Nearly two million individuals join high net worth ranks
Improving economic and equity market performance helped add 1.76 million people to the global high net worth individual (HNWI) population in 2013, according to the World Wealth Report 2014 (WWR).
The report, published by Capgemini and RBC Wealth Management, reveals that the investable wealth of HNWIs grew by nearly 14 per cent to reach a record high of USD52.62 trillion.
The report also notes that the 15 per cent increase in HNWI population in 2013 is the second-largest since 2000, surpassed only by immediate post-crisis catch-up growth of 17 per cent in 2009.
North America and Asia-Pacific remained in a close race for the world’s largest HNWI market by population in 2013, with growth in Asia-Pacific narrowing North America’s lead to less than 10,000 individuals.
North America’s HNWI population expanded by 16 per cent to 4.33 million, while Asia-Pacific’s grew by 17 per cent to reach 4.32 million. North America remains the wealthiest region, increasing its HNWI wealth by 17 per cent to reach USD14.88 trillion, though this growth was again outpaced by Asia-Pacific, where HNWI wealth expanded by 18 per cent to USD14.20 trillion.
Europe’s HNWI population grew by 12 per cent to reach 3.83 million and their wealth by 14 per cent to reach USD12.39 trillion, both significant increases from the previous two years. In the UK, the total number of HNWIs increased by 13.4 per cent to reach 527 thousand and their wealth by 15.6 per cent to reach USD1.9 trillion.
Latin America was again an exception to strong global growth, with increases of four per cent in population and two per cent in wealth, due to slow GDP growth and challenged equity markets.
“Overall, 2013 was another strong year for the High Net Worth market, with surging equity markets and improving economies contributing to double digit growth in both population and wealth levels,” says M. George Lewis, group head, RBC Wealth Management and RBC Insurance. “Looking at longer term growth trends, nearly 40 per cent of the current level of high net worth wealth has been created in the past five years alone.”
HNWIs took on a more global mindset with their wealth in early 2014 allocating over one-third (37 per cent) of their assets outside of their home region, up from one-quarter (25 per cent) the year prior, according to the Global High Net Worth Insights Survey in the WWR, capturing feedback from more than 4,500 HNWIs. While cash levels remained high at 27 per cent, allocations to alternative investments increased by three percentage points to represent 13 per cent of portfolios. There was a clear shift towards wealth growth among ultra-HNWIs who reduced their focus on wealth preservation from 45 per cent to 28 per cent, in favour of growth (31 per cent, up from 18 per cent).
Confidence in wealth management industry climbs, but firms have more to do to meet HNWI needs
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 per cent the year prior. Confidence in financial markets and regulatory bodies also increased, up to 58 per cent from 45 per cent, and 56 per cent from 40 per cent respectively. HNWIs remain optimistic about their future prospects, with 77 per cent 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 per cent in early 2014. The most substantial drop in ratings was in North America, at seven per cent, but this market continues to maintain the highest performance score of all regions with a 77 per cent rating, ahead of Middle East and Africa (69 per cent), Asia-Pacific excluding Japan (68 per cent), Latin America (67 per cent), Europe (59 per cent) and Japan (46 per cent).
Looking at how HNWIs want to be served by firms, they prefer to seek professional advice (34 per cent versus 21 per cent not seeking advice), work with a single firm (41 per cent versus 12 per cent multiple firms), and receive customized services (29 per cent versus 24 per cent standardized services). While HNWIs continue to prioritize direct contact with their wealth manager (30 per cent), versus digital contact (26 per cent), 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,” says 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.”
This year’s WWR also highlights that the vast majority (92 per cent) of HNWIs feel that investing their time, money or expertise to make a positive social impact is important to them, with 61 per cent describing it as very or extremely important. Globally, HNWIs are looking to firms to play a greater role in supporting their social impact objectives.
Future wealth growth expected to accelerate with an additional D12 trillion generated by 2016
Looking ahead, global HNWI wealth is forecast to reach a new high of USD64.3 trillion by 2016, representing 22 per cent growth from 2013 levels and approximately USD12 trillion in new wealth. Robust growth is expected in most regions, with Asia-Pacific at the forefront with an anticipated 9.8 per cent annual growth rate, positioning the region to be the largest HNWI market by population in 2014 and by wealth by 2015.
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