Growing wealth among HNW not translating into satisfaction

The HNW population continued to grow across global regions, with Asia-Pacific and North America accounting for 74.9% of the total global increase in the HNW population (1.2 million new HNWIs) and 68.8% of the rise in global HNW wealth (US$4.6 trillion in new HNW wealth). Europe also realized a strong performance in 2017 with 7.3% of HNWI wealth growth. The largest markets — the U.S., Japan, Germany and China — represented 61.2% of the global HNW population in 2017 and accounted for 62% of all new HNWs globally.

In Canada, specifically, the HNW population rose by 5.5% to 376,680 in 2017 from 357,043 in 2016 while their wealth increased by 7.2% to US$1.2 trillion from US$1.1 trillion year-over-year.

Global HNW’s investment returns on the assets managed by wealth managers were up by 27.4% in 2017, according to the Capgemini report. Equities remained the largest asset class in the first quarter of 2018, at 30.9% of HNW’s financial wealth, followed by cash and cash equivalents at 27.2%, and real estate at 16.8%.

The HNW under the age of 40 claimed to have achieved much higher investment performance than their older counterparts (37.9% vs 16.9%), possibly because of the need to focus on wealth creation at this early stage of their lives compared with the higher focus toward wealth preservation of those HNW aged 60 and above, the report states.

Yet, these strong investment returns did not yield an overall satisfaction level, globally, among HNW in their in wealth managers and firms. In contrast, they still have a significantly high level of trust and confidence levels in their wealth managers and firms, suggesting that returns alone cannot sustain a wealth management business.

North American HNW appeared the most satisfied with their wealth manager (75.2%), while no other region passed the 70% threshold. In 2018, only 55.5% of HNW said they connected very well at a personal level with their wealth managers, despite substantial investment returns delivered over the past two years.

“There is clear opportunity for wealth-management firms to strengthen their relationships with their high net- worth clients as [more than] half [of those surveyed] said they don’t connect well with their wealth managers,” said Anirban Bose, member of the group executive board and head of Capgemini’s financial services global strategic business unit, in a statement. “Providing an innovative digital client experience is one way to strengthen the bond between wealth managers and their clients.”

One way to do that may be to provide innovative products and services. In fact, although cryptocurrencies are not yet a major part of the HNW’s portfolios, there is growing interest in cryptocurrencies among these investors as an investment tool and store of value. Specifically, the HNW are cautiously interested in holding cryptocurrencies, with 29% globally having a high degree of interest and 26.9% saying they are somewhat interested.

Cryptocurrency’s potential for investment returns and as a store of value are driving HNWIs’ interest, with 71.1% of the HNW aged 40 and younger placing a high importance level on receiving cryptocurrency information from their primary wealth-management firms vs only 13% of the HNW aged 60 years and older.

However, global wealth-management firms have been ambivalent in providing cryptocurrency information to the HNW, with only 34.6% of HNW globally saying they have received cryptocurrency information from their wealth managers.

Nevertheless, approximately three-quarters of all wealth-management firms interviewed are investing in innovative technologies, such as intelligent automation and artificial intelligence (AI) over the next 24 months, as they prepare for technology to play a larger role in the industry.

The most likely approach for wealth-management firms to adopt technology will be based on building partnerships through the white labelling of incumbent firms’ products and services or employing models that support wealth-management firms with back- and middle-office processes.

In fact, the Capgemini report highlights that wealth-management firms must transform the way they invest for the future as well as move away from traditional budgeting models to a more dynamic portfolio-based approach.

The 22^nd annual edition of Capgemini’s World Wealth Report includes findings from in-depth primary research on the global HNW perspectives and behaviours. The research is based on responses from more than 2,600 HNW individuals across 19 major wealth markets in North America, Latin America, Europe and Asia-Pacific.