PCS by Mercer HNW profile – 2024: Creating a new income stream and financially savvy, younger
Change when the context is largely the same.
Amidst ongoing global volatility, the macroeconomic environment remains generally unchanged. The 2023 financial markets’ predictions for widespread interest easing cycles in 2024 are yet to materialize. And whilst a few central banks (like the Swiss National Bank) have begun cutting interest rates2, many more around the world continue to grapple the narrow space between supporting economic activity and controlling inflation. And so, for all intents and purposes, our clients continue to manage their portfolios for a high-interest environment.
In this stasis, however, we at PCS by Mercer are experiencing a definitive change – our HNW clients are unambiguously embracing income plans (a.k.a. saving plans*). The change goes beyond the pursuit for stability that we have seen since 2020, it’s something distinct and dynamic. We believe the upsurge of income plan inception in 2024 is a trend of HNW individuals strategically forging a new path in wealth creation. They are creating a new income stream.
The buy-and-hold asset forming the core of HNW portfolios.
Life protection products have an undeserved reputation for conservatism. In reality, some solutions have evolved to create value and steady income whilst simultaneously servicing HNW risk mitigation needs. The latest income plan offerings are less than five years old and have features that meet today’s complex wealth management requirements. Our (early adaptor) HNW clients are leveraging those features.
They are incepting income plans as more than a viable asset class, but the dependable, buy-and-hold core of their portfolios. For some clients, income plans are effectively playing the role of fixed income and bond products because the solution incorporates coupons/dividends as well as bonuses but is much more flexible. Take the principal guaranteed mechanism for instance; after a number of years, in which the cash value of the policy has compounded, clients may choose to begin withdrawing the quantum equivalent of the policy’s premium. The staggered withdrawal means the policy retains sufficient cash value to continue paying an income without lapse/surrender. The mechanism thereby creating an ongoing future revenue stream akin to selling your house for the purchase price and then continuing to collect rent.
There are many other upsides of income plans.
And, perhaps most importantly, income plans can be structures that support wealth transfer to future generations. Some solutions allow you to change the life-insured, which amplifies an individual’s ability to pass on a legacy whilst enjoying the fruits of their labor.
An additional explanation as to why income plans are showing such robust performance right now is that the cash accumulation phase can be maximized in a high-interest environment.
Even 6% return is not that high, why not buy high-flying equities instead?
Our HNW clients have extensive asset portfolios, including equities, and they are likely to have a few Nvidia stocks in the mix. But they are also smart enough to know that exceptional upsides come hand-in-hand with equal downsides. Those who bought into Blackberry in May 2008 when the company’s market cap was at $78.83B understand the downside is today’s $1.47B3.
The HNW will continue to trade and sell extraordinary stocks, but they are simultaneously purchasing foundational stability with income plans. Their strategy? Stock hurricanes might blow where losses can be taken, but income plans keep paying.
Client demographics are also shifting.
The other trend we are seeing is a younger mix of clients. In the past, we predominately saw people in, or above, their middle age – a life stage when sizeable assets had already been accumulated. But now we are seeing a clear shift. Meetings with astute clients in their thirties are common.
There are three major factors for this. Firstly, Millennials (those born between 1981 and 1996)4 are financially savvy. This is in part because they have had unfettered access to information, and also because most have strong memories of living through the 2009 Global Financial Crisis. Millennials see the benefits of starting wealth management earlier and they are putting their knowledge to clever use.
A different kind of access is another reason that younger people are incorporating life protection into their wealth management early. Flexible payment methods allow access to solutions that previously required serious capital. It means you now don’t have to own substantial assets to be able to afford a policy, and so Millennials are maximizing the funds and time they have.
And finally, many younger clients are the contingent beneficiaries of their parents’ and grandparents’ policies, but rather than passively wait, they are acting on a good thing. Young HNW clients are incepting their own policies, so they too, can enjoy their rewards earlier.
1 As the Chief Executive Officer, Singapore, of Private Client Services by Mercer, Davin Wong is responsible for developing strategic plans for the SEA market and managing key partner relationships in the region.
With over 22 years of experience in wealth management, client advisory, and private banking, Davin brings a wealth of expertise to his position. He has held leadership roles in major financial institutions in both Private and Consumer Banking across various geographies.
Davin holds a Master's degree in Advanced Finance and a Bachelor's degree in Accounting and Finance from The University of New South Wales (UNSW) in Australia.
Fluent in English, Mandarin, Cantonese, and Hokkien, Davin is able to effectively communicate with clients and stakeholders from diverse backgrounds.
3 1 July 2024 price https://companiesmarketcap.com/blackberry/marketcap/#:~:text=Market%20cap%3A%20%
241.47%20Billion,cap%20according%20to%20our%20data.
4 https://www.pewresearch.org/short-reads/2019/01/17/where-millennials-end-and-generation-z-begins/
*Income plans can be known as savings plans in some jurisdictions. The terms are used interchangeably by PCS by Mercer for the same category of life protection solutions.
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joined PCS from VP Bank where he served as an Executive Director. He previously held similar leadership roles in Bank Julius Baer, ANZ, UOB, DBS and HSBC. Davin has over 20 years of wealth management, client advisory and private banking experience in both frontline and leadership roles.
Davin holds a master’s degree in Advanced Finance and a bachelor’s degree in Accounting and Finance from The University of New South Wales (UNSW), Australia.