The number of HNWIs continues to grow in the UK, providing a captive market for the private banking and wealth management industry. Amidst tighter regulatory controls, the UK is still amongst the most favourable locations for the wealthy to seek management of their assets. John Schaffer looks further into statistics provided by the WealthInsight database
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The UK’s capital, London, is a famed centre for financial services, with the private banking and wealth management industry being no exception. It is, thus, no surprise that there is a high concentration of wealthy individuals in the city and across the rest of the UK.
Data from WealthInsight indicates that in 2014, there were approximately 699,180 high net worth individuals (HNWIs) in the UK holding $2.7trn in wealth.
In terms of population growth, UK HNWI numbers rose by 3.6% in 2014, following an increase of 2.7% in 2013. The WealthInsight database forecasts that the wealth of HNWIs will grow by 34.7% to reach $3.8trn by 2019.
The UK is also proving to be a popular environment for the ultra wealthy. The ultra high net worth (UHNW) segment experienced particularly significant growth rates, highlighting the UK’s position as a top destination for the world’s wealthiest individuals. Between 2010 and 2014, WealthInsight reported that the UHNW population grew from 9,636 to 10,547.
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By GlobalDataA recent report from Knight Frank, The Wealth Report 2015, confirms the findings from WealthInsight and cites London as "the world’s most important city" for wealthy individuals, with London having the highest global concentration of ultra high net worth individuals (UHNWIs) at 4,364 individuals.
The UK has historically been a significant international wealth hub. Wealthy individuals from around the world flock to London as internationally, the UK is seen to have a stable political climate and a clear regulatory framework. There are also social factors that attract international wealth, such as highly acclaimed schools and a rich cultural environment.
The international popularity of London is reflected in the consistent growth of the city’s property market. HNWIs from across the globe have bought into real estate, both for living and speculation purposes. A controversial issue has been the purchase of property by the international wealthy who leave properties vacant, especially in a climate where there is a distinct lack of affordable housing for Londoners.
The future looks markedly brighter for private banks and their wealthy client bases as a certain amount of political uncertainly will have been alleviated after May’s UK general election with a win for David Cameron’s Conservative party.
However, the prospect of the UK leaving the European single market could create another set of obstacles. The prime minister has promised a referendum by 2017 to leave the EU. However, a vote for a potential Brexit could take place as early as 2016. Fears of a Brexit, though, appear to be muted across the private banking industry.
HNWIs concentration
The largest population density of HNWIs is centred around London, accounting for 34.1% of all HNWIs in the UK, equivalent to approximately 238,574 individuals.
Areas surrounding London in the south east of England have significant numbers of wealthy individuals, where there is an easily commutable distance into the capital. Surrey, for instance, is home to 22,800 HNWIs and is famed for its population of wealthy bankers, celebrities and wealthy multi-generational families.
Wealthy individuals are also present in other major UK cities, such as Edinburgh and Glasgow in Scotland and Manchester in the North of England. However, their wealth concentration is dwarfed by the population in London.
The private banking landscape
Despite unfavourable market conditions globally, the wealth management market in the UK is seen to be one of the best in the world and competes with heavy-weight markets in the US, Asia and the traditional hub of private banking, Switzerland.
After the 2008 financial crisis, strict regulations were placed upon banks in the UK. However, the private banking industry has been able to recover significantly. The industry’s recovery has aided the UK economy to achieve growth rates of 2.4% in 2014, one of the highest GDP growth rates within the EU.
The UHNW segment is especially attractive for private banks in the UK. WealthInsight expects the number of UHNWIs to increase by 16.6% to reach 12,554 in 2019. This will include 107 billionaires, 2,949 centimillionaires and 9,498 affluent millionaires.
Asset allocations
In 2014, equities were the largest asset class for HNWIs in the UK with 29.5% being allocated. This was followed by business interests (25.9%), real estate (16.1%), fixed income (15.9%), cash (6.7%) and alternatives (5.8%).
The high allocation towards real estate is predominately centred on residential property at 8.2% of total assets. London property, where growth rates have been particularly high at 18.2% in Q 1 of 2014, has seen the majority of the investment in contrast to modest growth rates elsewhere in the country.
However, WealthInsight forecast that allocations to residential property will decrease to 7.8% by 2019.
Total allocations towards alternative investments stood at 8.8% in 2014 and are expected to grow to 6.1% by 2019. The shift towards equity and alternatives comes as allocations towards commodities are expected to shrink, due to the scaling back in demand for raw materials in China.
