Unlike their counterparts in the U.S. and elsewhere, Canadian HNW investors are seen by experts as a disciplined lot, with a tighter grip on their emotions when it comes to investing decisions.
According to a new study by Barclays Wealth, based upon a survey of 2,000 wealthy people in 20 countries around the globe, the wealthy, like ordinary investors, lack self-control, trade on emotions, and in many cases, are given to overtrading.
The experience of those working with Canadian HNW investors, however, doesn’t quite correspond with the findings of the study. Thane Stenner, managing director, TIGER 21 Canada and director, wealth management and investment advisor, Richardson GMP, is the first to disagree with the result of the survey.
“Because of their entrepreneurial background, HNW folks for the most part tend to be more disciplined than most of the population [and] that applies to how they invest their capital,” he said.
Stenner qualifies their discipline with the fact that, globally, 60% of the capital is controlled by the top 1% of the investing population. “I’ll conclude that over and over that it’s because they are better investors, more disciplined with their capital and they tend to go against, or ahead of, what most of the crowd is doing.”
And although that doesn’t make them infallible, they do have a higher batting average as it pertains to investing and hence have created more wealth than most, he added. “They make fewer mistakes and know how to contain their emotions better when they’re making tough investment decisions.”
Having trusted and qualified people to talk to is the biggest difference between HNW investors and the average individual investor, said Scott Starratt, director, wealth management at Richardson GMP Limited.
“That’s not always an investment advisor. Sometimes it’s an accountant or a lawyer or their colleagues, but [HNW investors] tend always to go with a sober second thought [which] allows them to second guess themselves,” said Starratt.
The Barclays survey noted significant differences in the behaviour of wealthy investors depending on their geographic location. Investors in the Asia Pacific region, for instance, tend to have the greatest desire for financial discipline. It may in part be a function of having a greater desire for growth than their Western counterparts and, therefore, are more active in their trading style.
Stenner’s personal observation broadly corroborates this regional distinction. “Canadian investors vis-à-vis Asian investors tend to be more conservative; my sense of Asian investors is that they tend to be more growth oriented and they tend to trade more often.”
Canadian and American HNW investors, by comparison, are more conservative, he said. They prefer “buy-and-monitor” investment strategy to “buy-and-hold-and-ignore” which Stenner says is a bit passé. “The last two or three years have taught HNW investors to be more aware as to what they are owning so they are demanding more transparency with their advisors [around] their underlying exposures to different classes.”
This, he said, doesn’t mean they want to trade more, but monitor more closely their holdings.
Starratt agrees Canadian HNW investors are no longer buying into the buy-and-hold strategy. “The clients themselves are telling us that buy-and-hold is dead, it’s not going to work any longer.”
Unlike in the past, HNW investors are more actively engaged, and de-risking of portfolios to mitigate volatility is on the rise. “When something goes sideways or doesn’t work out, they are asking a lot more questions,” said Starratt. “Their patience is waning; if something is not working, they want to do something about it.”
Interestingly, the Barclays Wealth survey found wealthy male investors had significantly higher risk tolerance than wealthy women investors.
Starratt’s experience is consistent with the result. Most women, he said, don’t feel the need to “knock it out of the park” while men do tend to take more risks because “they are less likely to accept that they don’t know and don’t have the skill set to do it.”
Women investors in the HNW space, conversely, tend to want more information, more assurance and a better understanding of what the risks are. “They are very logical investors, whereas men tend to be a little bit more transactional and little bit quicker on the trigger,” said Stenner.
That said, in the largely male dominated Canadian HNW landscape, female HNW household has a critical role to play other than accumulating wealth. “They can help their male counterpart not be so trigger happy and make sure there’s an overall game plan for the overall wealth of the family,” said Stenner.