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Wealth in the US: Sizing the Market Opportunity

  • April 2016
  • -
  • Verdict Financial
  • -
  • 39 pages

Summary
The US is home to the largest affluent population in the world and hosts a very advanced financial services sector, including the most sophisticated mutual fund and equity markets globally. The large affluent population is financially literate with high retail participation in both equities and mutual funds. US wealth managers thus have a lucrative target market onshore. In the future, growth in the affluent population's liquid assets will be pronounced compared to other developed economies. At the end of 2015, nearly two thirds of the US adult population was considered affluent, making the US home to the largest affluent population in the world. This compares very favorably to Western Europe, the second-largest wealth market in the world, where only 20.1% of the population is considered affluent.

Key Findings
- High net worth (HNW) individuals account for 1.8% of the US population, and their numbers are expected to swell by nearly 7% year-on-year to 2019. Ultra-high net worth individuals (those with over $10m in assets) are expected to increase by over 10%.

- The US retail investments market remains buoyant, but growth slowed significantly throughout 2014 and 2015, largely due to outflows of equities following a bumper year for the stock market in 2013. Against an uncertain economic backdrop, bonds are already bouncing back and are predicted to record 4% year-on-year growth to 2019.

- HNW individuals are now allocating 28.1% of their investible assets outside of traditional investments, with hedge funds the most popular alternative option in 2015 and private equity a relatively close second.

- Offshore investment continues to decrease (now at 6.1%) following the onset of the Foreign Account Tax Compliance Act (FATCA), with client anonymity and tax efficiency the key drivers.

Synopsis
Verdict Financial's “Wealth in the US: Sizing the Market Opportunity” analyzes the American wealth and retail savings and investments markets, with a focus on the HNW segment. The report is based on our proprietary datasets.

Specifically the report:

- Sizes the affluent market (both by the number of individuals and value of their liquid assets) using our proprietary datasets.

- Analyzes which asset classes are favored by American retail investors and how their preferences impact the growth of the total savings and investments market.

- Examines HNW clients' attitudes towards non-liquid investments such as hedge funds, property, and commodities.

- Identifies key drivers and booking centers for offshore investments by HNW clients.

Reasons To Buy
- Benchmark your share of the US wealth market against the current size of the market.

- Forecast your future growth prospects using our projections for the market to 2019.

- Identify your most promising client segment by analyzing penetration of affluent individuals in the US.

- Evaluate your HNW proposition by understanding how FATCA is affecting your HNW clients.

- Review your offshore strategy by learning HNW motivations for offshore investments and their preferred booking centers.

Table Of Contents

Wealth in the US: Sizing the Market Opportunity
Table of Contents
EXECUTIVE SUMMARY
Key findings
Critical success factors
SIZING AND FORECASTING THE US WEALTH MARKET
Affluent individuals in the US account for nearly two thirds of the adult population
HNW investors account for 1.8% of the market, and the very rich will get richer
Overall growth of total liquid assets has been highly variable in recent years
Wealth held by affluent investors has risen robustly, providing wealth managers with ample opportunities
US HNW individuals hold over one third of total liquid assets, a share that will rise
DRIVERS OF GROWTH IN THE US WEALTH MARKET
2015 saw growth stagnate, and this is unlikely to change over the next five years
The US market is heavily weighted towards equity and mutual funds
The bond market will rise again, but the market will remain weighted to mutual funds and equities
Deposits will see slightly slower but steadier growth, supported by benign inflation and higher interest rates
A moderate rise in inflation and small interest rate hikes will have little effect on the deposit market
GDP growth is also unlikely to strongly affect deposit allocations, especially if there is no real wage upturn on the horizon to kick-start consumer spending
Bonds, equities, and mutual funds are more closely aligned with the fortunes of the stock market
The US stock market has struggled to add value in recent years and has had a rough start to 2016
Retail bonds are set to grow significantly in 2016 as the effects of QE and the zero interest rate policy diminish
The performance of the stock market also has a direct impact on equities and mutual funds
HNW INVESTMENT PREFERENCES
HNW individuals allocate 28.1% of their investible assets outside of traditional investments
Hedge funds are the most popular HNW illiquid asset
HNW individuals hold 6.1% of their assets offshore
Client anonymity and tax efficiency are the biggest drivers of offshore investment
The UK and Japan are now the most popular booking centers for US HNW individuals
APPENDIX
Abbreviations and acronyms
Supplementary data
Definitions
Affluent
Bonds
Cash
Deposits
Domicile
Equities
Exchange of information
FATCA
HNW
Liquid assets
Mass affluent
Mutual funds
Onshore
Residency
Methodology
Verdict Financial's 2015 Global Wealth Managers Survey
Global Retail Investments Analytics methodology
Bibliography
Further reading
About Verdict Financial
Disclaimer

List of Tables
Table 1: Income tax rates and income bands for 2016
Table 2: US: number of affluent individuals by asset band (000s), 2011-15
Table 3: US: number of affluent individuals by asset band (000s), 2016e-19f
Table 4: US: value of liquid assets held by affluent individuals by asset band ($bn), 2011-15
Table 5: US: value of liquid assets held by affluent individuals by asset band ($bn), 2016e-19f

List of Figures
Figure 1: 62% of the total US population is affluent, which represents the world's largest wealth opportunity
Figure 2: HNW and mass affluent individuals account for almost all onshore US liquid assets
Figure 3: The US retail savings and investments market will stagnate over the forecast period
Figure 4: Equity and mutual fund holdings account for 67.3% of the total onshore market
Figure 5: The US market is heavily weighted towards equity and mutual funds
Figure 6: Deposits will see steadier growth, adding $2.46tn over four years
Figure 7: IT and financial services account for 37% of the NYSE Composite Index
Figure 8: Retail bond holdings will see strong growth in 2016
Figure 9: Mutual funds and equities mirror the NYSE Index
Figure 10: US retail mutual funds are heavily weighted in equities
Figure 11: Direct property investments are the most popular asset outside traditional liquid allocations among US HNW investors
Figure 12: US HNW individuals allocate 6.1% of their wealth offshore
Figure 13: Client anonymity is the primary reason HNW clients offshore wealth
Figure 14: The UK and Japan are now the booking centers of choice for US HNW citizens
Figure 15: FATCA agreements have been signed across the world

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