UK High Net Worth 2011

Transcription

1 UK High Net Worth 2011 Wealth and Wealth Management

2 DEFINITIONS USED IN THIS REPORT: Affluent individuals are those with 100k or more in free investable assets. High Net Worth individuals are those with more than 500k in free investable assets. Ultra High Net Worth individuals are those with more than 5m in free investable assets. Investable assets includes cash deposits, money market funds, listed securities held directly or indirectly through managed investments, and onshore and offshore assets. All the information relates to individuals who pay tax in the UK, it does not include individuals who may live in the UK but who are not ordinarily resident in the UK for tax purposes. All the data in this was complied by MDRC and its associates from both primary and secondary sources. Where secondary sources have been used, permission to use the data has been granted by the copyright holder. For more information on the data in this report or for information on MDRC s consulting services contact MDRC on +44 (0) , or by research@mdrc-global.com or visit our web site Copyright 2011 Market-Dynamics Research & Consulting Ltd. This publication may not be reproduced or distributed in whole or in part without the prior permission of Market-Dynamics Research & Consulting Ltd.

3 Contents Introduction Page 4 Executive Summary Page 6 Wealth in the UK Page 8 A Profile of the HNW Page 13 The Distribution of Wealth Page 18 Prospects for Growth and beyond Page 21 The Business Environment Page 24 Understanding the HNW Page 26 Paying for Financial Advice Page 29 Changing Financial Priorities Page 32 Expectations of Wealth Management Page 34 Running Hard, but Standing Still Page 36 Focus on Core Competences Page 40 Defining and Measuring the HNW Page 44 About MDRC Page 46 Wealth & Wealth Management Page 3

4 Introduction I am delighted to present MDRC s 13 th annual report on the UK High Net Worth (HNW) sector. As in previous years this report focuses on 3 main topics: the dynamics of the market, characteristics of HNW individuals and lastly, key issues for the broader wealth management community. The foundation research for this report has not only come from our own proprietary research, but also from the results of a major strategic research project carried out with a consortium of UK wealth managers during the second half of 2010, and we are extremely grateful for permission to use some of the data from that study. In total these studies have given us input from over 4000 HNW individuals and 600 UHNW individuals. The report s conclusions are broadly optimistic on the short and medium term prospects for the High Net Worth sector in the UK, despite the ongoing harsh economic climate. This report is also broadly optimistic on the prospects for the UK s wealth management industry which has been catalysed into changing its traditional wealth management business model by the difficult business environment and forthcoming regulatory changes. Our 2011 planning scenarios suggest that the UK s HNW sector is set for 3 or 4 years of modest growth. Although affluent and HNW growth will be at rates above the growth in the UK economy as whole, the sector will not return to the pre-2008 rates of growth during this period. We also expect to see the continuing evolution of the HNW individual; increasingly confident, financially aware and wary of opaque products but becoming less risk averse than in recent years - unless there is another correction in asset values. However, these individuals are also time constrained and keen to protect their lifestyles. We see a continuation of the recent shift in the financial priorities of the average HNW individual prepared to consume assets to ensure a comfortable lifestyle (particularly in retirement) and less concerned about passing wealth to succeeding generations. We also see a continuing interest in the concept of wealth management particularly from wealthy women, but the products and services on offer from private banks and private client wealth managers still fail to attract most of the target market. Inevitably, there will be winners and losers in the wealth management industry. Our research points to a modest increase in the Traditional style of wealthy individual, content to have his or her financial assets managed entirely at arms length, but the majority of the HNW still wish to have some degree of involvement in the management of their wealth, even if this has been reduced to an occasional phone call with their wealth manager. This is a legacy of the market turmoil in 2008/9 and although wealth managers have performed well over the past 2 years, many HNW have lingering concerns about another bubble and the Page 4 MDRC

5 resulting collapse in asset values. One positive outcome from the past 3 difficult years is the emergence of a deeper understanding of the new business environment in the wealth management industry. Although not yet entirely client centric, wealth managers are embracing the changes requested by clients (and regulators) and developing new products, services and delivery mechanisms to meet new client expectations. Prior to 2008 we observed that the majority of wealth management businesses were pursuing business models that were developed a decade earlier, but in 2011 we see that the vast majority of the UK s wealth managers have changed their business models and are pursuing business strategies that fit well to the new competitive climate. We hope that this report will provide those businesses with an interest in the UK HNW sector with a credible model by which they can test their strategies and those of their competitors and trust that it will help firms better serve the needs of industry stakeholders. Richard Williams Managing Director MDRC One change in the business environment comes from the potential impact of the proposals in the FSA s Retail Distribution Review. It seems likely that these proposals will strengthen the position of integrated wealth management in the UK as the independent advisory sector undergoes a degree of metamorphosis. Although very little in this world is certain, we believe that the UK HNW sector will be very attractive for those firms that are client centric in outlook and are able to develop a distinct market presence. Wealth & Wealth Management Page 5

