Wealth Management in Germany 2008

Wealth Management in Germany 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 thier 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 German high net worth individual is 56 years old, has made his wealth through business ownership or entrepreneurship, is inclined to put half his wealth offshore, invests heavily in equities and real estate but is very interested in alternative investments

German wealth managers have only a medium-term customer base, with three quarters of players having to share their customer base with at least one other bank. They are most keen to win new clients but have for the most part failed to employ the usual strategies (M&A, buying in relationship managers) to do so

Conservatism among German investors has worked in their favor, continuing to add to their wealth simply by saving rather than spending. At the same time, equity returns, bond yields and deposit interest rates have combined to increase the portfolios of affluent investors

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 1
Executive Summary 2
The high net worth's family is a lucrative source of business that can be retained through three types of initiatives 2
Fiscal restraint, high savings rates and moderate investment performance are driving the growth in Germany's wealthy population 2
German HNW investors are older and less liquid than their European counterparts 2
Wealth managers in Germany have fairly weak relationships with their clients compared to Europe as a whole 3
Table of Contents 4
Table of tables 5
Special feature: Customer retention initiatives for clients' families 6
The HNW's family is a lucrative source of business that can be retained through three types of initiatives 6
€190 billion will change hands in Germany in the next five years 6
Three kinds of initiatives can cement relationships 7
Involvement activities: innovative examples from other countries 8
Australia's Financial Wealth actively encourages its clients to involve its financial advisors in family meetings 8
Canada's BMO Harris Private Bank's enCircle Exec provides services to manage the affairs of clients' children and parents 9
America's Citi Trust works one-on-one to teach wealthy children the error of their ways 9
Education events: innovative examples from other countries 10
Thailand's Siam Commercial Bank offers a free 66 hour course to heirs of its business banking clients to prepare them for taking over the family business 10
Last year, Coutts launched its "Assets and Responsibility" course for clients' children 11
In the US, Deutsche Bank Private Wealth Management has run its summer seminar series for more than 10 years 11
In France, BNP Paribas held its 'next generation' seminar for clients' offspring in St Tropez 11
Sporting and social events: innovative examples from other countries 12
The Coutts family day at Christmas ensures a fun and relaxing day for everyone 12
For the last few years Coutts has held its client family day in early December. This Christmas event provides something for the whole family: one parent gets to go off for some Christmas shopping while the other is entertained at the event. There are many activities for the kids, from magicians and face painting to games. Historically, it has usually been the fathers that stay at the event, so big screen sporting events are on hand. The event, which can accommodate a couple of hundred people, is very popular with clients; in fact, it has always been oversubscribed. 12
The purpose of the event is for the clients and their families to have a relaxing day out. Jill Chimes, head of sponsorship and events, explained: "There is obviously a networking opportunity for our clients, but a more relaxed one. Busy executives in particular don't necessarily have the time to take the day out to attend an event (this event is on a weekend). If they can involve the family they are more likely to see it as a benefit, and to go." 12
Credit Suisse sponsored an all-expenses paid holiday for its clients and their families in Bali 12
Action points for wealth managers 12
Germany's wealth 14
Fiscal restraint, high savings rates and moderate investment performance are driving the growth in Germany's wealthy population 14
German investors' unwillingness to increase their personal debt, and propensity to save, combine to ensure strong flows into liquid assets 14
Equity investment returns are moderately driving Germany's wealth accumulation 15
Capital gains tax changes make equities less attractive 16
Bond yields and deposit rates have added slowly but steadily to German investors' portfolios 16
Germany's property investment sector is recovering from its property fund scandal, and asset managers are finding opportunities amid the fallout 17
Germany's retail investors repositioned towards deposits in 2007 despite positive returns in other asset classes 18
German investors put €85.8 billion into deposits in 2007 18
Despite second half instability, both equities and bonds held by retail investors performed positively in 2007 19
Wealth in Germany is growing slowly but is increasingly concentrated 19
