Bringing property discussions into the advice space for ‘HENRY’ clients

An emerging, and until now largely overlooked, demographic of clients are asset rich members of Gen X (as well as older Millennials) often dubbed ‘HENRYs’.

“It means high earners, not rich yet,” explained Patrick Casey, financial planner and director of Rethink Wealth.

“We're dealing with a lot of people in their late 30s through to early 50s, high income earners, and they're still very much in that asset accumulation wealth building phase, they might have their home, and they've got a lot of equity.”

Opposed to the traditional, high-net-worth, decumulation clients many adviser practices aim for, this group are often asset rich but strategy poor. They are often looking for financial strategies that will secure them financially throughout their work lives rather than just retirement, funding lifestyle choices such as private education for their children.

One investment that Casey believes appropriate for this age group is property.

“Property investment makes sense for high-income earners in their asset-building years because they can use their strong cash flow and equity to leverage into an asset class that’s relatively stable and has long-term growth potential,” he said.

“Property has lower volatility than shares and allows for leverage, which is why it suits clients who are still in their wealth-building years and want to grow their asset base efficiently.”

However, as Casey acknowledges, property is not a regulated market, making it at times a difficult space to give advice in.

“Because property is not a regulated financial product. I cannot advise a client to invest in a specific property,” he stated.

“However, we can develop a financial plan, cash flow projections, financial forecasts, and show them as an asset class, how property may be able to fit into their scenario.”

Despite this, there is a real lack of understanding and education around property in the advice space, leading to reluctance for many advisers.

“Even though property may be appropriate for some clients … from an investment perspective, there’s actually very little formal education or ongoing training for financial advisers that focuses on property investment,” Casey acknowledged.

He added: “There’s a lot of misunderstanding and some restrictions around the licencing rules of financial planners and the ability to provide advice on financial regulated products – which property is not.”

For Casey, being educated and aware of regulatory requirements and potential pitfalls are vital if you are wanting to advise clients on property.

“Advisers are very aware of potential scrutiny from ASIC. They’re conscious of the risk – they don’t want to be under ASIC’s eye ​​– so they steer clear of property altogether because of the complexity of operating in that space,” he highlighted.

“Once you realise where that line is, and you build a plan not to step over it, you can have a genuine property conversation with clients. But most advisers just don’t have the confidence or framework to do that yet.”