets—have grown at a faster rate than any other wealth tier.

Furthermore, financial assets in the hands of HNW and UHNW investors grew to nearly $20 trillion in 2019, increasing nearly $13 trillion (or 11% annualized) over the past decade, compared to 3% annual growth among households below the $5 million threshold. Despite comprising a small fraction (1.3%) of the total U.S population, HNW households now account for more than 43% of total U.S. investable assets, up from just 27% in 2010.

While accelerated growth among HNW investors has given firms even more reason to move upmarket, increased service demands and portfolio complexity will force wealth and asset management providers to adapt. “Many firms are challenged to provide the proper resources and skills to deliver more esoteric advisory services, especially when it comes to the more complex elements of wealth management, including estate planning, tax planning, charitable giving, and concierge services,” says Asher Cheses, senior analyst at Cerulli. “Firms must adequately assess whether they have the necessary capabilities, products, and resources before attempting to move upmarket.”

For firms serving the HNW market, it’s important to understand the shifting wealth dynamics. “Serving this demographic requires a highly specialized and tailored approach. With the number of HNW investors growing and wealth increasingly shifting to the hands of younger generations—and a greater proportion of women—advisory firms need to reinvent their service offerings and relationship models,” remarks Cheses. Furthermore, HNW investors generally require more complex product solutions, and typically expect more when it comes to the value, technology, and services provided by their advisor.

As firms look to move upmarket, they will need to deliver a differentiated product set, client experience, and service model based on investors’ unique needs, personal values, and expectations. Additionally, asset managers need to be mindful of the shifting product and fee preferences, requiring a flexible and customized approach when engaging HNW practices. “While competition for the HNW segment will likely continue to rise in the coming decade, firms can gain momentum in this market with the right customized approach, services, and fund offerings,” concludes Cheses.