Family Office

A Whistle-Stop Tour Of The World's UHNW In 2012 - Wealth-X

Harriet Davies 26 January 2012

A Whistle-Stop Tour Of The World's UHNW In 2012 - Wealth-X

In today’s tough environment, wealth managers need a defined business model and detailed research on potential clients and markets to succeed, says Mykolas Rambus, chief executive of international research firm Wealth-X.

The margins of doing business with the ultra high net worth are a “challenge,” he says, because they have complex needs and may also be price sensitive. But he is not pessimistic on the opportunity, and says success in addressing the challenge depends on the organisation.

Looking at the multi-family office industry, he thinks many of these businesses have addressed these hurdles well. While it isn’t possible to say scientifically whether they have done better than the private banking model, it is those firms – across business models – that have focused on relationships and longevity that have done well income-wise, says Rambus.

US

In the US, the wealth transfer opportunity will benefit the wealth management industry broadly, says Rambus. However, it’s important for firms to define “where the money is and where it isn’t.” He cites the Midwest and Texas as big opportunities, and says firms need to understand the regional demographics to make the most of this opportunity.

Meanwhile, the changing regulatory picture is what Rambus calls a “FUD factor”. It’s about “fear, uncertainty and doubt,” he says – essentially, it’s risk. At the moment, there’s not a great solution for the American UHNW, he says. “There’s talk about handing over citizenship…it’s a good conversation but the numbers don’t support it.”

Global picture: more money moving

Political crises and other developments mean that more people are moving more money, and this is “probably more true than ever.” And it’s not about tax evasion, it’s about diversifying against political risk, and getting investment returns. To help clients achieve this, wealth managers need to deal with the compliance challenge of moving these assets. Rambus thinks wealth managers will see “clients they never thought they'd see,” essentially from all over the world, and the challenge will be knowing your client in this environment.

On the tax evasion front, jurisdictions are all too aware of the dangers of being branded as a hotspot for such activity, and will send strong signals that this is not the kind of business they want. But Switzerland – historically associated with the practice due to the fact it is not a criminal offence in the Alpine state – still has a headstart in this environment, due to its legacy of trust and “the tremendous amount of talent there,” says Rambus.  

However, wealthy families are more likely now to be booked in a number of jurisdictions, whereas they may have concentrated wealth in Switzerland before. “More than anything we see wealth being more global and more mobile,” he says.

Future wealth creation hotspots

“We’ll see a lot more focus on Africa” this year and beyond, predicts Rambus, but it will be in a “steady as she goes” fashion. Meanwhile, the surprise market of 2012 may well be Japan. This won’t be in terms of the level of wealth there, which is well known, but in terms of the sheer number of foreign banks trying to break into this notoriously hard market.

In Asia, we are at the front-end still of a wealth creation cycle, says Rambus. Wealth-X research comparing the Asian wealth creation phenomenon to industrial development in the US and UK indicates we could still only be some 15 years into a 100-year cycle.

Chasing returns

Ultra-wealthy investors are really “going back to their roots” when it comes to investing, says Rambus. They’re investing in real assets, such as luxury properties. As an indication of trends among ultra wealthy “look at the $5 million house, not the $1 million,” says Rambus, adding that these “continue to go well.”

“Many individuals are retrenching into what they know,” he adds. When it comes to venture capital and investing in businesses, this means wealthy investors are more likely to look at the sectors where they made their wealth.  

Philanthropic trends

There’s an “increasing proportion of wealth going to philanthropic causes, especially in wealth transfer markets,” says Rambus. “We’ll see more foundations in the US,” he adds. This is a product of demographics, and it’s about creating a legacy, according to what he’s seeing.

In Asia, as we’re still at the front-end of the wealth cycle, he thinks the picture on philanthropy will get more complex and interesting in the coming years. The “blockbuster” gifts of the kind you see in the West haven’t really caught on in Asia yet, but philanthropy is set to become a “much bigger deal” there, he believes. For businesses focused on philanthropy, he recommends staying tuned in to this trend and being ready for it.

Wealth management culture

When it comes to the mentality of dealing with the UHNW, it’s all about really knowing your client – their passions, their travel and philanthropy habits, for example. One group of organisations that has already got this right is the non-profit organisations, says Rambus.

This chimes with recent research from Scorpio Partnership, which found that wealthy individuals feel they get better customer care from charities than private banks.

As NFPs are asking for major gifts, they recognise the importance of pitching to the right person, says Rambus. And wealth managers need to be just as savvy in prospecting and client service, he adds. 

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