German savings habits and improving economy have combined to make Germany the largest wealth market in Europe 19
Outlook for Germany's wealthy population in 2008-12 21
2008-9 will be characterized by struggling economies worldwide 21
Data tables 22
The German high net worth investor 24
German HNWs are older and less "liquid" than their European counterparts 24
German HNWs are concentrated in the 31-50 age range, but there are relatively few under 30 24
Wealth management service implication: focus on products appropriate to the client's lifestage 25
Innovative example from Australia: Financial Wealth centers its entire strategy around lifestages 26
Innovate example from Canada: BMO Nesbitt Burns takes a 'five lifestages' approach to wealth management 27
In contrast to the European average, German wealth comes less from earned income and more from inheritance 28
Wealth management service implication: dedicated client management teams for entrepreneurs and inheritors are critical 30
Innovative example from Germany: Dresdner marries wealth management and corporate services for entrepreneurs 30
Innovative example from the UK: Coutts banks in excess of 18,000 of the UK's entrepreneurs 30
German HNWs are heavily invested in real estate, and light on cash 31
Wealth management service implication: frequent communication is critical because so little of the client's wealth is in a safe haven 32
Innovative example from the US: Merrill's cash management account allows clients to seamlessly liquidate investments when necessary 33
HNW German investment will shift towards alternative investments 33
Anecdotal evidence suggests that German HNW investors are putting money offshore 34
German HNWs' onshore investments are less Europe-centric than their peers across the rest of Europe 35
Wealth management service implication: look both West and East for investment opportunities for clients 36
German HNW customers are risk-averse, wanting to protect their asset base, but are also open to new ideas, and are more financially sophisticated than their European peers 37
German HNW investors want to protect their assets 37
Innovative example from Malaysia: capital protected infrastructure fund with opportunities to cash out early 38
German HNWs are risk-averse, but also open to new investment ideas 38
German HNWs are most demanding infrastructure funds and emerging market investments 40
Innovative examples from India: infrastructure funds outperforming other sectors 41
German HNWs are more financially sophisticated than average 42
While face to face relationship management is less important to HNWs in Germany today, personal recommendations are critical 43
Wealth management service implication: a structured referral program and regular client surveys 45
Innovative example from India: Standard Chartered runs both a formalized referral process and client survey 45
Perhaps because they are less 'connected' to their wealth manager, they are less loyal 46
The German wealth manager's view 49
Wealth managers in Germany have fairly weak relationships with their clients compared to Europe as a whole 49
German wealth managers have more medium-term customer bases than their European peers, and have to share their clients with at least one other bank 49
German wealth managers plan to drive revenue growth through capturing new clients and increasing existing clients' share of wallet 51
Although wealth managers in Germany are more keen than elsewhere to win new clients, their strategies so far have been rather lackluster 51
Increasing face to face contact will be the most effective means employed to increase share of wallet 53
Alternative investments hold the greatest business potential for German wealth managers in coming years 54
There is virtually no interest in the lending side of the business 56
The key to attracting clients will be personal relationships 58
German wealth managers can best attract new clients by leveraging personal relationships 58
Wealth managers' own clients are the best route to new clients 60
The key to keeping clients will be problem-solving, regular communication and extending services to HNW families 62
German HNWs may not be particularly loyal to their wealth managers, but they do follow them to other banks when they leave 63
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 66
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 67
Bibliography 68
Definitions 69
Western Europe 69
Further reading 69
Ask the analyst 69
Datamonitor consulting 69
Disclaimer 69
List of Tables
Table 1: Number of affluent individuals in Germany by liquid asset band, 000s, 2003-7 22
Table 2: Number of affluent individuals in Germany by liquid asset band, 000s, 2008-12 22
Table 3: Aggregate onshore liquid assets of affluent individuals in Germany by liquid asset band, EURbn, 2003-7 23
Table 4: Aggregate onshore liquid assets of affluent individuals in Germany by liquid asset band, EURbn, 2008-12 23
Table 5: What proportion of the HNW customer base in Germany is in each age band? 25
Table 6: What proportion of the HNW customer base in Germany accumulated their wealth through (source)? 29
