The rich are, predictably, getting richer.
Both the number of people with investable assets of at least US$1 million (RM4.23 million) in US dollars and the total wealth that represents are expanding around the globe, according to World Wealth Report 2017 from Capgemini. By 2025, the consulting and technology services company predicts that assets held by high-net-worth investors will exceed US$100 trillion, up from US$63.5 trillion in 2016.
Sadly, even the very wealthy suffer from income inequality. While the ranks of the millionaire next door, with US$1 million to US$5 million in investable assets, increased by 7.4%, the number of people in the top 1% of the high-net-worth world — those with at least US$30 million in investable assets — grew by 8.3%.
The report found big leaps in the ranks of millionaires in North America and Europe, where wealthy populations grew 7.8% and 7.7%. That was an acceleration from 2% and 5% in 2015. Growth slowed slightly in the Asia-Pacific region (excluding Japan), home to the most millionaires, slipping to 7.4% from 9%.
Gains in stocks, which investors cited as their largest asset class, helped fuel Russia’s 19.7% growth in the number of rich investors last year. That’s a turnaround from a 1.8% decline in 2015. At the same time, the pool of Russian millionaires, at 182,000, is relatively small.
Brazil also rebounded in 2016, with a 10.7% rise in millionaire investors after a 7.8% drop in 2015. There, the ultra-rich hold some 87% of all the wealth held by wealthy investors.
The high-net-worth population of the US grew 8% last year.
Stock markets fuelled gains for well-heeled investors in much of the world last year, though their portfolios aren’t overwhelmingly in stocks.
On average, high-net-worth investors had just over 31.1% in stocks in 2017’s second quarter, up from 24.8% at the end of 2016, and a five-year high. Equities were cited by more than 90% of investors as “an important or the most important contributor to their investment performance”.
No Keeping Up with the Croesuses
The next-highest chunk of assets is sitting in cash and cash equivalents, at 27.3%. That’s an increase from 2016’s 23.5%.
Real estate shrank to 14% of the average portfolio, from about 18% in 2016. Stakes in alternative assets such as hedge funds, commodities, and private equity took a deep dive.
What sort of returns are these investors getting on their accounts with wealth managers?
The self-reported estimate, before fees, comes out to an average of 24.3% globally. The overall group’s aggregate wealth grew by 8.2%, more than double 2015’s growth rate.
Again, there’s no keeping up with the Croesuses: The wealth of the ultra-rich grew by 9.2%, while the millionaire-next-door crowd saw assets grow 7.5%.
All those gains add up to 16.5 million people with at least US$1 million in investable assets around the globe, holding that US$63.5 trillion in wealth, up from 10.9 million high-net-worth investors in 2010 with combined assets of US$42.7 trillion.
Investors had high levels of trust and confidence in their wealth managers, yet the report characterised their satisfaction rates as “tepid”, perhaps because of fees. Average fees paid in 2016, based on investor estimates, were US$65,795, or an average of 8.4% of assets under management.
The report noted that some customer segments pay far less than that. Traditional wealth management firms are expensive compared to the robo-advisors, some of which are offering sophisticated services such as optimising portfolios for taxes.
“We’re seeing a lot more margin pressure [among wealth managers] and a lot of fee pressure now,” said Bill Sullivan, global head of financial services market intelligence at Capgemini. “The reality is that while you can have different views about robo-advisors, when you see the small fees they are charging it starts to commoditise some basic investment areas.”
Traditional wealth managers need to rejigger their business models and their fees, fast, before any formidable competitors step into the breach, the report said.
To highlight that threat, Capgemini asked high-net-worth investors how they felt about using services from technology companies such as Google Inc, Amazon.com Inc, Alibaba Group Hol-ding Ltd, Apple Inc and Facebook Inc for wealth management.
Just over 56% said they were open to the idea and cited “efficiency, transparency, innovation and excellent online capabilities” as potential draws. Wealthy individuals are used to interacting with technology and want to take advantage of the same kinds of digital tools and functions when it comes to managing their wealth, Sullivan said.
Capgemini views the entrance of big techno- logy companies into the industry as “inevitable” over the next few years. The report pointed to the payment services and products offered by Alibaba’s affiliate Ant Financial Services Group in Asia as one incursion into the wealth space.
Rather than seeing technology compete head-on with traditional wealth managers, though, Capgemini expects to see partnerships and collaborations between the two as the industry relies more heavily on a hybrid service model that includes some level of automated advice.
“What is needed is something in between robo-advice and traditional advice, the combination of a human with a machine with artificial intelligence and cognitive insights,” said Tej Vakta, senior leader of the global capital markets practice at Capgemini Financial Services.
“A lot of firms have made some progress here, but not enough to bring good value to customers in the immediate future.” — Bloomberg