The number of dollar millionaires globally declined 14.9 percent
in 2008, in a year of unprecedented upheaval in the wealth
industry. As a result, client retention has leapt up the agenda at
wealth management firms, with a particular emphasis on client
reporting and fee structures.
The number of dollar millionaires globally declined 14.9 percent in
2008, with 1.5 million wealthy individuals falling below the
threshold, typically used to define high net worth
individuals.
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The total decline in the wealth of high net worth individuals, a
key barometer of industry health, was $7.9 trillion, leaving a
total wealth pool, excluding primary residence, collectibles,
consumables and other consumer durables, of $32.8 trillion.
The research, the Merrill Lynch/Capgemini World Wealth Report, also
confirms provisional findings in January’s Private Banker
International (PBI 244), that ultra high net worth clients –
defined as those with wealth of greater than $30 million in the
survey – were the worst hit by the financial crisis.
Analysis conducted by PBI of wealth managers which published assets
under management (AuM) performance by wealth threshold showed those
with assets of more than $10 million fared significantly worse than
those lower down the wealth spectrum.
The World Wealth Report showed ultra high net worth individuals’
(UHNWIs) wealth declined 24.6 percent, compared to the 14.9 percent
overall decline. This, it said, was because of their preference for
aggressive products. In total, there were 78,000 UHNWIs globally
and 8.6 million HNWIs
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By GlobalDataRegional trends also continue to rework the wealth management map.
The US, Japan and Germany together accounted for 54 percent of the
world’s HNWI population in 2008, up slightly from 53.5 percent in
2007. China’s HNWI population surpassed that of the UK to make it
the fourth largest in the world, while Hong Kong’s declined the
most in percentage terms, down 61.3 percent.
While 2008 and 2009 has been dominated by economic woes, there is
some optimism ahead, according to the report. Merrill/Capgemini
estimate HNWI financial wealth will reach $48.5 trillion by 2013,
compared to the current $32.8 trillion. This estimate assumes
continued difficulties in the world economy in 2009 and a recovery
in 2010.
The fastest annual growth rates for the next five years are
expected in Asia-Pacific, at 12.8 percent per year, North America,
7 percent, and Latin America 6.8 percent.
Clients shifting assets
The key takeaway from the survey on the wealth industry was that
clients are moving money around like never before and there was
room for improvement in the way wealth managers targeted their
retention and acquisition efforts. Twenty-seven percent of wealth
management customers withdrew assets or left their wealth
management firm in 2008, which equated to trillions of dollars in
investable assets shifting among firms in 2008.
Clients whose wealth came from income and business ownership and
younger and middle-aged HNWIs were the groups most likely to
defect.
The report makes suggestions on the most important areas for
improving client retention through an analysis of the difference
between the priorities of advisers and clients.
For example, both clients and advisers agreed service quality was
the most important factor in a wealth management relationship. But
there was divergence in other areas.
The four most important, according to the survey, were: online
access and support capabilities; statement and reporting quality;
risk management and due diligence capabilities; and the fee
structure. All of these were considerably undervalued by advisers
compared to clients.
Online access and capabilities, for example, were deemed very
important by 66 percent of clients, but only 32 percent of
advisers.
The key areas for wealth managers to focus on were robust reporting
tools and online portals. The research shows the advisers whose
perception of value were well aligned with clients recognise that
online portals enhance customer-adviser relationships rather than
acting as a force for disintermediation.
Working on these capabilities will be particularly important for
younger clients, the report said.
There is anecdotal evidence that clients, particularly UHNWIs with
a complicated set of holdings, have moved their assets away from
businesses unable to provide quick and up-to-date aggregated
information on portfolios.
Another important area in targeting client retention is fee
structures, according to the report. Clients tended to accept
opacity in this area when their assets were improving, but are now
scrutinising how fees are calculated and implemented. The report
concludes that simplicity and transparency are the key.