Table 7: What proportion of HNW customers' portfolios in Germany is allocated to (product)? 32
Table 8: HNW customers' portfolio allocation now versus in two years time 34
Table 9: What proportion of the HNW customers' portfolio in Germany is allocated to (region)? 36
Table 10: What are HNW customers in Germany most interested in today? 38
Table 11: HNW customer attributes in Germany on a scale of one to four (investment openness) 39
Table 12: For which investment opportunities is there a lot of demand from HNW in Germany? 41
Table 13: HNW customer attributes in Germany on a scale of one to four (knowledge) 43
Table 14: HNW customer attributes in Germany on a scale of one to four (relationship drivers) 44
Table 15: HNW customer attributes in Germany on a scale of one to four (customer loyalty) 47
Table 16: HNW customer attributes in Germany (customer contact and customer involvement) 48
Table 17: How long have HNW customers in Germany been with their wealth manager? 50
Table 18: How many wealth managers do HNW customers in Germany have on average? 51
Table 19: What will most determine revenue growth in Germany's wealth management market in the next two years? 52
Table 20: What is the most effective means of increasing wealthy clients' share of wallet in Germany? 54
Table 21: How much business potential do the following product areas have among wealthy clients in Germany during the next two years? 56
Table 22: From the product areas just mentioned, which three will wealth managers focus most resources on in the next two years? 58
Table 23: What are the key influences that determine a client's choice of wealth management service in Germany? 59
Table 24: What are the most effective wealth management customer acquisition techniques in Germany? 61
Table 25: What is the best way to retain wealthy clients in Germany? 63
Table 26: What are the most likely reasons for clients in Germany to leave a wealth management service? 64
List of Figures
Figure 1: Over €40 billion per year in onshore liquid assets will change hands in Germany by 2011 7
Figure 2: German investors' low indebtedness growth and high savings rates combine to ensure flows into liquid assets 15
Figure 3: Germany's market cap has stalled compared to Western Europe as a whole 16
Figure 4: After holding steady at around 2% for two years, German deposit rates are rising again 17
Figure 5: Retail investors moved money from equities and bonds into deposits in 2007 19
Figure 6: Germany's affluent population grew weakly in 2007 as economic difficulties took hold 20
Figure 7: After stalling in 2008-9, Germany's affluent population will grow to nearly 12,000,000 by 2012 21
Figure 8: The 31-50 age band accounts for the greatest share of HNW customers in Germany at 39% 25
Figure 9: Financial Wealth's lifestages 27
Figure 10: Business/entrepreneurship is the main source of wealth in Germany accounting for 38% of all HNWs 29
Figure 11: 34% of HNW portfolios in Germany are invested in equities 32
Figure 12: In Germany over the next two years HNW customers will increasingly look to the 'alternative investments' category which will grow its share of HNW investors' portfolios from 13% to 18% 34
Figure 13: HNW investors in Germany have 49% of their portfolios invested in Europe 36
Figure 14: Protecting their current asset base' is a key priority for 93% of HNW investors in Germany 37
Figure 15: HNW investors in Germany have a lower level of investment openness than the average European HNW investor 39
Figure 16: Infrastructure funds is the investment opportunity most in demand from HNW clients in Germany 40
Figure 17: HNW investors in Germany have a greater level of knowledge than the average European HNW investor 42
Figure 18: HNW investors in Germany place less emphasis on provider relationships than the average European HNW investor 44
Figure 19: HNW investors in Germany have a similar level of loyalty as their European peers 46
Figure 20: Clients are demanding more face to face contact with their wealth manager now than two years ago in Germany 48
Figure 21: 38% of German wealth managers have had a relationship with their clients for more than five years on average 50
Figure 22: Obtaining new clients will be the key driver of revenue growth in the next two years for wealth managers in Germany 52
Figure 23: Increased face to face contact is the most effective means of increasing share of HNW wallet in Germany 53
Figure 24: Alternative investments have the greatest business potential for wealth managers in Germany during the next two years 55
Figure 25: 65% of wealth managers in Germany are planning to focus resources on the 'traditional investments' product area over the next two years 57
Figure 26: Personal relationship is the key influencer that determines a client's choice of wealth manager in Germany 59
Figure 27: Referrals from existing clients are the most effective customer acquisition technique for wealth managers in Germany 61
Figure 28: Providing services for their family is the most effective means of retaining HNW customers in Germany 62
Figure 29: Following key staff to other organizations is the most likely reason for clients to leave a wealth manager in Germany 64