Wealth Management in the UK 2008

Wealth Management in the UK 2008

Introduction

This report focuses on the onshore liquid wealth of affluent individuals and the liquid assets they hold, sizing, segmenting and forecasting the affluent population across 10 liquid asset bands. It also presents detailed HNW demographic and decision trigger analysis, and strategies to drive revenue growth based on large scale survey of the main players.

Scope

*HNW demographic and attitudinal attributes based on our Wealth Management Market Leaders Survey 2008

*Sizes, segments and forecasts the number of affluent invididuals across 10 liquid asset bands from EUR50k

*Extensive primary research from 20 wealth management companies highlights their strategies for revenue growth, acquiring and keeping clients

*Aggregated data covers onshore liquid assets including cash and deposits, mutual funds, direct investment in equities and direct investment in bonds.

Highlights

The average UK high net worth is 52 years old and has come into his wealth through inheritance. He favors investment in Europe and North America, and is very interested in emerging market equities and funds. He is very focused on tax optimization and his financing needs, but has less knowledge of financial products than his European counterparts.

Demand for alternative investments is particularly high among UK high net worths. This asset class accounts for much more of their portfolios than the European average, and is expected to grow in future. For it to reach its potential, however, education needs to take place at the wealth manager and HNW level.

UK wealth managers enjoy good customer loyalty, with 48% of wealth managers having relationships with their clients of more than 10 years on average. Wealth managers are equally focused on obtaining new clients as on increasing share of wallet.

Reasons to Purchase

*Understand the HNW population's investments by sector and geography, appetite for risk, and reasons for choosing/leaving their wealth service

*Assess market attractiveness by reviewing size and growth forecasts for the potential wealthy client base through 2012

*Assess the threats and opportunities for wealth managers by understanding how peers are planning to grow revenues, acquire and keep clients

