The population and wealth of high net worth individuals (HNWIs) in the US reached record levels in 2013, according to the US Wealth Report 2014 released by Capgemini and RBC Wealth Management.
The population of US HNWIs jumped 17 per cent to four million and their investable wealth by 18 per cent to reach USD13.9 trillion.
Growth rates of both the HNWI population and HNWI wealth in the US exceed the global averages of 15 per cent and 14 per cent respectively.
“Steady GDP growth, reduced unemployment, a falling deficit, and an energy renaissance boosted investor confidence and energised risk appetites in 2013,” says John Taft, chief executive officer, RBC Wealth Management – US. “These factors contributed to record wealth levels in the US. Over the last five years, some of the strongest growth in wealth occurred in the energy and technology-centric cities of Dallas, Houston and San Jose, indicating that a broader mix of geographies and industries is driving wealth creation in the US.”
Growth in US HNWI wealth was driven by the top 12 cities by HNWI population – New York, Los Angeles, Chicago, Washington DC, San Francisco, Boston, Philadelphia, Houston, San Jose, Dallas, Detroit, and Seattle – which are home to more than two-thirds (69 per cent) of US HNWIs and three-quarters (75 per cent) of US HNWI wealth.
While New York still reigns, holding almost three times more HNWIs (at 894,000) and wealth (USD3.2 trillion) than second-ranked Los Angeles (at 330,000; USD1.2 trillion), it recorded the second lowest growth rate (12 per cent) in HNWI population of the top 12 MSAs, ranking only slightly higher than Detroit (11 per cent).
Tech and energy-centric cities increasingly leading HNWI population and wealth growth
The Texas cities of Dallas and Houston were stand-outs, leading in both HNWI population growth – at 20 per cent and 18 per cent respectively – and wealth growth, at 24 per cent and 22 per cent respectively. In fact, Dallas entered into the top 10 HNWI population centres for the first time, edging out Detroit.
While HNWI wealth remains mostly concentrated along the East and West coasts, the report notes that, between 2008-2013, three of the four fastest-growing cities in HNWI population and wealth have been those with ties to energy – in the case of Dallas and Houston, and technology – in the case of San Jose, pointing to a new pattern of HNWI wealth creation in the US.
According to the report’s Global HNW Insights Survey, US HNWIs’ trust in all aspects of the wealth management industry surged by double-digit rates between early 2013 and early 2014. Trust in wealth managers and firms increased 12 percentage points each to 84 per cent and 87 per cent respectively, putting US HNWIs well above their peers in the rest of the world (71 per cent and 72 per cent respectively).
Increased trust supported a greater appetite for risk, with allocations to alternative investments up by four percentage points to 13 per cent of portfolios, while equity allocations remained the highest across the globe at one-third of portfolios (and up to 41 per cent in Washington D.C., highest in the US). US HNWIs were also more inclined to invest beyond North American borders, with their international allocations up to 33 per cent in early 2014 from only 20 per cent of portfolios a year earlier. This trend was particularly driven by HNWIs aged under 40 who invested 53 per cent of their wealth in foreign markets.
Despite increased trust in wealth managers, HNWIs’ assessment of wealth manager performance dropped by six percentage points to 73 percent, though remains much higher than the rest of the world average of 59 percent. Declining scores signal opportunities for firms to reposition their offerings to meet specific HNWI preferences, especially for HNWIs under 40 versus their counterparts aged 60 and over.
Younger HNWIs are more likely to classify their needs as complex (38 per cent vs. nine per cent), seek family wealth advice (35 per cent vs. 13 per cent) and demand digital (internet, mobile, email) contact over direct personal contact (39 per cent vs. 15 per cent).
Given the strong preference for digital interactions, wealth management firms will need to take proactive steps to meet increasing demands in this area.
“There is great opportunity for wealth management firms to reposition and strengthen their offerings in response to declining performance scores,” says Jean Lassignardie, Chief sales and marketing officer, Capgemini Financial Services. “One way to respond to clients is by developing an integrated channel experience that not only maintains their wealth manager relationship but enhances it through digital enablement.”
As US HNWIs expressed a pronounced preference to work with a single firm (54 per cent vs. 11 per cent multiple firms), firms that work with them will need to continue to deliver against the specific needs of their clients to drive high satisfaction levels.