Young people coming into wealth are increasingly seeking services to minimise portfolio risks

Young people coming to wealth are increasingly seeking services to minimize portfolio risks. FILE PHOTO | SHUTTERSTOCK

Young Kenyans are increasingly looking to family wealth advisors and wealth managers as they explore reliable and secure investment options.

Behind the growing market for wealth management, a recent report shows that young investors are also wealth inheritors, bucking the previous trend where it was the preserve of institutional clients.

High demand for these professionals to help minimize portfolio risk has led asset managers such as fund managers, brokerages and banks to rush into the wealth management space dotted with family offices.

“It’s a trend that’s coming. We are joining the bandwagon because around the world, wealthy people are not just investing for themselves,” says Elizabeth Irungu, head of wealth management at Absa Bank Kenya.

She adds: “The country has grown to the point where spending on investment management services is going to the individual, which is quite interesting because if you look at developed markets, high net worth individuals make up a large percentage of the players in the investment space.”

Standard Chartered’s Wealth Expectations Report 2022 shows that about 35 percent of Kenyan investors use professional wealth managers, while 62 percent of global investors surveyed primarily managed their own finances.

On average, across the 14 markets surveyed, younger investors (ages 18-35) who represent 63 percent of survey respondents are more likely to use a professional wealth manager compared to 39 percent of the 55+ age group.

The change in wealth management is a significant change for traditional asset managers who operate within a defined framework, such as pension mandates, and are licensed by regulators.

In asset management, the investment policy statement is aligned with the regulatory framework compared to investor-specific asset management, hence the emergence of family offices.

“Wealth has everything to do with individuals, and each of them has different needs and unique aspects to consider in building their wealth,” says Ms Irungu.

Investment managers advise wealthy individuals when creating or managing their investment portfolios.

“There are many advantages. As a wealthy person, you don’t want to be the one making the decisions. You want your manager to do all the work for you,” Ms Irungu adds.

“You want your manager to do the groundwork before they invest capital, because capital is expensive and also looking for a return.”

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The StanChart report adds that investors who use professional wealth advice are more likely, on average, to have diversified portfolios and higher investments in sustainable investments.

The recommendations of the investment managers are also based on fundamental research, risk analysis and evaluation that help in making better decisions.

Wealth managers, Ms. Irungu notes, also conduct broad analyzes of local and international markets to maximize available options and their interactions.

Elizabeth Irungu is Head of Asset Management at Absa Bank Kenya. FILE PHOTO | POOL

“At the end of the day, we create the optimal portfolio that is tailored to you,” says Ms Irungu.

Vanya Michuki, a family wealth consultant and advisor, says more business founders and parents are seeking help due to the increased frequency of failed inheritance cases.

“Family businesses are complex systems and members may not be able to discern patterns that are destructive to their families, businesses and wealth,” Ms Michuki says.

“A family looking to establish a multi-generational legacy should hire a family wealth advisor who understands the subsystems of family, ownership and business and can help them develop healthy relationships within and between those systems so they can thrive.”

Families also realize that lawyers and wealth managers won’t necessarily ensure that their relatives don’t end up in litigation after they’ve passed away, she adds.

Ms. Michuki coaches families on changing their mindset as part of the process of getting them to work or successfully hold their property together.

Most of these families run businesses or investment portfolios that generate wealth and employ some of the family members.

Contrary to popular perception, Ms Michuki says that until they inherit wealth, most heirs from wealthy families are from the middle class.

And so, it is mostly the second generation (successors) who seek a family wealth advisor as they experience the challenging dynamics of family wealth.

“A good family wealth advisor will work within a multidisciplinary team that combines legal, financial, organizational and behavioral consulting and advisory services for the benefit of the individual/family. If the family has created a wealth plan together (ideal scenario) and works with a wealth manager, such as a fund manager or private bank, chances are they will each have their own relationship manager managing their personal accounts. However, distributable wealth is generated from assets held by the family and managed by the wealth manager.”

Ms Michuki says newly married Kenyans want to know how to grow and maintain their wealth, how to make the family work when it comes to wealth and how the family business will look after their families when they die – depending on the circumstances of the family or the individual.

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The demand for wealth managers among young Kenyan investors comes amid concerns about a blow to the global investment landscape, such as fears of a recession challenging investors’ ability to manage their wealth.

The StanChart report shows that 50 percent of Kenyan investors cited inflation, uncertainty in the global economy (33 percent) and the threat of recession (15 percent) as their top concerns.

With proper wealth management, they hope to save for retirement, which is the top priority of surveyed wealthy Kenyans (50 percent).

Others cited children’s education and future, lifestyle and health, as well as the need to ensure cash flow to cover daily living expenses and new projects.

“Our research reveals that they are making changes to their portfolio allocation in response to these challenges, but it is important that they make decisions in line with their goals and the external environment,” Paul Njoki, StanChart Head of Wealth Banking and Wealth Management in Kenya and Eastern Africa said.

To beat inflation, 61 percent of global investors want to reduce their cash holdings, compared to 67 percent in Kenya.

Standard Chartered predicts global cash allocations will fall from 26 percent in 2022 to 15 percent in 2023, as indicated by investor responses.

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