European HNW Clients Demand Stronger Risk Controls, Advice - Study

Tom Burroughes

13 January 2009

As European investors hunt for safety and reassurance amid the financial crisis, they are demanding stronger risk management services, tax planning and greater advisory help, according to a report on the impact of the turmoil on wealth management by US-based consultants Celent.

However, while in the short run the desire for safety and cost-cutting will put a squeeze on the industry, Celent said it expects Europe’s wealth industry to go through three stages of consolidation, stabilization, and finally, growth, as consumer confidence returns.

“The European wealth management industry is experiencing a great deal of consolidation, due both to non-voluntary takeovers and to strategic advantages. As the market realigns, providers will focus on offering value-added services, increasing their assets under management, and making effective use of technology to gain and retain customers,” the report said.

The report said that all developed economies are on track to creating universal banks that will be more risk-averse and conservative with less differentiation of products and services.

“European investors’ attitudes about risk are changing significantly. Investors are increasingly questioning their own capacity to handle risk and are interested in better understanding their risk profile and exposure levels. Investors are also questioning whether their risk exposure is in line with financial objectives and underlying risk preferences,” it said.

“This concern for and awareness of risk is notably stronger in the UK and Germany, where the tremors of the recent global meltdown have been felt more strongly than in other European markets,” it said.

The report noted that investors are dividing their assets among a range of institutions to ensure that they receive the best advice as well as reduce their exposure to a single entity. European investors are trying to avoid complicated structured products which are difficult to understand.

Investors are paring down their exposure to risky investment products, especially private equity and hedge funds. Countries like France, Spain, and the UK were only starting to see increased hedge fund investment earlier in 2008, claiming that these products were too risky and difficult to understand for private investors. Deposits with average one-year returns between 4 per cent to 5 per cent have become the preferred instruments for investors across Europe.