Wealth of HNWIs cross all-time high

The World Wealth Re­port 2018 by Capgem­ini indi­cates 2017 saw the fastest growth in the wealth of HNWIs

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The World Wealth Re­port 2018 by Capgem­ini indi­cates 2017 saw the fastest growth in the wealth of HNWIs

The wealth of HNWIs across the world crossed $70 tril­lion thresh­old for the first time in 2017, says the World Wealth Re­port 2018 (WWR) pre­pared by Capgem­ini. This has been achieved mainly on ac­count of the im­prov­ing global econ­omy, says Capgem­ini, point­ing out that this is for the 6th con­sec­u­tive year that the HNWI wealth has been reg­is­ter­ing gains. It said HNI wealth grew 10.6%, mak­ing 2017 the sec­ond­fastest year of HNWI growth since 2011.

The re­port says HNWI pop­u­la­tion con­tin­ued to grow across global re­gions, with Asia-Pa­cific and North Amer­ica ac­count­ing for 74.9% of the to­tal global in­crease in the HNWI pop­u­la­tion (1.2 mil­lion new HNWIs) and 68.8% of the rise in global HNWI wealth ($4.6 tril­lion in new HNWI wealth). Eu­rope also re­al­ized a strong per­for­mance in 2017 with 7.3% of HNWI wealth growth, it says, point­ing out that the largest mar­kets com­prised the US, Ja­pan, Ger­many and China, rep­re­sent­ing 61.2% of the global HNWI pop­u­la­tion in 2017 and ac­counted for 62% of all new HNWIs glob­ally.

PREF­ER­ENCE FOR EQ­UI­TIES

The re­port says eq­ui­ties re­mained the largest as­set class in the first quar­ter of 2018 at 30.9% of HNWI fi­nan­cial wealth, fol­lowed by cash and cash equiv­a­lents at 27.2%, and real es­tate at 16.8% (in­crease of 2.8 per­cent­age points.) “Younger HNWIs (un­der aged 40) claim to have achieved much higher in­vest­ment per­for­mance than their older coun­ter­parts (37.9% ver­sus 16.9%), pos­si­bly be­cause of the need to fo­cus on wealth cre­ation at this early stage of their lives, com­pared with the higher fo­cus to­ward wealth preser­va­tion of those HNWIs aged 60 and above,” finds the re­port.

FOR WEALTH MAN­AGERS

While there have been strong in­vest­ment re­turns in 2016 and 2017, this did not yield an over­all HNWI sat­is­fac­tion level glob­ally, in con­trast to sig­nif­i­cantly high trust and con­fi­dence lev­els in wealth man­agers and firms, says the re­port. This may be be­cause re­turns alone can­not sus­tain a wealth man­age­ment busi­ness. “The ma­jor­ity of HNWIs (64.3%) glob­ally said they would use an im­proved sys­tem for lo­cat­ing a wealth man­ager, whether this is a firm-spe­cific ini­tia­tive or pro­vided by a third party or par­ties,” says the re­port.

Anir­ban Bose, mem­ber of the group ex­ec­u­tive board and head of Capgem­ini’s Fi­nan­cial Ser­vices Global Strate­gic Busi­ness Unit, says there is clear op­por­tu­nity for wealth man­age­ment firms to strengthen their re­la­tion­ships with their high net worth clients as nearly half say they do not con­nect well with their wealth man­agers. “Pro­vid­ing an in­no­va­tive dig­i­tal client ex­pe­ri­ence is one way to strengthen the bond be­tween wealth man­agers and their clients,” he adds.

LIK­ING FOR CRYP­TOCUR­REN­CIES

There is grow­ing in­ter­est among HNWIs in cryp­tocur­ren­cies as an in­vest­ment tool and store of value. How­ever, this is still not a ma­jor part of HNWI port­fo­lios. “HNWIs are cau­tiously in­ter­ested in hold­ing cryp­tocur­ren­cies, with 29% glob­ally hav­ing a high de­gree of in­ter­est, and 26.9% say­ing they are some­what in­ter­ested. Cryp­tocur­rency’s po­ten­tial for in­vest­ment re­turns and as a store of value are driv­ing HNWI in­ter­est, with 71.1% of HNWIs aged 40 and be­low plac­ing high im­por­tance on re­ceiv­ing cryp­tocur­rency in­for­ma­tion from their pri­mary wealth man­age­ment firms, com­pared to 13% of HNWIs aged 60 years and above. But wealth man­age­ment firms have been am­biva­lent when it comes to pro­vid­ing cryp­tocur­rency in­for­ma­tion to HNWI clients, with only 34.6% of HNWIs glob­ally say­ing they have re­ceived cryp­tocur­rency in­for­ma­tion from their wealth man­agers” the re­port says.