Overview 1
Catalyst 1
Summary 1
Methodology 2
Executive Summary 3
Promoting alternative investments to high net worths 3
The UK has provided an ideal setting for wealth creation 3
The UK HNWs is 52 years old and has inherited much of his wealth 3
UK wealth managers have long lasting client relationships 3
Table of Contents 4
Table of tables 5
Special feature: Promoting alternative investments to HNWs 6
UK HNWs have heavily invested in alternative investments and these products are well suited to their needs 6
UK HNWs have a strong appetite for alternative investments 6
Alternative investments are particularly well suited to HNWs 6
HNWs are seen as the key market for most types of alternative investments 7
Wealth managers are not seen as the preferred distribution channel to HNWs, and action is required to address this 8
Wealth managers are not the preferred distribution channel by asset managers 9
High perceived risk and low promotion are stalling take up of alternative investments by HNWs 10
Key implication: wealth managers need to be properly educated 11
Key implication: asset managers need to support wealth managers better 12
Key implication: wealth managers must better educate their clients about alternative investment products 12
Innovative example from Australia: Perpetual offers seminar on investing in volatile markets, which includes discussion of alternative investments 13
Innovative example from Switzerland: Pictet & Cie arranges multiple seminars and presentation for professionals 13
Innovative example from South Korea: financial services providers support educational seminar on alternative investments 13
Innovative example from the US: hedge fund experts discuss topical issues 14
Innovative example from the UK: Sucden runs educational seminars 14
The UK's wealth 15
The UK has experienced rapid growth in personal disposable income 15
Equity investment returns have been good for a number of years 16
Rising interest rates have added to depositors' wealth, but at a cost 17
UK property investors have enjoyed robust capital growth in the past 18
The UK's onshore investors have repositioned towards safe havens 19
UK investors have taken £60 billion out of shares and other equity 19
Wealth in the UK took a knock in 2007 as proceeds from equity sales failed to reappear in other liquid asset classes 20
The number of affluent UK individuals fell in 2007 20
Outlook for the UK's wealthy population in 2008-12 21
2008-09 will be characterized by struggling economies worldwide 21
Data tables 22
The UK HNW investor 29
UK HNWs are nearing retirement, less entrepreneurial and invested in alternative assets 29
UK HNWs have a similar average age to their European counterparts 29
Wealth management service implication: focus on retirement planning 30
Innovative example from the UK: HSBC premier offers Personal Retirement Plan 31
In contrast to the European average, UK HNWs' wealth comes from inheritance 31
Wealth management service implication: reach out to inheritors 33
Innovative example from Jersey: Key Group launches "Inheritors of Wealth" program 33
UK HNWs are heavily invested in alternative investments 33
Wealth management service implication: provide HNWs with access to alternative investments 35
Innovative example from Europe: AXA Private Equity offers leverage buyout fund 35
HNWs in the UK will shift even further into alternative investments 35
UK HNWs' onshore investments are less Europe-centric than their peers 37
Wealth management service implication: bring emerging market Asian opportunities 38
Innovative example from Vietnam: VinaCapital launches Vietnam's first fixed income fund 38
UK HNW customers are interested in financing; they are excited about emerging markets but less financially sophisticated than their European peers 38
Financing and tax optimization are key concerns for UK HNWs 38
UK HNWs have the greatest demand for emerging market equities/funds 40
Wealth management service implication: look globally for investment opportunities, including ETFs 42
Innovative example from France: Lyxor Asset Management offers Kuwait ETF 42
UK HNWs have a markedly lower knowledge of financial products than average 42
Wealth management service implication: Wealth managers need to embrace technology 43
Innovative example from the US: BNY Mellon Wealth Management launches new internet platform for clients 44
While personal relationships are less important to UK HNWs than to their European peers, they do want face to face contact 44
Wealth management service implication: get closer to the HNW client 46
Innovative example from the UK: private banks are moving closer to where the customers are 46
HNWs are becoming less loyal and more demanding 46
The UK wealth manager's view 48
Wealth managers in the UK have much longer-term relationships with their clients compared to Europe as a whole 48
UK wealth managers have longer-term relationships with HNWs, and are less likely to have to share them with other wealth managers 48
UK wealth managers are looking at a range of steps to drive revenue growth, and are particularly focused on alternative investments 50
Wealth managers are looking to both obtain new clients and increase share of wallet 50
Increasing face to face contact and cross-selling products will increase share of wallet, but wealth managers are missing the lending opportunity 52
Alternative investments hold the greatest business potential for UK wealth managers in coming years 54
The key to attracting clients will be personal recommendations 56
Personal recommendations are key influencers of wealth management services 56
Wealth managers' own clients are the best route to new clients 58
The key to keeping clients will be resolving problems and talking to them regularly 60
UK HNWs are likely to leave because of basic service failures 60
Speedy resolution of problems and regular communication are key to keeping customers 62
Appendix 65
The drivers of growth in the wealthy population 65
Income growth (combined with inflation, changes in GDP by sector, household savings rates and debt levels) 65
Investment returns (market capitalization, interest rates and bond yields) 65
The following measures are not, in themselves, drivers of wealthy population growth 65
Market capitalization 65
GDP 65
