Affluent starting to spend cautiously

High-net-worth individuals are changing wealth management strategies in order to preserve wealth.

Absa Private Bank’s latest analysis of customer behaviour reveals that South Africa’s affluent consumers are focussing more on personal liquidity management and postponing expenditure on big ticket items.

Gavin Opperman, CE of Absa Retail Bank, said: “We’ve observed a change in behaviour patterns among the affluent consumers who have been adopting debt reduction strategies. These behaviours have impacted cash savings, deposits and annuity-based investments.”

He added that the affluent consumers had adopted a wait-and-see attitude with regard to major purchases while also monitoring economic developments, particularly the future direction of interest rates.

“Consequently, there is a sharp decrease in the ‘buy-to-let’ residential market andan evident trend of consumer preference to adopt longer vehicle finance contract periods to aid the affordability of more expensive cars,” Opperman added.

He indicated that the latter trend was not advisable from a consumer perspective as it is always better to pay off vehicle purchases over the shortest period. “Extending the finance period slows down the redemption of capital, resulting in consumers accruing relatively more interest on their vehicle finance loans,” Opperman explained.

He said that low-risk; medium-term returns with some flexibility in terms of liquidity seem to be favoured by the affluent at the moment. “We see a trend of wealth preservation, with the bulk of investments being made in the fixed-income and money market funds.”

Opperman added: “Even though we are beginning to see some normalisation of financial markets while credit markets are barely showing any signs of recovery, high-net-worth clients remain cautious. This is possibly due to the fact that they were deeply impacted by the effects of the recent market movements.

“The changing behavioural trends suggest that those in the affluent market have clearly rethought their investment and life goals and are now heavily weighing their risk appetite while striving towards a debt-free position. As Private Bankers, we will need to be more responsive and flexible than in the pre-crisis years due to this change in behaviour patterns,” Opperman says.

“Looking ahead, if the current trends continue, our strategy is in line with our One Absa objectives which aim to build value strategies and investment programmes from a client-benefit perspective. I believe that we are getting it right and that it has become a key differentiator in building a viable Private Bank business,” concludes Opperman.