Tapping into the high net-worth investors of the future may well be a much different task than serving the wealthy investors of today. To meet their future needs, firms and advisors need to be more sophisticated, more cosmopolitan and more effective.

The latest Merrill Lynch & Co. Inc./ Capgemini survey of the world’s high net-worth investors indicates that the growth in the number of wealthy investors is likely to be strongest in foreign markets in the years ahead. The ranks of wealthy North Americans are expected to continue growing, just not as fast as they have in the past.

Both findings may be somewhat troubling to the average Canadian financial advisor. Slower growth in an already highly sought-after target market suggests that competition for the domestic wealthy client is only going to get more intense in coming years. And an outsourcing entrepreneur in Bangalore, or an energy oligarch in Moscow, aren’t likely to be looking for a broker in Saskatchewan to run their financial affairs — or are they?

Although there may be nothing advisors can do about a slow-growing population of wealthy investors in Canada, other than making their middle-class clients rich with superior investment advice, the faster-growing ranks of wealthy foreigners may be more accessible. Developing an ability to serve these sorts of global clients could become an increasingly important way to tap into the expected growth of wealthy client populations in the years ahead.

For one, consider the potential for wealth migration. High net-worth investors tend to be older — according to the Merrill Lynch/Capgemini survey, 61% of them are older than 56, compared with 15% of the world’s population — which means many will soon be passing on their wealth to successive generations. Also, 19% of these investors have adult children living abroad, which suggests that a good chunk of this wealth transfer could also become a global phenomenon.

The report doesn’t dissect the data on wealthy offspring living abroad by region, but in the press conference to release the report, Merrill Lynch and Capgemini indicated that there are more children of wealthy Asian and Middle Eastern investors living in North America than the other way around. So, although more people may be getting rich overseas, their money may then migrate to the developed world in the hands of future generations.

One key factor in whether this migration takes place is the source of overseas wealth. Although locals primarily get rich from their jobs and investments, wealthy foreigners are more likely to earn in their money from entrepreneurship. The Merrill Lynch/Capgemini survey looked at the sources of wealth for high-value investors, finding big differences by region.

Notably, North American investors get the biggest chunk of their wealth from income (32%, compared with a global average of 24%). They also get a greater than average portion from stock markets (both investment performance and incentive compensation such as options and restricted stock). This accounts for about 25% of North American investors’ wealth, versus a global average of 19%.

The rest of the world gets more of its wealth from entrepreneurship (business ownership or the sale of a business). The global average is 37%, compared with just 26% for North Americans.

That has a couple of implications for the next generation of wealthy foreigners. One is that their source of wealth is more sustainable. Although you can get rich from a high-paying job, you can’t typically pass that job on to your kids. The children of entrepreneurs, however, can inherit their primary source of wealth — they can take over the business and continue to run it or cash out. The decisions made there may well dictate how mobile future foreign wealth proves to be.

Whatever the case, advisors are going to have to gird themselves to operate in a different world — one that is more globally oriented, more complex and more demanding.

Part of the Merrill Lynch/Capgemini report involves surveying Merrill Lynch’s own “relationship managers.” Seventy-six per cent of them indicate that they expect the next generation of wealthy clients will want the ability to be served in multiple geographies. This added challenge of serving global clients will exacerbate wealthy investors’ existing demands, the report suggests. “Fundamental shifts in client [behaviour] will cause an unexpected acceleration of unfulfilled needs, as demand shifts to multiple markets around the world,” it says.

@page_break@According to the survey, the unfulfilled needs of high net-worth clients include: insufficient planning and strategy, poor portfolio reporting, opaque pricing, lack of product customization and excessive administrative complexity. Many of these complaints may be magnified as wealth is transferred and subject to the added challenge of more cosmopolitan lifestyles.

Of course, these problems also create opportunities. “Anticipating these changes, wealth-management providers may be able to capture significant market share by preparing a strong wealth-transfer offering and by building a cohesive global service model,” the report says.

It suggests several solutions may emerge to deal with some of these challenges, including: the creation of wealth-strategy teams that act as a shared global service; streamlining reporting by creating a “family balance sheet” to give a comprehensive view of family finances; and investing in technology to create global wealth-management platforms that better equip advisors to meet the more complex needs of more sophisticated, global clients. IE