While globally in 2015 High Net Worth Individual (HNWI) (see note 1) wealth saw only a modest growth of 4 percent, wealth in Asia-Pacific grew at an aggressive 10 percent propelling Asia-Pacific into the lead position as the region with the most HNWI wealth globally according to the 20th edition of the World Wealth Report (WWR), released today by Capgemini. This is the first time that Asia-Pacific is ahead of North America for both HNWI wealth and population. In 2015, Asia-Pacific held US$17.4 trillion in wealth with a 5.1 million HNWI population in comparison to North America’s US$16.6 trillion in HNWI wealth and 4.8 million in population.
Global HNWI wealth reached US$58.7 trillion and the HNWI population grew at 4.9 percent to be 15.4 million in 2015. Since 1996, global HNWI wealth growth has expanded by four times equaling nearly US$59 trillion, and if current modest growth rates hold, wealth is projected to reach US$100 trillion in 2025. Despite these record wealth levels, the report also found that only one-third (32 percent) of global HNWI wealth is currently being managed by individual wealth managers, representing a challenge and an opportunity for firms to consolidate assets.
“As wealth firms and wealth managers face a number of converging market dynamics, including increased competition from FinTechs, firms need to be making progress on all aspects of their digital capabilities to ensure they remain relevant to clients,” says Philip Gomm, Financial Services Practice Lead at Capgemini Australia. “The latest World Wealth Report findings reinforce the need for firms to adapt to meet evolving client and manager expectations alike, as nothing less than a high level of digital maturity will be adequate in the face of digitally-native competitor providers.
In Australia, we see historic low interest rates driving the imperative for higher yielding alternate investments to cash. Real GDP of 2.3 percent combined with real estate growth averaging 9.7 percent in 2015 represented key positive drivers of wealth thus seeing our HNWI population increase 3.5 percent across 2014-15 to a total population of 226,400, by our estimates. On the flip side, market capitalisation declines combined with fears of an economic slowdown in China combined with declines in global commodity prices have subdued confidence and negatively impacted HNWI wealth. Based on this cohort’s demands, wealth managers realised the importance of digital in 2015, thus creating more pressure on firms to improve their digital maturity or risk losing profits, clients and staff.
With our studies indicating less than 1/3 of HNWI wealth being managed by wealth managers globally, there is a significant opportunity for managers to expand share of HNWI’s investable assets, increasingly through the leverage of better digital solutions,” said Philip.
Asia-Pacific Region Poised to Drive Growth over Next Decade
Asia-Pacific has been a driving force, doubling HNWI wealth and population over the decade. Asia-Pacific’s HNWI wealth grew by 10 percent in 2015 which is almost five times North America’s 2 percent wealth growth in 2015 decelerating substantially from 2014’s 9 percent growth rate. Using a more aggressive growth projection, if markets in Asia-Pacific continue to grow at its 2006 to 2015 rate, Asia-Pacific will represent two-fifths of the world’s HNWI wealth in ten years, more than that of Europe, Latin America, and Middle East and Africa combined. Japan and China stand out as regional dynamos, driving almost 60 percent of global HNWI population growth in 2015.
Asia-Pacific’s HNWI population growth of 9 percent in 2015 also far outpaced that of North America (2 percent), and was nearly double that of Europe (5 percent). Latin America was impaired by the poor performance of Brazil, which lost momentum in both HNWI population (-8 percent) and wealth (-6 percent). Dampened by Latin America, ultra-HNWI wealth, long a driver of overall HNWI wealth did not provide its usual boost in 2015. Excluding Latin America, however, ultra-HNWI wealth grew more than the other wealth segments, both in 2015 and for annualised growth over 2010 to 2014.
Opportunity for wealth management firms to attract more clients
Wealth management firms are well positioned to capture a greater share of the rising tide of HNWI wealth, the report found. HNWIs exhibited substantially more confidence in wealth management firms (+17 percentage points) and the financial markets (+30 points) in 2015 compared to 12 months prior. And while trust in individual wealth managers remained flat, 68 percent of HNWIs expressed satisfaction with the relationship, indicating a willingness to consolidate more of their assets with wealth managers.
Wealth management firms and wealth managers, however, have yet to gain a majority share of HNWI investable assets. In 2015, more HNWI wealth (35 percent) was essentially liquid, held in bank accounts or as physical cash, compared to the 32 percent that was overseen by individual wealth managers. Under-40 HNWIs were even less likely to turn to wealth managers (28 percent), while those in North America were more likely (39 percent).
Leveraging high levels of trust is key
To help wealth management firms build upon growing levels of trust and attract more HNWI assets, the WWR identified the characteristics that HNWIs are most likely to seek in a firm. The top three services HNWIs look for when choosing a wealth management firm are investment advice (47 percent), financial planning expertise (40 percent) and investment access (40 percent). In addition, the report found almost half of HNWIs (48 percent) are focused on investing for growth. Because a growth approach involves a tendency to hold more assets in alternative investments, wealth management firms may need to broaden their investment expertise beyond equities. Finally, HNWIs are also starting to favor pay-for-performance fee models, requiring firms to examine their more traditional fee approaches.
20 Years of the World Wealth Report
This year’s report includes a retrospective of the last 20 years of HNWI wealth, which was marked by resiliency, even in the face of global financial disaster, as well as the rise of various trends, including social impact investing and technology disruption. Looking ahead, the report predicts that the pace of change will accelerate with disruption in four key areas: clients, operations, regulations, and digital technology. It is anticipated that change will span many issues, including but not limited to: market volatility, wealth transfer impact, pressure on traditional fee models, acceleration of value chain commoditisation, regulatory focus on fiduciary duty and FinTech disruption. Budgetary allocations will need to adjust from business as usual towards transformation, to reflect the changing dynamics and new realities of the industry.
The World Wealth Report from Capgemini is the industry-leading benchmark for tracking high net worth individuals (HNWIs), their wealth, and the global and economic conditions that drive change in the Wealth Management industry. This year’s 20th annual edition includes findings from the most in-depth primary research works available on global HNWI perspectives and behavior. Based on responses from over 5,200 High Net Worth Individuals across 23 major wealth markets in North America, Latin America, Europe, Asia-Pacific, the Middle East, and Africa, the Global HNW Insights Survey explores HNWI confidence levels, asset allocation decisions, perspectives on driving social impact, as well as their wealth management advice and service preferences. The 2016 Capgemini Wealth Manager Survey queried more than 800 wealth managers across 15 major wealth markets in North America, Latin America, Europe and Asia-Pacific, to assess the evolving role of wealth managers.
Note 1: High Net Worth Individuals have more than US$1 million in investible assets excluding primary residence, collectibles, consumables, and consumer durables.
