Investing in Cultural Understanding

Serving today's increasingly sophisticated investor requires a solid comprehension of their financial goals. Merrill Lynch has strived for nearly two decades to establish a deep understanding of the needs of high net worth individuals (HNWIs--individuals with more than $1 million in financial assets) and what it takes to successfully serve this market segment. Ipsos recently partnered with Merrill Lynch to gain a clearer appreciation of the diverse investor characteristics of a growing part of this market segment--and the two fastest growing populations in the U.S.--Asian-Americans and Hispanic-Americans. When asked about their current behaviors regarding saving and investing and their attitudes toward wealth, saving, investing and risk tolerance, Asian-American and Hispanic-American respondents revealed some surprising results.

Investing against the grain

Amid the volatile equities landscape of 2002, around 24% of Asian-American and 31% of Hispanic-American HNWIs increased their holdings in stocks and mutual funds. At the same time, and following the general wealth preservation trend, nearly half of each group also increased allocation in real estate and cash holdings. Hispanic-American HNWIs had a greater increase in real estate holdings; 42% compared to 33% of Asian-American HNWIs.

In-the-know or who you know?

Both Asian-Americans and Hispanic-American HNWIs view themselves as fairly educated in financial matters concerning traditional products, such as stocks and bonds, though they demonstrate divergent investment approaches. Generally, Asian-American HNWIs embrace a more "do-it-yourself" attitude with investment while Hispanic-Americans are more inclined to solicit counsel from financial advisors; 52% of Asian-American HNWIs used a primary advisor compared to 67% of Hispanic-Americans. This attitude is also reflected in Hispanic-American HNWIs' greater use of financial plans--33% compared to approximately 24% of Asian-Americans. Further, when choosing an advisor, Asian-American HNWIs put a much greater emphasis on advisor personality compared to Hispanics. These behavioral differences are not based on different levels of investment knowledge, but can likely be attributed to varying cultural backgrounds.

Motivating factors

For Asian-American and Hispanic-American HNWIs, wealth growth and preservation are both key financial goals. The difference is in the motivations behind these two goals. When asked about the primary goal of estate planning, supporting family and spouse were two of the top goals for Hispanic-Americans. Conversely, a majority of both Asian-American and other HNWIs seek tax planning as their primary estate planning goal. It should be noted that almost half of affluent Asian-Americans and more than 40% of affluent Hispanic-Americans did not have an estate plan.

The growing population of Asian-Americans and Hispanic-Americans is frequently underserved or unserved in the marketplace. The Ipsos and Merrill Lynch study demonstrates how research into behavior within market segments can identify key opportunities. A solid understanding of the different market segments unlocks crucial information that enables businesses to improve services to existing clients and attract new business.