TECH IN­VEST­MENTS

Lead­ing wealth man­age­ment firms are in­vest­ing in in­no­va­tive tech­nolo­gies like

AI and in­tel­li­gent au­to­ma­tion as they are con­fi­dent of sig­nif­i­cant role of tech­nol­ogy in this do­main, says the re­port. “The most likely ap­proach for BigTech en­try will be based on build­ing part­ner­ships through the white la­bel­ing of in­cum­bent firms’ prod­ucts and ser­vices or em­ploy­ing mod­els that sup­port wealth man­age­ment firms with back- and mid­dle-of­fice pro­cesses. Re­gard­less of the BigTech en­try model and time hori­zon, wealth man­age­ment firms must trans­form the way they in­vest for the fu­ture as well as move away from tra­di­tional bud­get­ing mod­els to a more dy­namic port­fo­lio-based ap­proach,” the re­port sug­gests.

IN­DIA GROWTH

Asia-Pa­cific main­tained its growth mo­men­tum and ex­panded its lead in HNWI pop­u­la­tion and wealth over North Amer­ica, says the re­port. There is a new record of 6.2 mil­lion HNWIs and $21.6 tril­lion in HNWI fi­nan­cial wealth in the re­gion, rep­re­sent­ing an ac­cel­er­ated growth of 12.1% and 14.8% re­spec­tively, and the re­gion ac­counts for 34.1% of the global HNWI pop­u­la­tion and 30.8% of global HNWI wealth, it adds.

It says: “Asia-Pa­cific was nat­u­rally home to some of the fastest grow­ing mar­kets in 2017. In­dia was the fastest grow­ing mar­ket glob­ally in 2017, with a 20.4% HNWI pop­u­la­tion ex­pan­sion and 21.6% HNWI wealth growth. Al­though In­dia’s eco­nomic per­for­mance re­mained strong in 2017, it de­cel­er­ated from 2016 lev­els, wealth gen­er­a­tion was sup­ported by a strong eq­uity mar­ket, with mar­ket cap­i­tal­iza­tion ex­pand­ing by 51.3% in 2017 against 3.1% in 2016.”

United States, Ja­pan, Ger­many and China rep­re­sented 61.2% of global HNWI pop­u­la­tion dur­ing the year, which is al­most sim­i­lar to the fig­ure in 2016. These 4 mar­kets also ac­counted for 62% of all new HNWIs cre­ated glob­ally in 2017, the re­port says.

“No­table mar­ket moves within the rank­ing saw In­dia over­take the Nether­lands into the 11th po­si­tion, Kuwait over­take Nor­way into the 19th po­si­tion. Swe­den was the only mar­ket to in­crease its rank­ing by 2 places, mov­ing to 23rd at the ex­pense of Mex­ico. In 2017, In­dia’s econ­omy grew by 6.7% along with strong eq­uity mar­ket per­for­mance. The econ­omy of Swe­den and Hong Kong grew by 2.4% and 3.8% re­spec­tively,” the re­port says.

ROSY FU­TURE

The re­port pre­dicts that the global HNWI wealth is pro­jected to reach $106 tril­lion within the next 7 years.

The re­port found that sig­nif­i­cant in­vest­ment re­turns do not fully cor­re­late with sat­is­fac­tion for HNWIs. “Al­though yearover-year global HNWI sat­is­fac­tion lev­els ticked up ro­bustly, the in­crease was off a rel­a­tively low base with the ‘pass­ing grade’ of 70% HNWI sat­is­fac­tion lev­els not achieved, sug­gest­ing that in­vest­ment re­turns alone are not enough to sus­tain a wealth man­age­ment busi­ness,” it says. It also be­lieves a range of con­cerns among HNWIs may be driv­ing the sub­dued sat­is­fac­tion scores - over­all wealth man­age­ment fee lev­els, the need for ser­vice per­son­al­iza­tion and a de­sire for broader value de­liv­ery (across in­vest­ment and non­in­vest­ment ar­eas. It there­fore sug­gests that one way of im­prov­ing HNWI sat­is­fac­tion scores would be through en­hanc­ing the per­sonal con­nec­tion among HNWIs and wealth man­agers, thereby re­duc­ing the reliance on in­vest­ment re­turns for re­tain­ing HNWI clients.

PREF­ER­ENCE FOR GOOGLE

An­other find­ing of the re­port is that Google is by far the most in-de­mand BigTech for wealth man­age­ment. Across most re­gions, Google emerges as the BigTech firm with which HNWIs would most want to start a wealth man­age­ment re­la­tion­ship, it says. “Glob­ally, HNWIs show pri­mary in­ter­est in Google, with 36.7% of HNWIs hav­ing ex­treme in­ter­est in the firm. HNWI in­ter­est in start­ing a wealth man­age­ment re­la­tion­ship with Google is strik­ingly higher in Asia-Pa­cific (ex­clud­ing Ja­pan (608%) and Latin Amer­ica (75.2%) HNWIs. HNWIs also in­di­cated that Mi­crosoft, Ama­zon and Ap­ple were de­sir­able BigTech firms for po­ten­tial wealth man­age­ment ser­vices,” says the re­port.

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