Pamela Barbaglia, senior financial reporter and head of technology coverage at wealthmonitor, discusses the preferences of one of Europe’s hottest HNW growth sectors: internet millionaires.

This case study forms part of WealthBriefing’s latest research report, The New Normal: Codifying Superior Client Experience In Wealth Management, which was produced in association with Barclays Wealth and Investment Management and will launch on 15 May. To mark the launch, a webcast featuring senior executives from Barclays and others has been produced discussing headline findings, and access to both this and the report itself will be free as part of WealthBriefing member benefits.

Here, Pamela Barbaglia, senior financial reporter and head of technology coverage at wealthmonitor, discusses the preferences of one of Europe’s hottest HNW growth sectors: internet millionaires.

The latest figures from your report The Internet Sector: 2012 In Review suggest that internet entrepreneurs pocketed nearly £17 billion in 2012. What signals are you getting from wealth management firms that they are really tracking the growth of internet entrepreneurship as a growing source of new clients?

Europe’s internet market remains a fraction the size of that in Silicon Valley. But in the midst of the economic downturn, Europe’s entrepreneurial spirit is growing stronger as young managers are engaging in low-capex businesses spanning from e-commerce platforms to social networks.

Wealth managers are positively reacting to a generation of talented entrepreneurs who have given up full-time jobs at a time when most EU countries were slipping into recession. In Southern Europe, many internet entrepreneurs have decided to invest in their own projects as a consequence of the sluggish economy. Many high-skilled unexploited talents in Italy and Spain have little alternative to focusing on their own digital initiatives making a virtue of necessity, but in the UK and the Nordics there is a more established trend of internet-related entrepreneurships, as shown by the likes of Skype and Autonomy, which fell prey to US corporations in recent years.

Entrepreneurs in Germany, the UK and France accounted for most of the £17 billion figure. Are you seeing wealth management firms in those countries specifically ramping up their efforts to attract internet entrepreneurs?

Wealth managers have cautiously tapped into what was initially perceived as another internet bubble. There are still concerns over the sustainability of internet companies as memories of Facebook IPO fiasco remain vivid. Yet, we’re seeing more action among wealth managers to engage with internet entrepreneurs in Europe’s strongest geographies such as the UK and Germany.

Roughly what proportion of the new wealth being created in the EU is related to internet entrepreneurship? What are other “hot” sectors?

Europe’s technology market is valued at $5 billion. On average around 200 EU companies a year raise $5 million or more from venture capitalists and private equity investors, as opposed to 1,400 such deals in the US, the technology market of which is valued at $25 billion. Besides the internet world, medical technologies and clean technologies are increasingly seen as attractive investment areas. As the population ages, scientists are also developing tech platforms to study DNA and provide tailored medicine for specific genetic profiles, which is also knows as genomics.

Do you think that it’s often the case that such clients continue in their entrepreneurial efforts even after a significant liquidity event? How does this impact on wealth management firm’s strategies?

The internet sector has produced the highest number of serial entrepreneurs, who typically establish multiple start-ups before joining a venture capital fund and supporting other entrepreneurs. The internet cycle and rapid execution of liquidity events demands a strong network of banking contacts for wealth managers. But the beauty, and challenge, of the internet industry lies in its dynamic nature – and this makes entrepreneurs more inclined to being active rather than passive investors.

In your experience, do entrepreneurs (and specifically tech ones) have any clear preferences when it comes to any element of their wealth management provision?

Tech entrepreneurs have strongly relied on venture capital rounds to sustain their businesses, particularly in the first couple of years since their inception. In addition, the majority of liquidity events in this industry are closely connected to a private equity buyout. The proximity of internet entrepreneurs to the private equity industry makes it an inevitable step when it comes to selecting future investment activities.

Do you have any feelings as to the kind of wealth management firms internet entrepreneurs will want to deal with?

Internet entrepreneurs tend to show higher levels of involvement when it comes to wealth management. They can be initially reluctant to delegate day-to-day wealth administration tasks and would keep a close eye on the financial performance of their investment portfolios rather than instantly relying on the expertise of others. This comes as a new challenge for wealth advisors that are typically focusing on families with long-established wealth and long-term investment horizons. In fact, internet entrepreneurs tend to be reluctant when it comes to extending their investment timeframe beyond five or ten years.

Is it your view that internet entrepreneurs tend to be younger than the “typical” Western wealth management client? What effect do you think this should have on wealth management firms’ strategies for both attracting and serving such clients?

Internet entrepreneurs in Europe are typically aged between 30 and 40, and they tend to execute their first liquidity event in their early 40s. These are individuals with high ambitions, great risk appetite and a sturdy sense of self-confidence. The sale of their first business is almost seen as a loss of identity and they are often reckless when it comes to embarking on new high-risk projects. Wealth strategists often need to mitigate this risk by diversifying investments in various areas including real estate, private equity and emerging markets etc.

Many commentators hold that in general private clients are under-served technologically. Do you think that poor technology provision is a real barrier to attracting these sorts of clients?

Wealth management specialists facing poor IT resources need to implement their tech capabilities before tapping into a portfolio of young tech-savvy entrepreneurs whose wealth is entirely dependent on digital innovation. Needless to say, technology is critical to these sort of clients, not only as a way of doing business but also as a vehicle to communicate with and relate to the world.

When it comes to segmenting wealth management clients, often the broad entrepreneur label is used. Do you think it’s important to get even more granular and segment entrepreneurs according to type of business?

There is nothing more fragmented than the internet world, where everyone wants to be recognised as a pioneer in a new business area. From crowd-sourcing to social media tools, there are many niche areas where internet entrepreneurs are laying down strong foundations for building wealth. And these are areas that wealth strategists should understand and address with ad-hoc plans.

Do you think that Asian wealth management firms have a lot to teach those in the West about how to serve entrepreneurs, and specifically technology entrepreneurs?

US wealth management firms would be in a better position to show European wealth specialists how to structure professional relationships with internet entrepreneurs. Although the wealth management process itself is well-known to European firms, the very nature of the internet industry – which was born in the US and has a highly entrepreneurial DNA – has so far presented US wealth strategists with the most attractive opportunities.

The shift away from inherited wealth to entrepreneurial wealth among the global HNW population has been well documented in recent years. Do you think this change has “bedded down” properly yet in the mindset of the wealth management industry?

The fast erosion of family wealth in Europe has put entrepreneurial wealth in the spotlight. But macroeconomic conditions in Europe are still making it difficult for wealth strategists to address self-made entrepreneurs who have built recession-proof businesses and are experiencing a transition in life. Such entrepreneurs are facing a big question – “What comes next?” – and are typically seeking advice in a variety of financial areas other than tax and estate planning.