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US Still Leads In Wealth, But Wealth Managers Face Challenges

Charles Paikert

23 June 2011

The US is still home to the single largest segment of high net worth individuals in the world, according to the annual Capgemini-Merrill Lynch World Wealth Report.

Just over three million individuals have at least $1 million or more in investible assets, accounting for nearly 30 per cent of the global high net worth population.

Total high net worth wealth in North America hit $11.6 trillion in 2010, up 9.1 per cent, keeping the continent the world’s wealthiest region. The equity markets were “clearly” the primary driver of asset growth in the US and North America, according to John Thiel, head of US Wealth Management and the Private Banking & Investment Group for Merrill Lynch Global Wealth Management, who spoke at a press conference in New York to unveil the report.

However, wealth managers will face considerable challenges to maintain their share of that lucrative market going forward, said William Sullivan, head of market intelligence for Capgemini Financial Services USA.

Sullivan reiterated the report’s emphasis on the importance of “enterprise value” at the press conference, and the need for firms to leverage “cross-enterprise capabilities" or “value levers” that may reside in other units of the company. Examples include investment opportunities through the investment bank, preferred financing for entrepreneurs, and advice and expertise from the private bank and investment bank during the wealth creation process.

“Clients are looking for specialized advice,” Sullivan said.

Large firms "best positioned"

Large financial firms were obviously “best positioned” to take advantage of these capabilities, Sullivan said in response to a question from Family Wealth Report. “The question,” he continued, “was how do you incentivize different business units to work together?”

Indeed, large firms “have a long way to go” to make cross-enterprise capabilities work, Sullivan said. “They have the highest potential to leverage, but it will take a lot of effort.”

Business owners have been the focus of Merrill’s cross-enterprise efforts, Thiel said. “We can help fund, lend and advise their businesses,” he explained, “and we’re trying to knock down the traditional organizational obstacles that get in the way of doing that effectively.”

But what about boutique wealth management firms? Are they at a severe disadvantage in this brave new world? Do they have a future in the business?

Still room for niche players, but…

“There is still room for niche players, and they can still have successful approaches,” Sullivan said. For example, smaller firms can specialize in areas like asset management and close personal relationships with clients.

But, he added, boutique players will need to be able to work with other firms “to fill in the gaps” for clients' diverse and complex needs. “It’s critical that they be able to tap into other opportunities,” Sullivan emphasized. “Otherwise they will be limited.”

Both large and small firms will also need to cope with coming generational changes, according to Thiel and Sullivan.

While the HNW population is still mostly males over 45, the report noted, the demographic is getting younger and more female. To accommodate their needs, the report suggested, “firms may need to fine tune their service models over time.”

Specifically, younger clients will demand more transparency, technology and convenience in everyday transactions, the report stated, “as many favor real-time digital media for communications and transactions.”

Thiel said firms are hosting more “financial boot camps” for young clients and the “next-generation” children of older clients.

And Merrill Lynch, he said, is making a concerted effort to hire younger advisors. “We want our clients and advisors to grow together,” he said.