Young Kenyans are increasingly seeking family wealth advisors and wealth managers as they explore reliable and secure investment options.
Behind a growing market for wealth management, a recent report shows are young investors and wealth heirs, outlying the previous trend where it was a reserve of institutional clients.
The high demand for these professionals to help minimise portfolio risk has seen asset managers such as fund managers, brokerages, and banks rush into the wealth management space, dotted with family offices.
“That is the trend that is coming in. We are joining the bandwagon because worldwide, wealthy people don't just invest for themselves,” says Elizabeth Irungu, head of asset management at Absa Bank Kenya.
She adds: “The country has grown to that point where the consumption of investment management services is going to the individual which is quite interesting because if you look at the developed markets, the high net worth individuals comprise a big percentage of players in the investment space.”
The Standard Chartered’s Wealth Expectancy Report 2022 shows about 35 percent of Kenyan investors use professional wealth managers while 62 percent of polled global investors were primarily managing their finances.
On average, across the 14 markets surveyed, younger investors (aged 18-35 years) representing 63 percent of the survey respondents are more likely to use a professional wealth manager compared with 39 percent in the 55+ years bracket.
The wealth management shift is a marked shift for traditional asset managers working within a defined framework, like the pension mandates, and licensed by regulators.
In asset management, the investment policy statement is aligned with the regulatory framework compared to wealth management which is specific to an investor, hence the sprout of family offices.
“Wealth has everything to do with individuals, and each of them has different needs and unique aspects that need to be considered in building their wealth,” says Ms Irungu.
Investment managers advise high-net-worth individuals when creating or managing their investment portfolios.
“There are many benefits. As a wealthy person, you don't want to be the one making determinations. You want your manager to do all the work for you,” Ms Irungu adds.
“You want your manager to do the groundwork before committing capital, because capital is expensive and is also looking for a return.”
The StanChart report adds that on average, investors taking advantage of professional wealth advice were more likely to have diversified portfolios and higher holdings in sustainable investments.
The recommendations from investment managers are also based on fundamental research, risk analysis, and assessment that assist in making better decisions.
Wealth managers, Ms Irungu notes, also carry out broad analyses of local, and international markets, to increase available options and their interplay.
“At the end of the day, we are creating an optimal portfolio that is bespoke to you,” says Ms Irungu.
Wanja Michuki, a family wealth consultant and adviser, says more business founders and parents are seeking help because of the increased frequency of failed succession cases.
“Family enterprises are complex systems and members may not be able to discern the patterns that are destructive to their families and businesses and wealth,” Ms Michuki says.
“A family that is looking at establishing a multi-generational legacy should engage a family wealth adviser who understands the family, ownership, and enterprise sub-systems and can help them develop healthy relationships within and across those systems so that they can thrive.”
The families also understand that lawyers and wealth managers will not necessarily ensure that their kin do not end up in disputes once they have passed on, she adds.
Ms Michuki coaches families on mindset change as part of the process of getting them to work or hold assets together successfully.
The majority of these families run businesses or investment portfolios that generate wealth, while also employing some of the family members.
Contrary to popular perception, Ms Michuki says until they inherit the wealth, most heirs from wealthy families are middle-class.
And so, it is mostly members of the second generation (inheritor) that seek a family wealth adviser as they experience the challenging dynamics of family wealth.
“A good family wealth adviser will work inside of a multi-disciplinary team that combines legal, financial, organisational and behavioural consultancy and advisory services for the benefit of the individual/family client. If a family has co-created a wealth plan (the ideal scenario) and is working with a wealth manager, such as a fund manager or a private bank, chances are they will each have their own relationship manager that handles their personal accounts. However, the distributable wealth is generated from the assets held by the family and managed by the wealth manager.”
Ms Michuki says that the newly wealthy Kenyans are seeking to know how to grow and sustain their wealth, how to make the family work when wealth is involved, and how the family enterprise will take care of their families when they die- depending on the circumstances of the family or the individual.
The demand for wealth managers among young Kenyan investors comes amid concerns of a hit on the global investment landscape such as recessionary fears that challenge investors’ ability to manage their wealth.
The StanChart report shows 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, a top priority of Kenya's rich surveyed (50 percent).
Others cited children's education and future, lifestyle, and health, and the need to ensure cash flows to cover daily living expenses and new projects.
“Our research reveals that they are making changes to their portfolio allocations in response to these challenges, but it is important that they make decisions aligned with their objectives and the external environment,” Paul Njoki, StanChart head of affluent banking and wealth management in Kenya and East Africa said.
To outpace inflation, 61 percent of global investors are looking to reduce their cash holdings, compared to 67 percent in Kenya.
Standard Chartered predicts that global cash allocations will fall from 26 percent in 2022 to 15 percent in 2023, as indicated by investor responses.