The investable wealth of HNWIs reached a record high of $52.62 trillion in 2013 building on a strong five-year trend, according to the 2014 World Wealth Report (WWR) released today by Capgemini and RBC Wealth Management.
The report showed HNWIs increased by nearly 2 million in 2013, a 15% growth, with North America and Asia Pacific continuing to lead the way.
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"Overall, 2013 was another strong year for the HNW market, with surging equity markets and improving economies contributing to double digit growth in both population and wealth levels," said George Lewis, group head of RBC Wealth Management. He added: "Looking at longer term growth trends, nearly 40% of the current HNW wealth has been created in the past five years alone."
The report predicted HNWI’s wealth to reach $64.3 trillion by 2016, with almost $12 trillion in new HNWI wealth.
The report also said Asia-Pacific is expected to have the largest HNWI population by the end of this year and the most wealth by 2015.
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By GlobalData‘Unusual findings’
The WWR reported a big shift in several markets, such as Ireland, Greece, Japan and the UAE as they’ve seen a strong economic rebound throughout 2013.
"These markets have seen signs of recovery as trust and confidence from HNWIs led the change," Bill Sullivan, global head of market intelligence, Capgemini told PBI. "It is not just a rising in wealth coming from their domestic market, but also from investment they hold outside the country. They are actually seeing money coming back."
Specifically, Sullivan said Japan has seen the biggest shift in its market growth, with its HNWI population witnessing a 22.3% growth in 2013, becoming the second-highest after the US.
Changing the mindset
The report looked at key changes in the financial behaviour of both HNWI and UHNWI.
According to the Global HNW Insight Survey in the WWR, in early 2014 HNWIs were allocating over one-third (37%) of their assets outside their home region.
On the other hand, global UHNWIs showed a clear shift focus form wealth preservation (45% to 28%) to wealth growth (31%, up from 18%).
Confidence in wealth management industry climbs, but firms have more to do to meet HNWI needs
The report said HNWI trust and confidence in the wealth management industry surged, with about three-quarters expressing high levels of trust in wealth managers and firms in early 2014, up from 61% the previous year. Confidence in financial markets and regulatory bodies also increased, up to 58% from 45%, and 56% from 40% respectively. HNWIs remain optimistic about their future prospects, with 77% feeling confident in their ability to generate wealth in the near future.
Despite strong wealth growth and increasing confidence levels, HNWIs gave their wealth managers lower performance ratings than last year, down by four percentage points to 63% in early 2014.
Looking at how HNWIs want to be served by firms, they prefer to seek professional advice (34% versus 21% not seeking advice), work with a single firm (41% versus 12% multiple firms), and receive customized services (29% versus 24% standardized services). While HNWIs continue to prioritize direct contact with their wealth manager (30%), versus digital contact (26%), digital is gaining prominence, with almost two-thirds of HNWIs expecting most or all of their wealth management relationship to be run digitally within the next five years.
"Even though we are seeing an encouraging environment of high growth and confidence, declining wealth manager performance scores indicate opportunities still exist for firms to tailor their offerings to better meet client needs," said Jean Lassignardie, chief sales and marketing officer, Capgemini Global Financial Services. "One way to address the evolving demands of current and future clients is to provide digital capabilities that move beyond simply having a digital presence, to offering an integrated and seamless client experience that incorporates digital at all touch points."
Social impact investing on the rise
This year’s WWR also highlighted that the vast majority (92%) of HNWIs feel that investing their time, money or expertise to make a positive social impact is important to them, with 61% considering it very or extremely important. Globally, HNWIs are looking to firms to play a greater role in supporting their social impact objectives.
High expectations on digital
Digital has become the pressing mandate for meeting client expectations, reducing flight risks and increasing profitability in the wealth management industry, the WWR also said.
"Demands for digital capabilities know no boundaries when it comes to age, wealth, or geography. Clients want their touch points with wealth management firms to be seamless and fully-integrated every time," said Lassingnardie. "These latest World Wealth Report findings reinforce the importance of recognizing digital as a truly disruptive force in the wealth management industry, requiring firms to adapt their business models to meet client expectations."
When asked from PBI what will happen to those wealth managers not yet fully embracing digital, Sullivan said:" There are still a couple of big players in the US (and also Europe) not actually focusing on digital. If they don’t move faster in a 5 year time they are very likely to fall behind."
