Global wealth redistribution and intergenerational shifts continue to reshape high net worth investor (HNWI) requirements and preferred asset allocations. Whereas the core relational advisory framework remains intact, private banks and other HNWI advisors are facing increased pressure to offer alternative asset classes, facilitate entrepreneurial networking partnerships, support offshore investments, enhance digital platform capabilities and provide avenues for impact investing, not to mention incorporating environmental, social and governance (ESG) investment principles.
HNWI geographic population and wealth redistribution continues to be shaped by the rebalancing of wealth and investment yield from developed to developing markets. Among the major markets, HNWI wealth growth remains led by Asia, with ongoing gains derived from an increasingly affluent middle class, enhanced productivity and property asset price appreciation. As the largest HNWI market, the US has been the willing beneficiary of a sustained rally in the equity market driven by capital inflow and currency appreciation. The recent resurgence in merger and acquisition (M&A) and initial public offering (IPO) activity is also driving wealth growth steadily higher. Comparatively, Europe remains beset by low yields and flagging economic growth, characterised predominantly by inherited wealth and ‘old money’. Private banks have consequently been pursuing partnerships with fintechs to provide access to venture capital, peer-to-peer lending and alternative investment platforms. National Australia Bank’s Private Bank, for example, announced a partnership with crowdfunding platform Our Crowd in June 2017, offering their HNWI clientele investment access to capital raisings by global technology startups. As banking regulations increasingly transition to an open data regime and competitors outside traditional financial services acquire financial services licenses as is the case with Tyro in Australia and many challenger brands in the UK, pressure to innovate product offerings will continue to escalate.
Asian HNWI dynamics
East & Partners (E&P) research focuses on leading finance C-suite executives from the Top 100 corporates by revenue across ten Asian markets. Representing self-made HNWIs still engaged in wealth creation, this demographic is viewed as a leading benchmark of wider HNWI market trends. Insights from around 940 HNWIs reveal a clear shift towards engagement of financial investment professionals over self-management. Over half now engage a private bank, business bank or financial advisor in managing investable wealth. Discretionary mandates whereby a HNWI entrusts a manager with direct investment decisions is utilised by only one in ten reporting investors, however further uptake is occurring slowly on the back of strong service satisfaction metrics.
Trends in asset allocation by reporting Asian HNWIs have seen investment in overall equities plateau and property taper off, with alternative asset classes the prime beneficiary. While representing a relatively diminutive 16.8 percent of reporting investment portfolios, alternative asset allocation has more than doubled from 2013 levels to now represent the fastest growing asset segment. Equally notable has been the shift in allocation from domestic to international equities with a 60/40 split favouring domestic equity in 2013 reversing to a 40/60 split favouring international stocks through to 2017. Greater diversification in asset classes away from domestic markets is reflective of HNWI sentiment that remains broadly optimistic but has become distinctly more cautious over the past several years.
Fintechs and digital expectations
The core HNWI service proposition of investment management and personalised advisory services relating to estate, tax and retirement planning is expected to persist. However, fintech competition has heightened digital platform expectations with HNWIs increasingly demanding integrated portfolio return on investment (ROI) models and real-time analytics.