The ageing population has become a distinctive attribute of developed economies. Take Japan, for example – for the first time ever, more than 10% of people there are now aged 80 or older. How does the affect Europe, the world, and wealth management? Julia Khandoshko writes
This demographic shift is even more notable in Europe. As of 2022, six out of eight countries with the highest percentage of people aged 65 and above are in Europe. This trend carries significant implications for asset managers, particularly considering the increasing wealth accumulated by older generations and the average age of high-net-worth individuals (HNWIs). The market landscape is undergoing rapid transformations. Let’s take a closer look at the strategies and approaches that proved to be helpful when working with European HNWI clients.
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Which companies can catch HNWIs’ eyes?
As the economy undergoes structural changes, a new wave of companies, distinct from those prevalent a decade ago, is taking centre stage. Established companies find themselves compelled to alter their business approaches, necessitating a corresponding shift in how asset managers analyse their indicators.
Consider the transformation of the German company Siemens as an illustrative example. Once renowned for its production of trains and intelligent traffic systems, Siemens Mobility, it has now pivoted to become a prominent player in the medical sector for the investment market. Two decades ago, its flagship product was trains; today, it specialises in medical equipment. Evaluating Siemens as a medical company demands asset managers to apply unique approaches to analysing its key indicators and market competitors.
This paradigm shift in the business landscape is closely aligned with the changing client base of companies. New institutions focusing on medicine are ascending, a trend accelerated by the aftermath of COVID-19. While the dot-com dominated two decades ago, today, we witness a surge in pharma and medical companies, with HNWIs playing a pivotal role. As predominantly individuals from the older generation, their personal and investment interests are directed toward this burgeoning sector.
It’s noteworthy that many of today’s leading pharma and healthcare companies were mere startups a decade ago. Now firmly entrenched in the market, they render the healthcare segment promising for investment, underscoring the influential role HNWIs play in steering investment trends within this sector.
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By GlobalDataA diversified portfolio is no longer a desired indicator
As for the strategies relevant to the HNWIs, there’s a discernible move away from diversification towards a preference for regular fixed income. In contrast to the trend of investing in numerous startups with the expectation that one might succeed, today’s high-net-worth investors prioritise the presence of fixed income in their portfolios. This transition is evident in the growing popularity of fixed-income ETFs, underscoring the increased importance of stable returns over promises of exponential income growth and associated risks.
Given the limited fixed-income options in the modern financial landscape, wealth managers working with HNWIs need to switch from dated tools that were effective a decade ago and explore new solutions. In response to this shift, wealth managers should focus on delivering stable and predictable income to combat inflation and meet the specific needs of their clients.
Additionally, the landscape is witnessing an emergence of predictive solutions leveraging advanced technologies. While AI alone doesn’t generate wealth, it serves as a valuable tool for expert traders to enhance their speed and gain a competitive edge. However, despite technological advancements used to facilitate trading, there is a growing emphasis on personalisation in the market..
HNWIs expect a highly personalised approach
Historically dominated by bonds for conservative portfolios and stocks for non-conservative ones, the post-COVID era has seen a shift, with stable stocks now outweighing bonds. For the ultra-rich today, portfolio “conservatism” is defined by a preference for classic services rather than asset allocations. HNWIs in Europe expect the highest degree of personalisation in financial offerings. While younger investors prioritise smartphone-based services and, often, individual control over the process, ultra-wealthy investors value human interaction with a broker over automated robo-advisers.
Beyond financial goals like revenue and passive income, European high-net-worth individuals are driven by a sense of purpose and an association with success and development in their investment activities. Offering services with a distinctive edge and showcasing a commitment to being on the frontline becomes crucial in catering to the expectations of this clientele.
As we can see, the ageing demographic, particularly in developed economies like Europe, amplifies the need for astute wealth management. The primary competitive advantage of wealth managers working with HNWIs lies in their ability to harmonise advanced technologies with personalised offerings. They can demonstrate a profound understanding of diverse markets, each operating under unique rules, supported by robust predictive mathematical models. This balanced approach will be highly demanded in the coming years.
Julia Khandoshko is the CEO at Mind Money
