The World Wealth Report 2018 (WWR), released by Capgemini, found the improving global economy spurred high net worth individual (HNWI) wealth to surpass the US$70 trillion thresholds for the first time. Registering its sixth consecutive year of gains, HNWI wealth grew 10.6 per cent, making 2017 the second-fastest year of HNWI growth since 2011. The new report also highlighted the anticipated entry of BigTechs into wealth management as well as growing HNWI interest in cryptocurrencies, which reached an all-time high market capitalization in January 2018.
Global HNWI growth continues across regions
The HNWI population continued to grow across global regions, with Asia-Pacific and North America accounting for 74.9 percent of the total global increase in the HNWI population (1.2 million new HNWIs) and 68.8 percent of the rise in global HNWI wealth (US$4.6 trillion in new HNWI wealth).
Europe also realized a strong performance in 2017 with 7.3 per cent of HNWI wealth growth. The largest markets, comprised of the United States, Japan, Germany and China, represented 61.2 per cent of the global HNWI population in 2017 and accounted for 62 per cent of all new HNWIs globally.
Wealth managers delivered another year of strong returns
According to the report, global HNWI investment returns (on the assets managed by wealth managers) were up 27.4 per cent in 2017. Equities remained the largest asset class in the first quarter of 2018 at 30.9 per cent of HNWI financial wealth, followed by cash and cash equivalents at 27.2 per cent, and real estate at 16.8 per cent (the 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 percent versus 16.9 percent), 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.
Robust investment returns are not increasing HNWI satisfaction
Strong investment returns in 2016 and 2017 did not yield an overall HNWI satisfaction level globally, in contrast to significantly high trust and confidence levels in wealth managers and firms, suggesting that returns alone cannot sustain a wealth management business. North American HNWIs appeared the most satisfied with their wealth manager (75.2 per cent), while no other region passed the 70 per cent threshold.
In 2018, only 55.5 per cent of HNWIs said they connected very well at a personal level with their wealth managers, despite substantial investment returns delivered over the past two years. The majority of HNWIs (64.3 per cent) 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.
“There is clear opportunity for wealth management firms to strengthen their relationships with their high net worth clients as nearly half say they don’t 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,” said Anirban Bose, member of the Group Executive Board and Head of Capgemini’s Financial Services Global Strategic Business Unit.
Cryptocurrencies gain global attention
While not yet a major part of HNWI portfolios, there is growing interest in cryptocurrencies as an investment tool and store of value. Cryptocurrency investments gained global attention in 2017 and peaked in market capitalization in early January 2018. However, HNWIs are cautiously interested in holding cryptocurrencies, with 29 per cent globally having a high degree of interest, and 26.9 per cent saying they are somewhat interested.
Cryptocurrency’s potential for investment returns and as a store of value are driving HNWI interest, with 71.1 per cent of HNWIs aged 40 and below placing high importance on receiving cryptocurrency information from their primary wealth management firms, compared to 13 per cent 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 per cent of HNWIs globally saying they have received cryptocurrency information from their wealth managers.
Wealth management firms prepare for BigTech entry
Although widespread global entry of BigTechs into wealth management remains uncertain, leading firms (nearly three-quarters of all interviewed firms) are investing in innovative technologies such as intelligent automation and artificial intelligence (AI) over the next 24 months, as they prepare for BigTechs to play a larger role in the industry.
The most likely approach for BigTech entry will be based on building partnerships through the white labelling 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, the report highlights that 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.