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Capgemini report finds individual global high net worth wealth has declined

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Overall, global high net worth individual wealth declined by 3 per cent in 2018, after seven years of continuous growth, largely due to a drop in wealth in the Asia-Pacific region, specifically China, according to the latest wealth report from Capgemini.

This decline has resulted in a loss of USD2 trillion worldwide, Capgemini says.

Commenting on the phenomenon, Ferréol de Naurois, VP, Banking and Capital Markets, Capgemini says that the decline in global wealth is surprising but also perfectly explainable. “It’s declining because the stock market, which is a key driver, has stumbled across the world with global market capitalisation falling 15 per cent last year.”

De Naurois believes that the decline in ultra-high net worth assets is due in large part to the uncertainty on both the political and economic standpoints which are creating worries around what is going to happen next and pushes clients into cash rather than a more illiquid asset such as commercial real estate or buildings of some kind.

De Naurois points out that another key driver of wealth growth has in the past been Asia Pacific, particularly China. “China is not the same powerhouse that it used to be,” he says. He also points out that the ultra-high net worth clients, with more than USD30 million in assets, have decreased in numbers and they have a big impact on the figures.

The Middle East bucked that declining trend, however, generating 4 per cent growth in HNWI wealth and increasing its HNWI population by 6 per cent. The report finds that this is due to strong GDP growth and financial market performance, with De Naurois commenting that in his opinion, the region may be benefiting from being more stable than it used to be, meaning some of the money that was flowing out, is staying put.

When it came to wealth managers and their relationship with the wealth clients, the report found that trust levels remained stable but that wealth managers must evolve the client experience.

Despite declining wealth, HNWI’s year-over-year trust and confidence in wealth management firms increased by 3 percentage points in Q1 2019 over last year levels. However, the report revealed significant opportunity for wealth firms to proactively address rising HNWI expectations, as an unsatisfactory service experience was the biggest reason for HNWIs to switch firms in 2018.

De Naurois says: “What we are seeing is that the trust that the clients have with the wealth managers has remained pretty strong and I would say especially when there is a combination of personal touch and high technology.”
 
There has been a shift in assets, to cash as cash replaced equities to become the most held asset class in Q1 2019, representing 28 per cent of HNWI financial wealth, while equities slipped to the second position at nearly 26 per cent (a decline of 5 percentage points).

Volatile equity market conditions spurred a slight increase in allocation towards alternative investments to 13 per cent, according to the report, a 4 percentage point increase from the previous year.

“The way wealth managers are handling their clients through the various reallocation of assets typically from equity markets into cash or fixed income has happened but not so much a shift in wealth managers,” De Naurois says.

Of the ultra-high net worths interviewed, even though the personal relationship is a primary criterion, only 44 per cent reported that they connected very well with their wealth managers.
De Naurois says: “Wealth managers are not immune to global trends and where clients are looking at customer experience as one of the key aspects is in asking for Apps or fast execution time.

“High net worths have access to regular banking or know someone who has a retail bank account, and they do compare. It has to be sexy, it has to work on the mobile” he says.
Another trend is the Big Tech trend, where increased data analytics innovation is seen everywhere else in daily life and needs to be mimicked in the wealth manager world, De Naurois says.

“All our clients talk to us about what to do with their data and analytics,” he says. “Making the data available for both the wealth manager, so he can make educated recommendations, is key but also for the clients as they want access to their reports and holdings very quickly. Wealth managers realise they need to use the cloud or partner with a large firm to leverage other services.”

Costs are subject to strong pressure, De Naurois says, with clients comparing what they get for free with one bank but pay for at another. “Wealth managers have clients questioning their fee structure and pushing them to lower the fees that they charge.”

From the wealth managers’ standpoint there is one key message, which is that they don’t want to spend time on an administrative task. “They expect their tools to help them spend more time on client related topics,” De Naurois says.

“The personal relationship is key to maintaining the relationship with a wealth manager,” he concludes.

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