6 Summary At the start of 2011 the number of HNW individuals (HNWIs) had increased by 4.5% to 541,500. However within these totals we estimate that there were some 68,000 new HNW individuals, but that 44,500 previous HNW individuals were lost. If constrained assets are included, the number of HNW individuals increases by 15.4% to 625,000. Assuming that UK GDP growth is 1.7% in 2011, 2.1% in 2012 and 2.9% in 2013 then we would expect the HNW sector to grow in the range of 1% to 5% in 2012, 2% to 6% in 2013 and Within this growth range we can see that the higher wealth bands will grow at a marginally faster rate than lower wealth bands. Historically, financial assets have grown at a faster rate than the numbers of HNW individuals (driven by the effects of leverage), however we see that leverage will have limited impact over the next 3 years and so assets are likely to grow within the above growth bands. In the past we have included SIPPs in our definition of constrained assets. However SIPP investments have a distorting effect on HNW numbers and so we have excluded them this assessment, but if SIPPs are included then they would inflate the number of HNW individuals by 128,000 and HNW assets by 11.2bn. In addition 71,000 existing HNW individuals have SIPPs with total assets of 18.2bn. In 2011 the average age of a UK HNW individual had increased to 59, and the average age of a new HNW individual in 2011 was % of HNW individuals are now nonworking; of the remainder 31% would be classified as employees (usually of large organisations). Business owners now only make up 22% of the HNW population and professionals 15%. Just over 50% of HNW individuals are female; this is a slight reduction over 2010 and a consequence of female wealth being more risk averse and so unable to take full advantage of the recent increase in asset prices. The proportion of cash in portfolios has fallen to 15.5% from 18.5% in 2010, but this fall is largely the result of the increase in the value of other asset classes rather than in a conscious reduction of the value of cash. 51.8% of women and 48.1% of men place themselves in the balanced risk category. Our analysis of the HNW sector estimates the numbers and financial assets of individuals using different definitions of wealth. Our preferred measure - investable assets only - gives total wealth for UK HNW at 1.2tn, using the wider definition of investable and time constrained wealth increases the value of total Page 6 MDRC

7 wealth to 1.6tn. The highest proportion of time constrained wealth is in the 5m+ band. The majority of the HNWIs (55.8%) do not wish to be actively involved in the management of their assets, but 61.2% of these would like to be informed of the investment decisions made on their behalf and, perhaps more importantly, would like to be able to understand them. HNWIs with lower value portfolios would be prepared to pay /hr for financial advice, those with higher value portfolios would be prepared to pay /hr; this difference seems to be related to the higher perceived value derived by wealthier HNWIs and the legal complexity of some of the wealth management proposals Regardless of wealth band over 60% of HNWIs would expect to pay a financial advisor less than they pay their accountant, while nearly 90% would expect to pay a financial advisor less than they pay their lawyer. Knowledge about the client is a key competitive advantage yet few investment or wealth managers use this knowledge effectively. Our research suggests that although the largest firms collect basic client data when a client joins the firm, any subsequent update is driven by changes in regulatory requirements rather than a desire to know more about the client. Although relationship managers may know quite a lot about a client and may even store this data on the CRM system, large organisations rarely have the ability to gather and analyse the data as efficiently or effectively as smaller firms. In 2011 we have been surprised at the number of firms that know the number of accounts open - but not the number of clients they have! Beyond 2011, investment and wealth management firms that focus on their core competences and position themselves to take advantage of the changes in the business environment and market demographics will have a competitive advantage over their peers. In particular, timely and insightful metrics on client attitudes will be a competitive priority. Organisations that offer life-cycle wealth management services and predict changes in consumer preferences through the cycle will be able to capture and retain an increasing share of client assets. It is probable that there will be an increase in structural excess margins as firms learn to make greater effective use of client data, the wealth advisory sector consolidates and client demography increases the opportunity for higher added value services. The most successful businesses will be those that think about the client experience first and their internal processes second. Wealth & Wealth Management Page 7

8 About MDRC MDRC is a management consulting firm and a leading advisor on private client investment and wealth management and private banking business strategy. We assist firms in all sectors of financial services across the EU and the world s major financial centres to gain a better understanding of their target markets, identify highestvalue opportunities, benchmark their performance and improve the way they work. developed by MDRC gives a comprehensive analysis of individual wealth in 25 countries of the EU and the world s major economies. The 8 million data items covering demographic and behavioural analysis, portfolio composition and sources and uses of wealth, allows MDRC and our clients to build an accurate view of market and segment sizes, current client needs and future market trends. Creating an impact - Sustainable Advantage We help our clients build a sustainable competitive advantage by focusing on the core skills of client management, marketing and brand strategy and product and corporate development. We assist firms to innovate and grow through finding opportunities in mergers & acquisitions. Our approach to consulting combines deep insight into the dynamics of business organisations and unrivalled knowledge of the wealth management and private banking industries. MDRC s associates cover all 27 states of the EU and the world s major financial centres. Understanding consequences - Strategic Research MDRC s strengths come from our investment in strategic research. Each year MDRC group commissions strategic research into the key issues impacting on the world s wealth markets to stay relevant to our clients and bring them unparalleled thinking and advice. The MIDAS model MDRC s proprietary research base of HNW individuals in countries across the EU allows rapid and accurate testing of most business hypotheses at minimal cost. Committed to success - Business Planning We believe that consultants should only provide business managers the support they require. If this means that assignments are focused on simply validating or challenging business assumptions and plans, we are happy to work on that basis. Our Business Planning team works on short projects to give clients an independent assessment of current business plans and objectives. We focus on facilitating the strategic and business planning process; we support businesses to develop robust strategies and we test existing plans against our market knowledge and planning scenarios. Page 46 MDRC

9 Understanding and Improving Client Relationships We are committed to assisting our clients in understanding and improving their client relationships and expanding their client bases. A key element of our proprietary research focuses on the potential of the client relationship and the performance of organisations in meeting clients needs and expectations. Over the past 10 years we have developed robust methodologies to measure and improve client satisfaction and retention in service sector businesses. Building the future the Position Assessment MDRC does not believe in standard industry answers, but we do believe in providing value. We know that each organisation is different and that only specific and focused solutions give our clients a competitive advantage. The foundation for building a more competitive and robust business is to understand the strengths and weaknesses of that business and those of its competitors; when this is carried out with a structured methodology we call this a Position Assessment. Wealth & Wealth Management Page 47

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