Trends in wealth management are always focused on in the annual World Wealth Report by Merrill Lynch/CapGemini. In past years, alternative i...

Trends in wealth management are always focused on in the annual World Wealth Report by Merrill Lynch/CapGemini. In past years, alternative investments, rising wealth of the emerging economy millionaires and tech millionaires have been themes. This year the report’s authors caught upon the idea of so-called mid-tier millionaires—those with between $5 million and $30 million in liquid assets. Apparently, according to the report, these mid-tier millionaires are underserved by the wealth management sector. They need more looking after and wealth mangers to empathize with their needs. These very wealthy people are caught in between—according to the report—the majority of high net worth individuals, those with between $1 million and $5 million, and those ultra-high net worth individuals, which represents anything above $30 million. This latter segment are served by family-office style financial services groups and get plenty of attention, said the report. “From a service standpoint, MTMs are trapped between these two groups: They have product and service needs that often are as complex as those of much wealthier individuals, yet they lack the wealthiest group’s deep financial resources. As a result, they are forced to do business with a wide range of specialist providers as they attempt to manage their own wealth,” said the report. Merrill/CapGemini say MTMs account for around 9 per cent of the total high net worth market, and they grew about 7.9 per cent in numbers last year, compared with 7.3 per cent for the total HNW population. The Wealth Report sees four factors MTMs want from managing their wealth:

• Plenty of discipline when it comes to management risk. Given that many MTMs are small and medium-sized business owners, many of them want to counterbalance their increased appetites for risk-taking with a more disciplined approach to managing wealth.
• Questions on wealth transfer. Many MTMs are coming up to retirement, but few are well prepared to pass on their wealth. According to the report survey of relationship managers’ views on this, 45 per cent of them said that MTMs are ill-prepared to pass on their wealth to their heirs.
• Offshore investment complications. As many as a quarter of MTM clients invest in offshore safe tax havens and many have other international investment exposure. Pursuing these strategies puts additional pressure on MTMs to find reliable investment information and then coordinate relationships with service providers around the world, according to the report.
• Sophisticated investment views. The report said that 89 per cent of relation managers believed that their MTM clients are looking more strategically, rather than opportunistically, at investment return and performance. Most of them want a much greater say in the management of their wealth.

All these issues of managing their wealth have led MTMs to expand their network of specialist providers. It is not uncommon for MTMs to have at least three service providers managing a portion of their portfolios. But most of them want much more simplification, with more than a third saying they want to consolidate the number of financial firms they work with. According to the report, MTMs need:

• One central advisor. MTMs are looking for a central advisor who can set in the middle of all the financial acitivity.
• Transparency. MTMs want increased transparency from the investment managers handling their financial affairs.
• Collaboration among third-party providers. MTMs and their advisors need to closely coordinate activities among third-party service providers, such as accountants and lawyers, to execute complex wealth strategies.
• Institutionalised wealth management processes. MTMs are crying out for institution-like processes to manage their wealth and other requirements.

Virtual Service Network The report authors say, what MTMs need is a form of family-office like structure for their wealth needs. They call this new model a virtual service network, which is a form of family office on the cheap. “The VSN combines state-of-the-art technology and standardized processes to allow collaboration among the multiple service providers attending to an MTM’s interest.” The report says that a VSN would look to combine a geographically dispersed set of bankers, investment managers, accountants and lawyers who would all work together via a VSN website set up by an MTM’s primary advisor. To embrace the VSN service model, firms must, according to the report, invest in and refine at least three technologies:

• Account/data aggregation. Having a complete view of a HNWI’s financial picture, regardless of asset class or account location, is the core function of a family office, and at the heart of its ability to set broad wealth management strategies.
• Secure online collaboration. Online collaboration technologies such as file sharing, net meetings and document-sharing tools will allow geographically separate individuals or teams to work seamlessly together. Firms such as eVault and eMoney Advisor are examples of technology providers who are furthering this concept in wealth management.
• Workflow-based wealth management platforms. The VSN platform would be able to use emerging technologies to remove the need to be in one location and make it possible for multiple providers to work apart yet coordinate their work processes through a prescribed workflow.

“The VSN is a natural path of evolution for an industry that is undergoing significant change,” according to the report. “A similar evolution occurred in the late 1970s and early 1980s within the institutional money management industry…The firms that adopted this approach were able to successfully position themselves as trusted advisors and other firms as merely sub-contractors.” The report added: “Firms that are able to capitalize on the opportunity to meet the demands of MTMs have the potential to reap similar rewards.”