WM Market Reports
HNWIs Got Richer, Asia Millionaire Population Grows
The population of high net worth individuals rose in 2010, as did their wealth, willingness to take risks and their confidence in wealth management as a business, a new report shows.
The population of high net worth individuals rose 8.3 per cent to 10.9 million in 2010, with these clients holding $42.7 trillion in investable assets – up 9.7 per cent, a new report reveals. It also showed they are becoming younger, more female, more trusting in their firms, more willing to take investment risks and are more widely represented in nations such as India.
In a sign of rising gaps between the wealthy and super-wealthy, the number of ultra high net worth individuals rose by 10.2 per cent to 103,000 last year, while their wealth rose by 11.5 per cent, decelerating from the 21.5 per cent growth rate in 2009, according to the annual Merrill Lynch/Capgemini World Wealth Report 2011. The report covers 71 countries, and measures wealth by reference to national accounts to obtain savings data, measuring assets by book value and are adjusted to reflect stock indices.
HNW individuals are getting younger - with big implications in terms of marketing and use of technology, the report said. People deemed to be "young" for the purposes of the survey - 45 years or younger - accounted for 17 per cent of all such HNW individuals, up from 13 per cent in 2008. Women also are becoming more important, accounting for 27 per cent of all such persons, up from 24 per cent in 2008.
The report, which has chronicled the rise of Asia as a big wealth management growth market in recent years, continued to reflect this trend. The Asia-Pacific HNW individual population expanded by 9.7 per cent – faster than the global average – reaching 3.3 million people.
The report also highlighted how clients’ trust in wealth managers, which was pummelled by the 2008 financial crisis, has recovered. Some 88 per cent of financial advisors said HNW clients agree that there is more confidence in wealth managers, compared with 48 per cent giving that answer in 2008. Less positively, the survey showed that no clients say that wealth managers over-deliver on service quality.
Echoing the recent PricewaterhouseCoopers wealth management study (click here), the report also shows that this is not a particularly profitable business. Wealth management margins actually fell by 320 basis points in 2010, hit by higher regulatory, recruitment and compensation costs, and clients’ preference for lower-margin products.
The evidence in fact suggests that larger firms with economies of scale and strength to shoulder such cost increase will outperform their peers, and also drive more consolidation in the sector, Adam Horowitz, head of UK, Ireland and Israel at Merrill Lynch Wealth Management, told journalists in a briefing about the report.
Turning back to regional trends, the report said that within the the Asia-Pacific region, there were big rises in HNW populations in Hong Kong (33.3 per cent); Vietnam (33.1 per cent); Sri Lanka (27.1 per cent) Indonesia (23.8 per cent) and Singapore (21.3 per cent).
India’s rising star
For the first time in the history of the survey, India has become the 12th largest country in terms of its HNW population – 153,000, overtaking Spain, which has dropped to 14th, while Australia has overtaken Italy, with 193,000 HNW individuals, moving to 9th position. The figures highlight why a number of wealth management firms, such as Standard Chartered Private Bank, are targeting the India and non-resident Indian market.
By contrast, Europe’s grew below the average, at 6.3 per cent to 3.1 million. Asia-Pacific HNW individuals’ wealth rose by 12.1 per cent to $10.8 trillion, overtaking Europe’s figure of $10.2 trillion, where the rise was 7.2 per cent. Since the end of 2007, the HNW individual population in Asia-Pacific has surged by 14.1 per cent, despite the intervening credit crisis. In North America, meanwhile, the population of HNW individuals rose by 8.6 per cent to 3.4 million, decelerating from the 16.6 per cent expansion in 2009. Total wealth held by these persons stands at $11.6 trillion.
In Latin America, HNW individuals number 500,000. The market is top-heavy in terms of UHNW individuals. Aggregate wealth stands at $7.3 trillion, a rise of 9.2 per cent. In the Middle East, the rise in the price of oil and other developments drove the HNW population up by 10.4 per cent to 400,000; their wealth surged 12.5 per cent to $1.7 trillion.
Asset allocation
Investors took more risks last year, holding more equities in portfolios and withdrawing from cash and some fixed income sectors, the report said. In 2010, equities accounted for 33 per cent of all holdings, up from 29 per cent in 2009 and 25 per cent in 2008. Alternative investments – such as private equity, hedge funds, commodities and currencies – actually fell slightly to 5 per cent from 6 per cent in 2009. Fixed income accounted for 29 per cent (down from 31 per cent); property accounted for 19 per cent (up from 18 per cent), and cash/deposits accounted for 14 per cent (down from 17 per cent).
The move towards stocks was most pronounced in North America – equities accounted for 42 per cent of all holdings. In the Asia-Pacific ex-Japan region, investors are property enthusiasts, holding 31 per cent of all wealth in bricks and mortar assets. Japanese investors are the most cautious: they hold 55 per cent of all assets in fixed income and cash/deposit assets, typically a lower-margin business.
