worth individual (HNWI) will continue to play out for the
foreseeable future despite the current slowdown in global markets,
predicts the 2008 World Wealth Report (WWR), one of the major
wealth industry benchmark surveys.
Much of this growth, which last year saw HNW personal assets rise
9.4 percent to $40.7 trillion, is being driven by vibrant emerging
markets – a trend which helped offset slower wealth accumulation in
the US and Western Europe.
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The year 2007 was “a story of two halves”, the report produced by
Merrill Lynch and Capgemini notes, characterised by healthy global
growth in the first six months of the year before a decoupling of
mature and emerging economies began to be seen in the latter
half.
That meant that India, China and Brazil saw the highest HNWI
population growth in 2007 on a country-by-country basis, with
numbers rising by 22.7 percent to 123,000 HNWIs, 20.3 percent to
415,000 HNWIs and 19.1 percent to 143 HNWIs respectively.
Regionally, the oil-rich Middle East (15.6 percent) and Latin
America (12.2 percent) performed most strongly in terms of HNWI
population growth, while the two regions also recording the highest
increase in regional HNWI wealth, up 17.5 percent and 20.4 percent
respectively.
The WWR forecast that global HNWI wealth will increase to $59.1
trillion by 2012, rising by 7.7 percent a year.
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By GlobalDataThe upwards revision on previous predictions is backed by the
belief that the current downturn will be relatively brief, but may
also point to the way in which the HNWI is increasingly
well-protected from market turmoil.
This protection takes two forms, the report suggests. The first
lies in the nature of individual wealth itself: there are now over
10 million individuals across the globe who can now be classed as
high net worth (holding at least $1 million in financial
assets).
The strongest growth, however, has been seen among ultra high net
worth individuals (those with at least $30 million in financial
assets), whose numbers rose by 8.8 percent in population size and
14.5 percent in accumulated wealth.
Increasingly diversified portfolios are also responsible for
helping preserve greater levels of wealth, according to the report
(see Running out of alternatives). But for private banks, the
challenge of how to capture this wealth – not least the 103,300
UHNWIs now estimated to exist worldwide – remains paramount.
For wealth managers confronted with a shift in global wealth
trends, the key is flexibility, the WWR says.
“Some wealth management firms are already successfully growing and
transitioning into new markets, but for many others, the transition
is far from easy – or viable – given existing service models and
infrastructures,” says Chris Gant, head of wealth management at
Capgemini UK.
Though wealth management firms have adapted to changing client
profiles, as witnessed by a general shift from “a
transaction-driven business to an advice-oriented and fee-based
business”, the report cautions that further work must be done,
highlighting not just the importance of cultural factors but also
the need for adaptable IT infrastructures and aligned service
delivery models.
The need to adapt to markets outside the US and Europe is
demonstrated by a comparison of HNWI growth rates in the UK and
China. The total number of HNWIs in the UK (494,000) currently
compares favourably to the 415,000 seen in China, but if current
growth rates are maintained China will overtake the UK by the end
of 2008.
Other areas pinpointed in the next wave of emerging markets include
Bangladesh, Jamaica and Slovenia, the latter continuing a Eastern
European trend which sees both Slovakia and the Czech Republic
included in the top 15 countries for HNWI population growth in
2007. However, a wholesale shift into emerging markets is unlikely
to take place, and the WWR is confident that the US will remain the
wealthiest regional market come 2012 even at a predicted annual
growth rate of just 6.8 percent.
The continued attractions of emerging markets, coupled with the
high concentration of wealth that still exists within mature
economies, mean that the increasingly crowded wealth management
marketplace is forcing private banks to reconsider their approach
in an effort to clarify the benefits of their service.
While this can take the form of IT improvements, there remains the
suggestion that the building blocks of wealth management – client
relationships – must also be refined further.
GLOBAL WEALTH TRENDS
HNWI Financial Wealth Forecast, 2005 – 2012F (by region) ($
trillions)