The following measures are not drivers of wealthy population growth except under very restricted circumstances 66
Primary residence value growth 66
Inheritance 66
Methodology 66
Wealth Management Market Leaders Survey 2008 66
Global Wealth Model 66
The UK sub model 67
Global sub model (for all other countries) 67
Forecasting methodology 67
Continuous refinement to the understanding of liquid wealth distribution 67
Datamonitor's wealth numbers compared with other wealth numbers 68
Bibliography 68
Definitions 70
Western Europe 70
Further reading 70
Ask the analyst 70
Datamonitor consulting 70
Disclaimer 71
List of Tables
Table 1: Various seminars offered by Sucden 14
Table 2: Number of affluent individuals in the UK by liquid asset band, 000s, 2003-7 23
Table 3: Number of affluent individuals in the UK by liquid asset band, 000s, 2008-12 23
Table 4: Aggregate onshore liquid assets of affluent individuals in the UK by liquid asset band, EURbn, 2003-7 24
Table 5: Aggregate onshore liquid assets of affluent individuals in the UK by liquid asset band, EURbn, 2008-12 24
Table 6: Number of affluent individuals in the UK by liquid asset band, 000s, 2003-7 25
Table 7: Number of affluent individuals in the UK by liquid asset band, 000s, 2008-12 26
Table 8: Aggregate onshore liquid assets of affluent individuals in the UK by liquid asset band, GBPbn, 2003-7 27
Table 9: Aggregate onshore liquid assets of affluent individuals in the UK by liquid asset band, GBPbn, 2008-12 28
Table 10: What proportion of the HNW customer base in the UK is in each age band? 30
Table 11: What proportion of the HNW customer base in the UK accumulated their wealth through (source)? 32
Table 12: What proportion of HNW customers' portfolios in the UK is allocated to (product)? 34
Table 13: HNW customers' portfolio allocation now versus in two years time 36
Table 14: What proportion of the HNW customers' portfolio in the UK is allocated to (region)? 38
Table 15: What are HNW customers in the UK most interested in today? 40
Table 16: For which investment opportunities is there a lot of demand from HNW in the UK? 42
Table 17: HNW customer attributes in the UK on a scale of one to four (knowledge) 43
Table 18: HNW customer attributes in the UK on a scale of one to four (relationship drivers) 45
Table 19: HNW customer attributes in the UK (customer contact) 47
Table 20: How long have HNW customers in the UK been with their wealth manager? 49
Table 21: How many wealth managers do HNW customers in the UK have on average? 50
Table 22: What will most determine revenue growth in the UK's wealth management market in the next two years? 51
Table 23: What is the most effective means of increasing wealthy clients' share of wallet in the UK? 54
Table 24: From the product areas just mentioned, which three will wealth managers focus most resources on in the next two years? 56
Table 25: What are the key influences that determine a client's choice of wealth management service in the UK? 58
Table 26: What are the most effective wealth management customer acquisition techniques in the UK? 60
Table 27: What are the most likely reasons for clients in the UK to leave a wealth management service? 62
Table 28: What is the best way to retain wealthy clients in the UK? 64
List of Figures
Figure 1: Diversification is driving the demand for alternative investment 7
Figure 2: HNWs are the dominant customer segment across most of the product subcategories 8
Figure 3: Wealth managers aren't seen as being particularly successful distributors of alternative investments 10
Figure 4: High risk is seen as being a major barrier to HNWs take up of alternative investments over the next year 11
Figure 5: Personal disposable income has ballooned while savings have declined 16
Figure 6: The FTSE has been heading ever upward 17
Figure 7: Yields and interest rates have been tracked upwards 18
Figure 8: Equities were a particular casualty of the sell off 19
Figure 9: Changes in value of credit card outstandings and overdrafts in the UK 20
Figure 10: The number of wealthy in the UK fell year on year in 2007 21
Figure 11: The recovery should start in 2010 22
Figure 12: The 51-65 age band accounts for the greatest share of HNW customers in the UK at 42% 30
Figure 13: Inheritance is the main source of wealth in the UK accounting for 29% of all HNWs 32
Figure 14: 28% of HNW portfolios in the UK are invested in equities 34
Figure 15: In the UK over the next two years HNW customers will increasingly look to the 'alternative investments' category that will grow its share of HNW investors' portfolios from 19% to 21% 36
Figure 16: HNW investors in the UK have 57% of their portfolios invested in Europe 37
Figure 17: Financing needs is a key priority for 66% of HNW investors in the UK 39
Figure 18: Emerging market equities/funds is the investment opportunity most in demand from HNW clients in the UK 41
Figure 19: HNW investors in the UK have less product knowledge than the average European HNW investor 43
Figure 20: HNW investors in the UK place less emphasis on provider relationships than the average European HNW investor 45
Figure 21: Clients are demanding more face to face contact with their wealth manager now than two years ago in the UK 47
Figure 22: Approximately 48% of relationship managers have had relationships with their clients for more than 10 years on average 49
Figure 23: Obtaining new clients will be one of the key drivers of revenue growth in the next two years for wealth managers in the UK 51
Figure 24: Increase face to face contact is one of the most effective means of increasing share of HNW wallet in the UK 53
Figure 25: Approximately 60% of wealth managers in the UK are planning to focus resources on the 'Alternative investments' product area over the next two years 55
Figure 26: Personal relationship is one of the key influencers that determines a client's choice of wealth manager in the UK 57
Figure 27: Referrals from existing clients are the most effective customer acquisition technique for wealth managers in the UK 59
Figure 28: Failure to understand client needs is the most likely reason for clients to leave a wealth manager in the UK 61
Figure 29: Resolving all problems quickly and completely and talking to them regularly are the most effective means of retaining HNW customers in the UK 63