Thanks to robust growth in Asia-Pacific and North America, the global HNWI population and wealth expanded at moderate rates of 6.7% and 7.2% respectively in 2014, the second slowest rate in the last five years, notes a Capgemini and RBC study.

In their “World Wealth Report-2015”, Capgemini and RBC Wealth Management note in the new technology-based environment, wealth managers should reorient their role toward delivering goals-based financial planning, while also acting as a gateway into the firm’s full-service capabilities.

Asia-Pacific has largest HNWI population

According to the report, although the global population of HNWIs increased for the sixth consecutive year, expanding at a rate of 6.7% during 2014 to 14.6 million, HNWI population and wealth grew at the second slowest rate of the last five years (2009 to 2014):

HNWI population by region

As can be deduced from the following graph, HNWI wealth expanded 7.2% to $56.4 trillion compared to growth of 13.8% in 2013:

HNWI wealth distribution

The report points out that despite expansion in global economy and rising equity markets in 2014, growth was constrained by Eurozone concerns, decelerating emerging-market economic performance, and ongoing geopolitical tensions in the Middle East and Ukraine. The report notes as in previous years, robust growth in Asia-Pacific and North America helped drive global HNWI population and wealth.

The World Wealth Report highlights that Asia-Pacific clocked the highest HNWI population increases in 2014 (8.5%) and, as predicted, edged past North America to become the region with the most HNWI (4.69 million, compared to North America’s 4.68 million).

Delving deep into Asia-Pacific growth, India has emerged as a key driver of Asia-Pacific’s growth in 2014, with India recording the highest growth rates across the globe for HNWI population (26.3%) and wealth (28.2%) in 2014. China was another engine of growth in Asia-Pacific, adding to HNWI population at a rate of 17.5% and HNWI wealth by 19.3%.

However, the solid performance of Asia-Pacific and North America contrasted with below-par performance in Latin America and Europe, leading to constrained global HNWI growth, which dropped far short of the double-digit rates recorded during 2013.

Of note, while the economy in Western Europe grew by 1.3% in 2014, aided by improved performance toward the end of 2014, the equity markets in most of these countries declined:

Global growth - 2013 to 2017F

Turning its focus towards Ultra-HNWIs (those with over $30 million of investible assets), the report notes they once again acted as a primary driver of growth for the overall HNWI population and wealth. Interestingly, the ultra-HNWI segment, accounting for only 1.0% of all HNWIs yet 34.7% of HNWI wealth, was the only one in 2014 to outperform its five-year annualized rates for population and wealth growth:

Composition of HNWI population

The report highlights that as in previous years, most of the growth in the global HNWI population occurred in just a handful of markets, with the U.S., Japan, Germany, and China accounting for over two-thirds (67%) of HNWI population growth in 2014:

Top 25 HNWI populations

Providing insight into the future, the World Wealth Report points out that with anticipated recovery in Europe and improved global economy, HNWI wealth around the world is expected to grow at an average of annual rate of 7.7% from the end of 2014 to 2017:

HNWI wealth forecast

International allocations remained high

Thanks to steady rise in global stock markets, equities have overtaken cash as the dominant asset in HNWI portfolios. However, the shift was relatively minor, with equity holdings expanding by 2.0 percentage points to make up 26.8% holdings, and cash dropping by 1.0 point to 25.6%:

Breakdown of HNWI financial assets

Highlighting the growth in international investments, the report notes allocations toward international investments remained high at over one-third of portfolios, aided by expanding appetite in the emerging markets of Asia-Pacific and Latin America:

HNWI geographic allocation

The report notes the use of credit in HNWI portfolios is widespread across the globe, with HNWIs in emerging markets borrowing the most. For instance, Latin America has the highest amount of credit (28.6%), followed by Asia-Pacific (excl. Japan) at 25.5%. Interestingly, over 37% of HNWIs globally indicated that the availability of credit is a critical factor when making decisions about initiating relationships with wealth management firms:

Availability of credit-HNWI's importance

HNWI satisfaction with wealth manager

Focusing its attention on social impact aspect, the Capgemini report notes despite their interest in driving social impact, HNWIs don’t have a single preferred source to help them navigate its complexities. Though wealth managers are the most sought-after social impact advisors of all the professionals who serve HNWIs, family and friends also play a significant role:

Source of advice - Social impact

The report also points out that to help overcome the several impediments to more effective social impact, HNWIs are looking to their wealth managers for support, placing nearly equal importance on all key areas of support:

Advice on social impact

HNWIs are mostly satisfied with the service they receive from their wealth managers, giving them a satisfaction rating of 72.5% globally. However, Japanese HNWIs are the least satisfied, recording satisfaction scores of only 56.5%:

HNWI satisfaction level

Keep in minds that when HNWIs entrust their financial planning activities to their wealth managers, they are counting on them to fulfill a wide range of wealth needs. As can be deduced from the following graph, HNWIs rank the importance of nearly all of the wealth needs within a narrow band of 61% to 73%:

Wealth needs

Focusing on younger HNWIs, the report notes along with their expanding wealth, younger HNWIs have consistently higher levels of concern about all aspects of their financial lives, compared to older HNWIs. For instance, for younger HNWIs, the preference for professional advice was even higher, reaching 53.6%, compared to 49.5% for older HNWIs. Moreover, the younger generation has less trust and confidence in wealth managers:

Preferences of younger HNWIs

Highlighting the challenges faced by the wealth management industry, the report notes increasing competition and commoditization of traditional core services is a key disruptor. The report notes non-traditional players are disrupting the industry, with some enablers, such as third-party capability plug-ins, also gaining footholds in the market:

Threat from non-traditional players

The Capgemini report also notes the wealth manager value proposition is evolving across multiple areas, though some aspects have been in transition for several years:

Wealth manager-value proposition

The report concludes that wealth management is facing increasing competition from providers offering similar services at lower cost, compounded by various regulatory developments such as Retail Distribution Review in the UK, the Dodd-Frank Act in the U.S. and Client Relationship Model Phase 2 in Canada. Moreover, wealth management firms have a major role to play in the transition by setting a clearer strategic direction, communicating with wealth managers and empowering them by investing in key capabilities and resources.

See the full report below.